Japan carriers' profits hit as weak yen hikes fuel costs

Japan's two biggest airlines said on Friday that the weak yen sent fuel costs soaring and profits into a nosedive as they struggled to recover from the global grounding of the Boeing Dreamliner plane last year.

However, while the surge in fuel costs, often a carrier's single-biggest expense, hit the bottom lines of Japan Airlines (JAL) and All Nippon Airways (ANA), they said a recovery in international travel helped lift sales.

Both companies are US-based Boeing's biggest customer for the state-of-the-art plane, which only resumed flying after a months' long grounding -- caused by a series of battery problems -- forced the cancellation of hundreds of flights.

The carriers are also fighting off increasing competition from a handful of low-cost carriers that have sprung up in recent years in a market they have long dominated.

On Friday, ANA said its net profit dived 36 per cent to 33.3 billion yen ($325 million) between April and December, citing the jump in fuel prices. Sales were up 7.1 per cent at 1.2 trillion yen.

JAL fared a little better, saying its nine-month net profit turned down 12.2 per cent to $1.2 billion, despite sales climbing 5.1 per cent on rising demand for international travel and its cargo service.

"The weak yen is a major factor holding back their profit," said Masaharu Shirokane, aviation analyst with Nomura Securities.

"It's a real headache for the Japanese aviation industry and as long as the yen remains weak, their bottom line will remain under pressure."

The yen has lost about a quarter of its value against the dollar since late 2012 following a policy blitz launched by Japanese premier Shinzo Abe and his hand-picked team at the Bank of Japan aimed at kickstarting economic growth and beating deflation.

JAL noted that a pickup in Japan's economy also helped lift demand for air travel ahead of an April sales tax hike.

"An economic recovery at home and overseas is stimulating demand, in particular business travel, which is profitable," Shirokane said.

"Demand for Chinese routes is also recovering from a slump... but it remains a potential risk in the future."

However, Japan's thorny ties with South Korea and China have depressed demand for flights to those countries.

Tokyo is embroiled in separate territorial spats with both countries, and a Chinese consumer boycott of Japanese brands in 2012 took a bite out of demand for flights through the first half of 2013.

ANA said it expects "passenger demand for business travel and leisure to remain robust" as it expanded its domestic and international routes, and offered discounted fares.

A 12.2 per cent rise in international passenger revenue as well as a jump in ANA's overseas cargo business helped offset a tiny rise in domestic passenger revenue and a downturn in its Japanese cargo business.

JAL also saw its international businesses offset laggard growth at home.

SOURCE