Japan Airlines has increased its forecasted losses for the year by over 10% as domestic recovery slows. The flag carrier is now estimating a loss of ¥420 billion ($4bn) for the year. JAL is one of the few carriers that has largely avoided pay cuts and job losses due to the pandemic, but increasing cash burn could force the carrier to make changes.
According to Reuters, Japan Airlines’ (JAL) newest forecast is based on the fall of domestic passenger levels in the last few months. Japan is currently battling its worst wave of COVID-19 to date, with over 7,000 daily cases since the start of the year. While cases have begun falling in recent days, a state of emergency remains in effect in large parts of the country, including Tokyo, until March.
The dramatic rise in cases has erased JAL’s growth from the previous quarter, where it saw domestic traffic rebound. This was thanks to a generous government scheme, known as Go To Travel, which offered deep subsidies for hotel and airline travel. With discounts of up to 50% off travel deals, many residents took advantage of the scheme.
Data from AirNav’s RadarBox, showed that domestic flights reached 80% of pre-pandemic levels in early December. However, since then, flights have quickly fallen to just 45% of previous levels due to the state of emergency. For February, the carrier estimates just 20% domestic capacity compared to last year.
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JAL forecasts a loss of ¥420 billion, or $4 billion, for this financial year ending in March. This comes after the airline had previously predicted a ¥380bn loss but revised estimates in line with the current conditions. The losses are deeper than many analysts predicted originally.
International passenger traffic has fallen to just 5% of pre-pandemic levels, with the airline only operating essential international routes as Japan tightens border controls. However, one division of the airline is doing particularly well: cargo.
Japan Airlines has seen the price of international cargo double in the last year, boosting revenues for its freight business. Japan continues to export high-demand items such as gaming consoles and vehicle parts, further driving up revenue.
The term cash burn has become critical during the pandemic, with airlines looking to drastically cut their expenditure. JAL predicts a cash burn of ¥25bn ($238mn) for this quarter, a doubling of the previous level. This might call into question JAL’s generous plan of not reducing staff or cutting salaries but coming with alternative jobs for its employees.
While the next few months will be hard for JAL, vaccinations could allow for a strong recovery in the summer. While the Olympic Games’ status remains in question, if they were to happen, Japan could see a huge influx of domestic or international passengers in July.