Rising Fuel Costs Weigh on Japanese Airlines Despite Cargo Growth

Rising Fuel Costs Weigh on Japanese Airlines Despite Cargo Growth

Japan’s leading air carriers saw their profits drop in fiscal year 2013, which ended on March 31, despite rising cargo revenue, as fuel costs surged thanks to a weakening of the yen.

Japan’s ANA Holdings Inc., the parent firm of All Nippon Airways Co. (ANA), said its group net profit dropped by more than half from a year earlier.

ANA Holdings posted a net profit of ¥18.8 billion ($184 million) on a consolidated basis in fiscal 2013, down a whopping 56.2 percent from the previous fiscal year, although international air cargo revenue grew.

“On international routes, solid shipments of cargo such as automobile-related components from Japan to North America and effective leveraging of the Okinawa cargo hub to generate business, both within the Asian region and on routes linking Asia and North America, resulted in an increase in cargo volume and revenue over the prior period,” ANA Holdings said in an earnings release.

The ANA group’s revenue from international cargo operations soared 21.0 percent in fiscal 2013 from a year earlier to ¥104 billion. But its revenue from domestic cargo operations edged down 0.4 percent to ¥32.1 billion.

“In domestic cargo services, volumes increased compared to the previous year due to a recovery in courier services,” the carrier said. “However, intense competition led to a decline in unit prices and overall revenues. ANA worked to expand its network, launching a new Narita-Chubu-Okinawa route in August 2013.”

The ANA group’s revenue from overall operations grew 7.9 percent year-on-year in fiscal 2013 to ¥1.60 trillion. It posted an operating profit of ¥65.9 billion in fiscal 2013, down a staggering 36.4 percent from a year earlier.

ANA Holdings attributed the big declines in both operating and net profits primarily to a surge in fuel costs, which jumped about 22 percent year-on-year due to the yen’s weakening against the U.S. dollar.

The company’s projections for the current fiscal year, which began on April 1, are: ¥1.70 trillion in group operating revenue, up 6.2 percent from fiscal 2013; ¥85.0 billion in group operating profit, up 28.8 percent from fiscal 2013; ¥35.0 billion in group net profit, up 85.3 percent from fiscal 2013.

“During fiscal year 2014, Japan’s economy is expected to recover gradually as the beneficial effects of the government’s economic policies take hold,” ANA Holdings said.

“However, factors including the continued high price of fuel, persistent weakness in the Japanese yen and increasingly fierce competition will continue to present headwinds for ANA Holdings,” the carrier said.

ANA Holdings said that it will steadily implement its new mid-term management strategy, which covers a three-year period from fiscal 2014, to “strengthen the group’s core businesses, expand and diversify its earnings and continue to reform its cost structure.”

Japan Airlines’ profit dipped

Japan Airlines Corp. (JAL) said its group net profit declined 3.2 percent year-over-year in fiscal 2013, to ¥166 billion, although revenue rose for both passenger and cargo operations.

JAL’s group revenue from overall operations rose 5.7 percent year-on-year in fiscal 2013 to ¥1.31 trillion. Its group operating profit plunged 14.6 percent to ¥167 billion.

JAL blamed the sharp declines in both operating and net profits largely on higher fuel costs due to the yen’s weakening against the U.S. dollar.

JAL’s group revenue from both international and domestic cargo operations in fiscal 2013 amounted to ¥79.6 billion, up 5.5 percent from the previous fiscal year.

Of the overall cargo revenue, ¥54.2 billion came from international operations, up 7.4 percent from a year earlier, and the remaining ¥25.4 billion came from domestic operations, up 1.5 percent year-on-year.

Looking back on international cargo operations in fiscal 2013, JAL said in an earnings release, “In spite of limited chance for the increase in demand in this country, we have maximized our revenue by extensive revenue control management and catching the demand for the air cargo which passes Japan.”

“The volume of international cargo transported during the report period increased by 9.7 percent year-on-year in terms of revenue-cargo-ton-kilometer (RCTK) in spite of the very competitive environment,” the carrier said.

JAL’s projections for the current fiscal year are: ¥1.35 trillion in operating revenue, up 3.1 percent from fiscal 2013; ¥140 billion in operating profit, down 16.1 percent from fiscal 2013; ¥115 billion in net profit, down 30.8 percent from fiscal 2013.

Contact Hisane Masaki at yiu45535@nifty.com.