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Shuei Nishizawa: Ladies and gentlemen, thank you very much for your patience. Thank you very much for taking the time out of your busy schedule today to participate in the financial results briefing of Japan Airlines Co., Ltd. First, I would like to introduce our attendees. Yuji Saito, Representative Director, Executive Vice President, Chief Financial Officer of the JAL Group.
Yuji Saito: Thank you very much.
Shuei Nishizawa: Masao Yumisaki, Executive Officer, Senior Vice President of Finance and Accounting, Senior Vice President of Business Administration.
Masao Yumisaki: Thank you very much.
Shuei Nishizawa: We also have Hiroshi Sato, General Manager, Accounting, and I, Nishizawa, General Manager, Finance, standing by. These four people are participants from the Company. This briefing, including the question-and-answer session, is scheduled to end at 5:30 PM. The materials are also available on our website. First, Saito will give an explanation.
Yuji Saito: Once again, my name is Saito, Chief Financial Officer of the JAL Group. Thank you very much for your participation in the financial results briefing for Q1 of the fiscal year ending March 31, 2026. Please see page three. Revenues for Q1 were JPY471 billion, an increase of over 10% from the previous year, due to continued strong international passenger demand and efforts in domestic passenger business to stimulate demand. EBIT was JPY45.5 billion, more than double the level of the previous fiscal year, and the highest ever achieved in the first quarter. Q2 will not be particularly affected by the US tariffs and other factors, and EBIT is expected to be in line with our plan by capturing strong passenger demand and thorough post management. We believe that we are on track to achieve our goal of JPY200 billion in EBIT. On page four, we will explain the results by segment. The full-service carrier business posted higher revenues and profits on a YoY basis due to strong growth in international passenger demand and utilization of freighters. In the LCC business, ZIPAIR continued to perform well, and SPRING JAPAN also posted YoY revenue and profit growth by capturing demand originating from China. In the mileage/finance and commerce business, the number of miles issued has progressed steadily, and performance has increased. In other businesses, despite some foreign exchange valuation losses, the contract business continued to perform well. Page six and subsequent pages provide more details on Q1. On page six, we present the figures for consolidated operating results. On page seven, we show the factors contributing to the difference in EBIT from the previous year, broken down into revenues and expenses. Revenue increased by JPY47 billion from the previous year as a result of revenue growth in each business segment, including international and domestic passenger, cargo and mail, LCC, mileage/finance and commerce, and others. As for expenses, personnel expenses increased from the previous year as a result of investment in personnel. However, due to market conditions, fuel costs have been controlled, and efforts have been made to control costs, especially common expenses. As a result, variable costs increased in line with passenger volume and supply growth, and overall expenses were JPY29.2 billion higher than the previous year. As a result of the above, EBIT increased significantly by JPY23.3 billion from the previous year. On page eight, we show the factors behind the difference in EBIT from the previous year, divided into market conditions effects and other factors. In the market conditions in Q1, Singapore kerosene prices fell 18.8% from the previous year, while JPY appreciated to JPY145.3 from JPY153.7 last year. These market conditions pushed up EBIT by JPY7 billion from the previous year. Excluding the impact of market conditions, the impact was an EBIT boost of JPY16.3 billion. As a result, EBIT increased by JPY23.3 billion from the previous year. On page nine, we present the results of our full-service carriers and international passenger business. For international passengers, passenger volume in Q1 increased 11.7% from the previous year as a result of strengthening revenue management by capturing strong inbound demand and a gradual recovery in business demand from Japan. Due to this, the load factor increased by 5.4 points from the previous year to 86.1%. As a result of the above, we were able to increase revenues more than the growth in supply, and international passenger revenues increased 11.4% from the previous year to JPY184.9 billion. In Q2, the fuel surcharges will be lower by reflecting market conditions, but we expect to maintain high load factors, and unit prices excluding fuel surcharges are expected to exceed our plan. On page 10, we present the results of our full-service carriers and domestic passenger business. Flexible revenue management enabled us to secure higher revenues than in the previous year. Passenger volume in Q1 was up 13.3% from the previous year, and load factors remained high at 79.5%. As for the unit price, it decreased by 5% from the previous year. As a result of the above, we were able to increase revenues while reducing supply from the previous year, and domestic passenger revenues increased 7.6% from the previous year to JPY134.2 billion. Q2 also still expects passenger numbers to remain above plan. On page 11, we show the results of our cargo business. In international cargo, we added one more freighter as our third freighter, and we launched