Japan Airlines (JAL) has cut its full-year forecast to a record operating loss of ¥420 billion (US$4 billion). The new forecast is worse than all previous estimates and reflects the deteriorating situation in Japan from COVID-19 restrictions. JAL expects demand on domestic flights to fall this month to around 20% of levels seen a year ago, or less than a third of what it had predicted before the latest wave of coronavirus infections. Passenger numbers on international routes are at 5% of pre-pandemic levels.
JAL is raising ¥183 billion through a new stock offering equivalent to 30% of its existing shares.
JAL’s operating revenue decreased to ¥356.5 billion, down 68.0% year-over-year, EBIT recorded a loss of ¥294.1 billion, and profit/loss figures recorded a loss of ¥212.7 billion.
International passenger demand decreased 96.6% and international passenger revenue recorded ¥18.8 billion, down 95.3% year-on-year.
Domestic passenger demand in Japan gradually recovered, especially in leisure demand, since the government sponsored Go to Travel promotional campaign included the city of Tokyo from October 2020. However, due to the increasing number of COVID-19 cases reported in December, the government temporarily suspended the Go to Travel campaign during the year-end holidays, resulting in lower domestic passenger demand. As a result, domestic passenger demand decreased 66.7% and domestic passenger revenue recorded y136.9 billion, down 68.0% year-on-year.
In order to maximise its revenue stream, the JAL Group continued to support domestic and global cargo logistics by utilising passenger aircraft. As a result, cargo revenue increased 31.5% year-on-year, recording ¥90.9 billion. While maximising efforts to increase revenue, the carrier looks to minimise its losses by reducing fixed costs and flexibly adjusting capacity based on actual demand. Cash on hand will be ¥370 billion as of March 2021, and equity ratio will be 44.3% and D/E Ratio will be 0.5x.
In order to improve the airline’s financial structure, JAL initiated a public equity offering in November 2020 to secure the necessary scale of funds to realise a growth strategy once the pandemic subsides. Through the offering, equity capital increased to ¥1 trillion and ¥17.1 billion. JAL established a strong financial base and shareholders’ equity ratio now stands at 47.6% and D/E ratio at 0.5x.
Interest-bearing debts decreased to ¥494.5 billion from the end of the second quarter. Required repayments within one year, including leasing, is set at ¥61.5 billion. Operating cash flow improved to ¥29.9 billion in Q3 from ¥130.2 billion reported in Q1. Due to the early retirement of the Boeing 777 aircraft, restructuring costs will increase by ¥10 billion, resulting in a total of ¥590 billion yen in fixed costs for the fiscal year.
Based on the previous forecast, a CAPEX reduction of ¥90 billion is estimated. As of the end of December 2020, liquidity at hand is more than ¥750 billion, including unused credit line. During the third quarter, cash burn has steadily decreased to ¥10-15 billion yen per month. During the fourth quarter, cash burn expects to increase to ¥25 billion per month, half of the first quarter level, as cost reduction efforts have been made.