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The Honolulu Advertiser
Posted on: Friday, March 3, 2006

Japan Air expects profit next fiscal year

By Masumi Suga and Naoko Fujimura
Bloomberg News Service

TOKYO Japan Airlines Corp., which ousted its president yesterday, said it will return to profit next fiscal year, helped by cost cuts and a fare increase.

Asia's largest airline expects to post a $25.8 million profit in the year beginning April 1, it said in a statement yesterday. Japan Airlines will spend more than $1 billion to improve safety over the next five years.

Japan Airlines' incoming president, Haruka Nishimatsu, is under pressure from record fuel prices and customers opting for rival All Nippon Airways Co. The Tokyo-based airline expects a loss of about $400 million for the fiscal year ending this month. Internal conflict at the airline was set off last month by criticism of management by the company's largest individual shareholder, billionaire Eitaro Itoyama.

"The company's priority is to improve communication between management and stakeholders, including customers, shareholders and employees," said Osuke Itazaki, an analyst at Credit Suisse First Boston in Tokyo. "They need to cut costs, but shouldn't go too far, which could have a negative impact, including affecting safety."

Japan Airlines said it expects to break even in international operations next fiscal year, compared with an estimated loss of about $520 million for the current year.

The airline plans to reduce its workforce by 6,000 people over the next two years. It will add 200 maintenance workers as it tries to improve its safety record. The company said it lost $260 million in sales in the current year because of safety lapses.

Japan Airlines said it will also stop flying unprofitable routes to some tourist destinations and concentrate more on routes that cater to business passengers, who typically pay higher fares.

The airline cut two of its eight daily flights to Hawai'i last October and cut unprofitable flights to Guam and eliminated Saipan routes. The company has no plan to make further cuts to its Hawai'i schedule, said Gilbert Kimura, a JAL spokesman in Hawai'i.

The airline said it will end flights between Osaka and Los Angeles, Hiroshima and Seoul and Komatsu and Seoul this year. It will also halt a Tokyo-Los Angeles service via Las Vegas.

Japan Airlines plans to raise average airfares on domestic routes by 4 percent next month. It raised fuel surcharges on international flights by between $5 and $56 yesterday. The company will also cut costs by switching to using smaller planes to conserve fuel and fill more space.

Jet fuel may rise to $75 a barrel, the airline said. Higher fares may boost earnings next fiscal year, it said.

Japan Airlines said management will spend more time visiting field offices and will bring employees from group companies into the planning department of the parent company.

The carrier will also streamline its fleet to eight aircraft types from the current nine types.

Japan Airlines had previously said it will cut employees' base salaries by 10 percent starting in April to lower labor costs by $50 million. The reduction will be three months later than planned after the airline failed to reach agreement with all nine of its labor unions.

Japan Airlines shares, which have advanced 7.9 percent in the past three months, rose 0.3 percent to close at 327 yen in Tokyo yesterday. The announcement came after trading ended.