JAL expects demand on China routes to remain weak for 6 more months

In an interview with The Wall Street Journal (Japanese, English), Japan Airlines (JAL) President Yoshiharu Ueki discussed about the effects of the recent dispute between China and Japan on the airline. Although he expects the demand on the China routes to remain affected in the next 6 months, JAL full-year target will not be affected at all thanks to robust demand on the US and European routes.

According to Japanese news website jiji.com, as of October 10, JAL has received 20,100 seat cancellations from group travelers on the China routes between September and November. On the other hand, as of October 9, All Nippon Airways (ANA) has received 46,000 seat cancellations from group travelers during the same period, more than double of JAL's numbers. This is partly due to ANA's larger network to China. Because of all these unusual cancellations, JAL has extended some of the flights to China until November 17 to better fit the demand.

These numbers seem to have slowed down recently though. According to Ueki, the number of new reservations on China routes have finally exceeded the number of cancellations received. Therefore, he believes things have hit the bottom. Well that is assuming the tension between the Chinese and Japanese doesn't get worsen.

The China routes usually accounts for 10% of JAL's international revenue and that translate to 3-4% of the total revenue. But since JAL expects the demand to remain affected for 6 more months, the numbers will be lowered this year. So how come they still expect to meet the full-year profit target? Firstly some of the tourists have switched to other destinations so this offsets the reduced demand on the China routes a little bit. But more importantly, the robust demand on long-haul flights to US and Europe really save the day. Although there's a financial crisis in Europe, JAL hasn't seen much impact on their passenger demands. However, cargo demand remains weak. So I guess it was the right decision to get rid of their cargo fleet during the restructuring and only use the belly of the passenger flights to carry the cargo ;) As a result, JAL is still on its way to meet their original full-year operating profit forecast of 150 billion yen.

This is could be view as the first real test of JAL's restructuring efforts. Now that JAL is finally re-listed on the Tokyo Stock Exchange is no longer under control of the Japanese government's Enterprise Turnaround Initiative Corporation of Japan, they are really on their own. So far they have reacted quickly to adjust their capacity to improve profitability. The shareholders seem to remain confident on JAL and the stock price hasn't taken too much of a hit. JAL shares closed at JPY3,745 today, which is just slight below their IPO price of JPY3,790. Hopefully JAL can ride this one out and shows people the results of their restructuring efforts. So far it has been promising :)


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JAL extends flight cuts to China till November 17 2012