a new flight route to Hanoi, and also opened a new Chicago route by utilizing another company's large cargo planes. As a result of the acquisition of demand between Asia and North America, all of the cargo weight, revenue ton, and cargo revenues increased from the previous year. In addition, domestic cargo revenues also increased YoY due to collaboration with Yamato Holdings. On page 12, we show the results of LCC. ZIPAIR continues to show steady growth, including the new Houston route, in passenger volume and revenue. SPRING JAPAN also increased passenger revenue YoY by capturing strong demand, especially from major cities in China. As described above, while the scale of the number of aircraft has remained the same, revenue has steadily increased. On page 13, we show results for mileage/finance and commerce, and others. In the mileage/finance and commerce business, the number of miles issued is growing steadily and EBIT is stable. As for others, ground handling contracts remained steady, despite the impact of foreign exchange valuation losses related to shares held by corporate venture capital. On page 14, we show details on expenses and unit profit. Total operating expenses increased JPY29.2 billion from the previous year to JPY435.4 billion as a result of an increase in expenses linked to the scale of operations and passenger volume, as well as various expenses such as personnel costs. Excluding the impact of fuel oil exchange rates and other factors, expenses were generally in line with plans. Unit profit was JPY0.9, mainly due to an improvement in unit revenue. Along with further improving unit revenue, we will strive to reduce unit costs through cost control. Fuel costs and hedging are explained on page 15. Fuel expenses for Q1 were JPY94 billion, down JPY0.5 billion from the previous year. The upper right graph shows the current progress of hedging. For your reference, we have also included a conceptual diagram of our fuel costs and foreign exchange hedging on the bottom row. Lastly, on page 16, we show the balance sheet and cash flow. The capital adequacy ratio as of June 30, 2025 was 38.7%, and the net debt-to-equity ratio was negative, remaining at a healthy level. Cash and cash equivalents on hand at the end of June amounted to JPY950.2 billion, sufficient to repay existing hybrid financing and for future investments. As for cash flow, operating cash flow was JPY81 billion cash inflow. Free cash flow was also positive at JPY56.7 billion. The following pages are for reference only. That concludes my presentation. Thank you for your attention.
Shuei Nishizawa: Okay, we will now move on to the question-and-answer session. Let me explain the format for asking your questions. I will now call on those who have questions. Please ask your question after stating your company name and name. Each person is allowed to ask up to three questions. We will now begin the question-and-answer session. Well, first of all, Mr. Miyazaki, please.
Miyazaki: Thank you very much. This is Miyazaki from Goldman Sachs. I would like to ask two questions. The first point is, as I am afraid I do every time, I would like to ask if you have any figures on the breakdown of EBIT compared to the plan. The second point is the trend of the net unit cost of international passengers. I think we got off to a solid start in Q1, but I'm wondering if there are any changes regarding trends in Q2 and beyond. If you have any evaluation of this supply and demand shading by each direction, I would appreciate it as well. Thank you.
Masao Yumisaki: First of all, EBIT is positive JPY18 billion compared to the plan. Positive JPY18 billion, roughly. If we break it down into income and expenses, we see a positive JPY10 billion in income, and in expenses, on the side of reduced expenses, we see JPY7 billion in positive income and JPY1 billion in others. Breaking down revenues as well, international passenger was positive JPY12 billion, domestic passenger was positive JPY5 billion, cargo volume was negative JPY1 billion, and others were negative JPY6 billion. As for the breakdown of other activities, travel was negative JPY3 billion, and mileage was negative JPY2 billion. On the other hand, the JPY7 billion increase in cost reductions is a bit uneven in each category, to be honest, but taken very broadly, fuel costs were lower than expected in the fuel market. And then the part about where we were able to acquire subsidies covered [inaudible]. This is the end of my explanation.
Yuji Saito: Regarding the international unit price, in Q1 and Q2, the fuel surcharge will drop due to market conditions, which will have an impact on the unit price. Excluding this, we were able to maintain and improve the so-called net unit price in Q2 as well, so there is not such a large difference in the unit price based on actual performance. However, when fuel surcharges are included, the unit price will be slightly lower than the previous year, and since the unit price is linked to other expenses, I do not see a problem in terms of income and expenditures. However, by route, the US continent and the Europe itself originally had very high load factors, and the high load factor continues in Q2 as well. As for Southeast Asia and China, the summer season is not a strong season, so I think there is a risk that the supply-demand balance may cause some competitive factors to emerge. However, as I have already mentioned, the China route already accounts for 5% of the total revenue volume, so I do not think it will have a significant impact. That is all.
