Sunday, October 12, 2014

Jetstar Japan lost 11.1 billion JPY in its third year.

Jetstar Japan (GK/JJP) posted a staggering 11.1 billion JPY loss for the year ending on June 30th, resulting in three consecutive years in the red. It had lost 8.8 billion JPY last year, from July 1st, 2012 through June 30th, 2013, its second year of operations. Total revenue increased 2.27 times to 29.1 billion JPY, but total costs rose to 36 billion JPY, a whopping 87% increase over the previous year, and operating loss was 6.9 billion JPY.
Airbus A320-232 JA05JJ being pushed back by an automated tower at Narita. (Photo: Ryosuke Yano)

The Tokyo/Narita (NRT/RJAA)-based LCC cited repeated delays in setting up its second hub at Kansai (Jetstar Japan launches Kansai hub.), which was finally launched in June, as the biggest reason. Insufficient number of trained maintenance personnel led them to postpone the launch five times, with as many as five to six of the 18 Airbus A320s sitting idle at Narita, bringing down aircraft utilization. Planned regional international routes also had to be deferred. These coupled with a depreciated JPY and high fuel prices led to increased costs well exceeding increased revenue.

Meanwhile, shareholders' equity decreased by 19.6% from 515 million JPY to 414 million JPY. Voting rights-based, the Japanese unit of the Australian-born brand is controlled 33.3% by Japan Airlines (JL/JAL), 33.3% by Qantas Airways (QF/QFA), 16.7% by Mitsubishi, and 16.7% by Century Tokyo Leasing. After posting a loss one year ago, it received a capital injection of 11 billion JPY together from JAL and Qantas. "Nothing has been decided regarding another capital injection," said a Jetstar Japan spokesperson, who emphasized "We want to make this our last year in the red." JAL has cash, but loss-making Qantas may not be in a position to make further injections. For how long can Jetstar Japan and its shareholders withstand the huge losses?

Although Jetstar Japan continues to bleed red ink, the brand is gradually becoming recognized, tickets can be easily bought at Lawson, one of Japan's ubiquitous convenience store chains, their Kansai hub is up and running, and they are on expansion mode again (Jetstar Japan to launch Kumamoto with three routes.) with first regional international flights also expected in early 2015. Now with all the pieces of its initial business model finally coming together, their fourth year would be a litmus test to prove whether its business plan actually works.

Meanwhile, rival Peach Aviation (MM/APJ), which is only four months older, achieved its first full-year profit in their third year (Peach reports first full-year profit for FY2013.). Yes, the two are different; strategy-wise Peach sees international eventually accounting for 70% of their revenue while Jetstar Japan has much more emphasis on the domestic market, while in terms of hubs, Narita has slot-restrictions plus a curfew which Kansai doesn't, just to give some examples. Nevertheless, Peach's positive results should be putting some pressure.

Reference: Aviation Wire, October 10th. (in Japanese)

*Edited/updated on October 15th, 2014.

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