JAL Group's Medium-term Business Plan for FY 2005-07 (Analyst Briefing) March 10, 2005 Japan Airlines Corporation 0 JAL 2005
Contents Business Environment and Essence of the Plan Expansion into the growing Market Business Environment of the JAL Group Strategies by Business Segment Three Key Elements of the Plan Two Structural Reforms What the JAL Group aims at Our Vision Structural Reform in IP Business Forecast of Business Results for FY2005-07 Structural Reform in IP Business (1) Operating Profit by Business Segment (image) Structural Reform in IP Business (2) Goals in this Plan Reference Materials Remedial Measures for FY2005 Revision of Forecast of Business Results for FY2004 Cost Structural Reform and Urgent Measures Assumptions Breakdown of Cost Structural Reform Forecast of Business Results Capital Expenditure and Depreciation Keyword to pursue Reform Medium- and Long-term Fleet Plan Simplification (1) Interest-bearing Debt Simplification (2) Personnel Plan Schedule of the Unification Demand Trends by Business Segment 1 JAL 2005
. Business Environment & Essence of the Plan 2 JAL 2005
IBusiness Environment and Essence of the Plan Opportunities Risks Business Environment of the JAL Group Severer Competition with lots of Business Opportunities [Business Environment] Continuation of Fuel Price Hike Terrorism, Wars, Natural Disasters, Epidemic Diseases Entries of foreign LCC Depopulation accompanied with Declining Birthrate and Aging Population Steady Growth in Demand in Asia China Re-expansion in Haneda Airport Increase in Seniors Open Skies? (Deregulation in Airline Industry) 3 JAL 2005
IBusiness Environment and Essence of the Plan Three Key Elements of the Plan In order to overcome severe competition and make good use of our opportunities Fuel Continuation of skyrocketing fuel price IP Demand is on the road to recovery * DP Competitive network has been established In order to establish the Business Structure which creates profits in any circumstances Three Key Elements of the Plan 1.Structural Reform in IP Business 2.Cost Structural Reform 3.Expansion into growing Markets IC Steadily growing business segment * Demand forecast for FY2005:104% vs.fy02, 96% vs.fy2000 4 JAL 2005
IBusiness Environment and Essence of the Plan Two Structural Reforms We force through the two Structural Reforms in this medium-term business plan. 1. Structural Reform in International Passenger 2. Cost Structural Reform 5 JAL 2005
II. Structural Reform in IP Business 6 JAL 2005
Structural Reform in IP Business Structural Reform in IP Business (1) Effects of the Reform on profits : 3 billion for FY05 Reallocation of resources Acceleration of route-transfer to JAZ Increase in efficiency of aircraft 1.Discontinuation of low-profit routes 2.Reconstruction of Network focusing profitability 3.Concentration of resources on profitable or growing routes Expansion of JALways* (JAL Group s s LLC in IP Business Segment) FY04 120flights/week 20%) FY07 180 flights 27%) Introduce JALways model into Asia routes to increase profitability of high growing routes *Operation cost : 10% lower compared with JALI 1.Curtailment of types and specs of aircraft Specs of aircraft FY04 32 FY07 25** 2.Acceleration of Downsizing 747, 747-400, 777-300 FY04 62% FY07 FY07 54% **decrease specs to 13 in the long term 7 JAL 2005
Structural Reform in IP Business Structural Reform in IP Business(2) Virtuous Circle starts on the basis of the Structural Reforms Structural Reform of Business Improve profitability by restructuring network and downsizing aircraft Collection of funds / Curtailment of assets Improve financial strength by reducing interest-bearing debt Acceleration of Aircraft Renewal Controlling the increase of interestbearing debt, we introduce more efficient aircraft 8 JAL 2005
III. Cost Structural Reform 9 JAL 2005
Cost Structural Reform over 170 measures Remedial Measures for FY2005 Sluggish Demand Fuel Price Hike Smaller Effect of New Retirement Benefit Scheme Increase of Airfare Structural Reform Urgent Measures Relentless Remedial Measures Airfare Increase Fuel Surcharge 54 billion Personnel Cost Reduction Review of Consignment Contract etc. [ 37 billion] Personnel Cost -related Measures General Expenses [ 43 billion] Over 100 billion [ 28 billion] 10 JAL 2005