Miyazaki: Thank you. If you don't mind, I would appreciate a follow-up on one point, this unit price. According to your competitors, there is an issue of an increase in the supply of competitors in the trilateral demand on North American routes outside of Japan, which may lead to a loosening of the supply-demand balance. As my last question, can you confirm whether it is correct to say that such events are not specifically observed from your company's side?
Yuji Saito: I do not see supply and demand loosening. This includes the booking trends. However, it is also true in Q1 that overall trilateral demand, or rather third-country demand, is a bit weak. However, we are filling this demand with our first demand for terminals to and from Japan, and we are analyzing that this is also leading to higher yields.
Miyazaki: I see. I understood. Thank you very much.
Shuei Nishizawa: Thank you. Now, the next question, Mr. Himeno, please.
Ryota Himeno: Thank you. My name is Himeno of JPMorgan Securities. I have one question. I also want to ask about the EBIT forecast for Q2. I think JPY18 billion for Q1 is quite an upward swing. In your explanation, you said that Q2 is likely to be in line with the plan, and I wonder if we can see a slight difference in momentum between this upward swing in Q1 and the planned line in the Q2. I don't know if it is a problem with the way the plan is made, or if the actual situation changed a bit in terms of sales and costs in Q1 and Q2, but what differences are likely to appear in Q1 and Q2? I apologize if this may be a duplicate of the first question, but please.
Yuji Saito: First of all, for Q1, with regard to the relationship with the previous year, I understand that you asked about the planned ratio. I think it was a quarter in which there was relatively room for growth, including a margin for the load factor. We had fully planned for this, but we were able to acquire revenue more vigorously than we had expected. As I think I explained in the same way in the Q4, we were able to successfully transition not only the volume but also the yield. Q2 was originally a peak season, and we had a very good revenue situation last year, so the room for growth from the plan is a little different from Q1, and I believe that our level is to achieve the plan well.
Ryota Himeno: I understood. I was a little concerned about the recent depreciation of JPY, but as far as I can see from the matrix, even at JPY150, there will not be that big a downside. In addition, you use the expression “planned line,“ but is my understanding correct that the performance for Q2 is basically steady as well?
Yuji Saito: Yes, we want to make sure we are properly achieving the plan.
Ryota Himeno: Thank you very much. That is all from me.
Shuei Nishizawa: Now we have the next question. Mr. Kawashima, please. Kawashima
Yuji Saito: In conclusion, I would say that we went for balance and area, but if we look back at the last fiscal year, in last year's Q1, we went for a very high yield on domestic routes. Instead, the number of passengers was down a little bit. It was down from the previous year, so based on this, our strategy to date has been to adjust that trajectory from Q2 onward, and to increase overall revenue while taking the necessary price action. As we continue to do this well, we aimed for the optimal balance between passenger number and yield, which has become this goal. As I have said in the past, the most important factor is how much unit revenue will increase, as this is our profit indicator. Therefore, I believe that the key point is that we were able to increase that in relations with the utilization rate and yield. Hiroki Kawashima SMBC Nikko Securities Inc., Research Division I understood. Thank you very much.
Shuei Nishizawa: Thank you. Now, next, Mr. Osaka, please. Osaka
Masao Yumisaki: Regarding the first point, the difference in Q1 plan, which is JPY18 billion on a consolidated basis for the entire company, and what would happen if we break it down by segment, you can assume that full-service carriers will account for the entire JPY18 billion in the plan comparison. It is my understanding that almost all of the planned difference comes from the full-service carriers, although some ups and downs are from other segments.
Yuji Saito: For the second question, we do not expect that full-service, in particular, will see a decrease in profit after Q2. However, as I mentioned earlier, Q1 is where I think there is quite a bit of growth potential, especially in Japan, compared to the previous year, and in fact, I think this is added to the factors this time around. However, with that said, I do not think there will be a decrease in profit after Q2. And I'm afraid, but regarding treasury stock, as you mentioned what kind of internal discussions we are having, basically, we are thinking that we will make a decision based on the outlook of achieving solid performance for the current fiscal year. That's all for now.
Takuya Osaka: I understood. Thank you very much. In the second part, you mentioned about the unit cost of domestic and international passenger volume as the plan for Q2, and that passenger volume is moving up, but if you have any figures to follow up on, could you tell us again about the Q2 situation?
Masao Yumisaki: First of all, regarding international flights, the number of passengers for Q2. We are projecting a 6% increase over the previous year. On the other hand, the unit price, this is the closing unit price. The unit price including surcharge is 3 points lower than the previous year, but since the surcharge will be slightly lower, the net unit price, excluding surcharge, is expected to be 2 points higher than the previous year in Q2. Therefore, we plan to be able to maintain the unit price well. In the domestic market, in Q2 we currently expect a 5% increase YoY, while the unit price is expected to fall 1% YoY. That is all from me.