Cost Structural Reform Cost Structural Reform and Urgent Measures Effects of Cost Structural Reform amount to 75 billion in FY2007 Improvement profit through cost reduction... [Structural Reform] Discontinuation of low-profit routes Review of Organization Personnel Cost-related Measures General Cost [Urgent measure] Review of Business structure Expansion of Low Outsourcing of production Curtailment of types and cost operation organization Configurations of aircraft Review of Staffing, personnel cost, retirement benefit scheme Unification... [Urgent measures] 11 JAL 2005
Cost Structural Reform Breakdown of Structural Cost Reform The items of structural expense reform 75 billion Personnel-expenses increase in efficiency Structural Reform in International Passenger Business 37 billion 58 billion over 100 billion Reduction of Sales Cost based on expansion of e-business Asset review and Debt reduction 12 JAL 2005
. Keyword to pursue Reforms 13 JAL 2005
Keyword to pursue Reforms Simplification (1) Drivers to pursue the reforms Structural Reform in International Passenger Cost Structural Reform Simplification -Lean Group Management Organization -Reform of Operation Process by utilizing IT 14 JAL 2005
Keyword to pursue Reforms Simplification (2) Pursue the Reforms through various simplifications Lean Group Management Organization -Unification of the Holding & operating companies - Reduce full-time Directors Simplification Simplify, Standardize, Equalize -Convergence of types and specs of aircraft -Creation of user-friendly products and services -Others Simplified Process by utilizing IT -Simplified boarding procedure by utilizing IC -Improvement of booking system through the HP complete renewal e reservation convenience to depend 15 JAL 2005
Keyword to pursue Reforms Schedule of the Unification Expedite decision-making by eliminating redundancies in the group organization FY2005 (substantial unification) Unification Committee - decide time and target companies Unify Corporate Planning and Marketing functions Plan Plan to to unify by by the the end end of of FY2006 Speed up the Reforms 16 JAL 2005
. Expansion into the growing Market 17 JAL 2005
Expansion into the growing Market Strategies by Business Segment Together with Structural Reforms, we proactively expand in growing market International Passenger -Proactively -Proactively expand expand in in growing growing markets markets such such as as Asia/China Asia/China -the -the greatest greatest network network between between Japan Japan and and China China (covering (covering 13 13 cities, cities, 29 29 routes, routes, 237 237 flights flights per per week week as as of of Jul. Jul. 05) 05) -growth -growth rate rate from from FY04 FY04 to to FY07: FY07: China China 135%, 135%, Asia Asia 121% 121% -Promote -Promote inbound inbound demand demand (high (high economic economic growth growth in in Asia/China Asia/China + + Visit Visit Japan Japan Campaign) Campaign) Domestic Passenger -Expansion -Expansion of of JEX JEX (FY04:8 (FY04:8 aircraftfy07:19aircraft) -Expansion -Expansion of of IC IC check-in check-in (FY07:1520% (FY07:1520%) ) International Cargo Cargo -Expansion -Expansion of of business business size size (Target (Target Revenue: Revenue: 300 300 billion) billion) -Proactively -Proactively expand expand in in growing growing markets markets such such as as Asia/China Asia/China and and enter enter the the late late night night domestic domestic cargo cargo market market 18 JAL 2005
. What the JAL Group aims at 19 JAL 2005
What the JAL Group aims at Our Vision We aim to be a top airline group in terms of quality and quantity. Definition on On Time Departure Domestic: less than 5 minutes International: less than 15 minutes DP 81% (FY03) over 90% IP 83% (FY02) over 90% [Services] Preference Measurement On Time Departure -human services -intention as repeaters -user-friendliness [Profitability] Consolidated Operating Profit [Corporate value] Market Capitalization Target : No.1 among network carriers (No.3 as of Mar.9, 2005) We should rank at the top levels for all these items. 20 JAL 2005