Takuya Osaka: I understood. Thank you very much. I understand that the current figure is the plan at the beginning of the term, and that according to Mr. Saito's explanation, the volume is a little bit higher than that figure, is that correct?
Masao Yumisaki: If I were to compare it with the original plan at the beginning of the term, international flights in Q2 is about 3 points lower than planned, while the closing unit price is 1 point higher. The net unit price excluding fuel surcharges for international flights is about 3 points higher than our plan. This is for international flights. For domestic flights, the number of passengers is about 3 points higher than our internal plan, although I mentioned earlier that the number of passengers is 105, plus 5%. On the other hand, the unit price is about 2 points lower than the internal plan, or something like that.
Takuya Osaka: I understood. Thank you very much.
Shuei Nishizawa: Now to the next question. Then, Mr. Tsuchiya, please.
Tsuchiya: Thank you. This is Tsuchiya from Tokai Tokyo Intelligence Laboratory. I have three questions. You just mentioned that the unit price for domestic flights is 2 points lower than you had originally estimated. I would like to ask you what the competitive environment is like now. It seems that your competitors and others in your industry are attracting quite a bit of leisure demand with promotional fares, so please tell us about the competitive environment in this area. This is the first question. The second question is about business travels from Japan. I think it was about 60% in the last fiscal year, before COVID-19. Could you give us an approximate full-year image for this fiscal year and what the current situation is like? The third point is that the abolition of the provisional gasoline tax rate will probably lower aviation fuel prices, but it will also lower fuel subsidies, so there will be both positive and negative effects. Please tell us qualitatively what the positive and negative effects will be. That is all from me.
Yuji Saito: First of all, in the domestic competitive environment, the profitability of domestic routes has become extremely harsh. In the situation where the Ministry of Land, Infrastructure, Transport and Tourism is holding a meeting of experts to review the future of domestic flights, we have been saying for some time that yield improvement is necessary. However, as for the current overall demand, business demand has only returned to about 75%, and this is probably the new normal. Therefore, the situation where we need to stimulate demand for leisure activities has not changed. However, our load factor has been increasing significantly, so we would like to gradually increase our yield. Next, IP business travel is gradually recovering. 70, or just under 70, originally, compared to pre-COVID-19. We are now recovering to just under 70, and I think this, in Q2, will be another four or five points better than this. Finally, the abolition of the provisional gasoline tax rate, by itself does not affect the jet fuel. On the other hand, if this is abolished, the current scheme of subsidizing per JPY10 from the scheme of drastic reduction of gasoline will be eliminated, and the same applies to jet fuel here, since we were receiving a quarter of that amount, so the subsidy will be reduced if that part is eliminated. However, the annual plan was originally planned with no subsidy for this jet fuel, so there is no impact compared to the plan, but I think the actual results will be that there will be some impact on the nearest time or H1 of the year. I think there is a possibility of a little up and down, or a little difference there.
Tsuchiya: Yes, I understood very well. Thank you very much.
Shuei Nishizawa: Then, next question. Mr. Ozawa, please.
Kouki Ozawa: My name is Ozawa from SBI SECURITIES. I would like to ask you briefly about the mileage, infrastructure, and other areas. First of all, apparently, travel and mileage were a little weak against the EBIT plan here, but I want to confirm whether this was because the plan was just a little strong, and the trend of mileages and other areas is growing. Also, regarding this impairment or this CVC. I'm sorry, I don't know much about your past history. I think this is transient because of the exchange rate factor, but if you have any additional information on the type of return you originally expected, please provide that information.
Masao Yumisaki: I mentioned earlier that the comparison with the plan was JPY3 billion for travel and JPY2 billion for mileage, so I'll explain what that means. Travel sales have indeed decreased by JPY3 billion, but travel costs have also decreased. I wouldn't say travel is double-sided, but the profit margin is not that high. Therefore, please understand that [inaudible] expenses have also been reduced in this way. It did not have much of an impact on profits. Also I mentioned JPY2 billion for mileage, but the mileage business that we are targeting, such as the JAL Card business and alliances with other industries, is growing steadily, so please do not worry. On the other hand, most of that JPY2 billion is due to an accounting factor: the mileage expiration rate, which we had expected to be a little higher than planned, was not as high as we had expected. The difference is only a few points, but the balance of issued mileages is large, so please understand that this had a negative effect on the accounting. CVC is not about making a profit, but about communicating with these startups and obtaining information that can be used in new businesses that will be developed in the future. We are not making this investment for the purpose of earning a large return on the investment, but rather for the purpose of promoting innovation and new business through our office in Silicon Valley.