What the JAL Group aims at Forecast of Business Results for FY2005-07 Forecast of Business Results for FY2005 to FY07 Unit billions of yen Operating Revenue 2,209 2,266 2,283 720 749 750 Domestic Passenger 685 689 689 International Cargo 175 184 191 Others 629 644 653 Operating Income 60 92 100 Ordinary Income 29 63 74 Net Income 17 34 29 * Refer to Page 26 for the Assumptions of these figures. 21 JAL 2005
What the JAL Group aims at Operating Profit by Business Segment (Image) Unit : billions of yen International Passenger International Cargo Domestic Passenger 22 JAL 2005
What the JAL Group aims at Goals in this Business Plan We will achieve the following goals by carrying out the reforms and other measures in this medium-term Business Plan. FY2005 FY2006 FY2007 Net Income IP Business over 10 billion Move into the black Consolidated Operating Income over 100 billion 23 JAL 2005
. Reference Materials.Reference Materials 24 JAL 2005
. Reference Materials Revision of the Forecast of Business Results for FY2004 Operating Cost Fuel -14 billion yen Common Cost -3 billion yen Personnel Cost +10 billion yen (Changes in accounting procedure re. Pension scheme etc.) Net Income Extraordinary Expense System related +4 billion yen Changes in accounting procedure re. Pension scheme -8 billion yen 25 JAL 2005
. Reference Materials Assumptions Yr/Yr *Cargo Freighter 26 JAL 2005
. Reference Materials Forecast of Business Results Operating Income FY07Over 100 billion 27 JAL 2005
. Reference Materials Capital Expenditure and Depreciation Billions of yen Aircraft 15 12 12 8 Billions of Yen *FY04's data has been revised from Nov 8th, 2004; changed aircraft investment from purchase to financial lease, Depreciation data has been revised. 28 JAL 2005
. Reference Materials Medium and Long Term Fleet Plan Down Size Aircraft Drastic Reduction of Aircraft Types Aircraft (16 Types Aircraft 14 Types Aircraft 11 Types CRJ JS31 Q400 YS11 SAAB340 CRJ Q400 YS11 SAAB340 CRJ Q400 SAAB340 PROP JET 737 MD90 MD81/87 737 MD90 MD81/87 737/737NG MD90 MD81/87 737 Series MD11 DC10 767 A300-600 A300 DC10 767 A300-600 A300 767 A300-600 777 747 747-400 777 747 747-400 777 747 747-400 Large *Exclude RAC aircraft 29 JAL 2005
. Reference Materials 7. Interest-bearing Debt FY05-FY07 Reduce 600 billion *100 billion yen CB in FY06 is calculated. *Interest-bearing debt/operating cash flow(operating Income+Net Interest Income-Tax Divined+Repayment Lease Principal+Depreciation etc. *FY04's data has been revised from Nov 8th, 2004, due to advance debt loans of FY05 and changed part of aircraft investment from purchase to financial lease. 30 JAL 2005
. Reference Materials Personnel Plan Accelerate - personnel reduction plan (FY06,Mar), and achieve 5,900 reduction by FY07(Mar) JAL Group Ground Staff Reduction Image *JAL Group Ground Staff include unconsolidated subsidiary/unconsolidated associated company Last Mid-term Plan -4,500 New Mid-term Plan - 5,900 FY02(APR) FY06(MAR) FY07(MAR) 31 JAL 2005
. Reference Materials Demand Trend -International Passenger- *Figures from FY04 to FY07 are forecast 32 JAL 2005
. Reference Materials Demand Trend -Domestic Passenger- *Figures from FY04 to FY07 are forecast 33 JAL 2005
. Reference Materials Demand Trend International Cargo- *Figures from FY04 to FY07 are forecast 34 JAL 2005
<Notice> (N.B.) Any statement in this document, other than those of historical facts, are forward-looking statements about future performance, which are based on management s assumption and beliefs in light of information currently available, and involve risks and uncertainties. Actual results may differ materially from this forecast. This document was published as supplemental materials for the Briefing on JAL Group s Medium-term Business Plan held on March 10, 2005. The copyright of this document belongs to Japan Airlines Corporation. You can watch this presentation on our Homepage (Sorry! Only in Japanese). Please refer to the following URL: http://www.jal.co.jp/broadband/ 35 JAL 2005