Kouki Ozawa: I understood. Thank you very much.
Shuei Nishizawa: Next question, Mr. Hirokane, please.
Hirokane: The first point is the load factor or utilization rate for international flights. In particular, the US continental line is at a very high level of 88% in the April-June period, and I am wondering if this area will probably be the critical point. Looking ahead to the next fiscal year and beyond, how do you all see the drivers for increasing revenues from international flights? Next, I think it will be the turn of the new mid-term plan, but let me confirm the discussion, or rather the outlook, and what is being discussed now. This is the second question about domestic flights. I wonder to what extent it is possible to increase the revenue by taking this leisure time to increase the occupancy rate. Since the load factor is 80%, it will become more difficult to raise the yield, and there are various ways to raise the yield, such as frequent pricing, discounts for promotions, etc. I am sure there are many ways, but how will you handle these issues, including the supply-demand aspect and the environment? That is all from me.
Yuji Saito: First of all, for international flights, as you pointed out, the seat factor has been increasing, and the [inaudible] factor was once close to 90, but I think it is almost at the standard or even the maximum level now. In this context, we are already planning to increase the number of aircraft and to increase the size of our fleet until 2034 or 2035, but the supply of aircraft to the US continent by JAL or ZIP is still a base. In addition, the share of profitable international routes has been increasing on continental US routes, so I think one of the key points is how to increase profits on routes to Asia, where the volume of supply is large, especially in multiple directions. How we capture that demand from overseas. Currently, the load factor is high in Asia and Oceania, but I think the challenge is how to make it a little more substantial, and how to capture relatively good demand, or business demand originating from overseas, including currency. We are now doing joint business in Malaysia and Indonesia, for example, and we are looking for ways to strengthen marketing with our partners. Also, the whole strategic story is that we want to do a little more of the joint business that we are doing with American Airlines, and we want to do it by extending our currency to Southeast Asia by taking a good quality customer base. In the domestic market, the congestion level has been increasing, and the numbers are close to or even higher than the international level. Basically, it is harder to raise the seat factor than international, since there are several flights a day. In this case, the basic theme is still to increase that yield. In such a situation, we will raise the amount of revenue by striking a balance between raising the amount of revenue where we can raise by frequently conducting revenue management, while taking measures to acquire revenues in area where there seems to be a little demand. Also, there is the matter of the drastic easing of the fuel surcharge that we have been talking about, but we will take in fuel surcharge and such a scheme. Also, in terms of objects, inbound, which has not been newly taken. We are working to increase inbound demand in Japan, which will help to improve yields by increasing the supply-demand balance.
Hirokane: I understood. Thank you very much.
Shuei Nishizawa: Mr. Hirokane again, please.
Hirokane: I am sorry. As an addition, in the mileage part, this is the part where there has been a little bit of an impairment loss so far, and I think there will be an increase in this part. I would like to know whether for the next mid-term plan, discussions have been conducted on how much your company can steadily increase its profits on an annual basis, and how you can increase these profits by leveraging the company's resources.
Yuji Saito: As this is the most profitable segment among the non-aeronautical business, it is a theme in that medium-term plan as well. The so- called organic strategy, or growth, is generally the issuance of mileages, or the growth rate of mileages. The growth rate of non-airline mileages is growing at roughly 10% per year. This is mainly for JAL Card issuance. Therefore, we believe that EBIT growth of JPY3 billion to JPY4 billion per year is what we call organic growth, since the growth rate will be approximately 10%. In order to expand mileage issuance, in the discontinuity or by increasing range, we have made a partial investment in Money Square, and we would like to increase the number of areas where mileage can be issued in the life area. Although the Money Square project is not that large in scale, we have been in the mid-term plan what we can do, including M&A projects in the discontinuity of the mileage range.
Hirokane: Thank you very much.
Shuei Nishizawa: Is there any other question? Now, we would like to conclude with a few words from Saito.
Yuji Saito: Thank you for joining us today. As I explained earlier, I think we got off to a very good start in this Q1. In particular, the top line, or our core full-service business, has been able to improve its top line and unit revenues. I have explained that the target of JPY200 billion for the fiscal year is a very ambitious goal from the beginning of the fiscal year, but is achievable. I assume that the fact that we were able to achieve the target in Q1 has slightly increased certainty to achieve the JPY200 billion target for the fiscal year. However, there are still some uncertainties in the outlook for the year, including market-related factors. Therefore, we would like to increase the certainty of the fiscal year's outlook by first firmly following the Q2 plan. That is all for today. Thank you very much. [END]