Japan Airlines said it plans to slash its employees' salaries by an average of 10 percent in the face of an unexpectedly large half-year loss, and it projected a loss of $397 million for the year.
Japan's biggest carrier by revenue blamed the fiscal half-year loss of $102.38 million on soaring fuel prices and stagnant demand. In addition to the aggressive wage-cutting campaign, which JAL said it would present to its unions, the carrier will suspend its shareholder dividend for the current fiscal year. JAL said it hopes the salary cuts will save it $50.68 million in annual costs.
The forecast of a $397 million loss for the fiscal year ending next March contrasts starkly with JAL's previous forecast of a net profit of $143.56 million. In explaining the revision, the company cited "a continuing difficult business environment." JAL cut its revenue outlook for the year to $18.54 billion from $18.66 billion.
Other Japanese companies have imposed wage reductions, sometimes steep ones, when in trouble. For example, Japan's banks trimmed staff benefits and wages as part of sweeping restructurings many of them went through to emerge from the collapse of the nation's asset bubble in the late 1980s. But for the currently constituted JAL Group, the move is unprecedented.
Under the wage-cut plan, which would run from January 2006 to March 2008, JAL intends to cut salaries by 8 percent for employees from lower management on down and by 10 percent for middle management. Senior managers will lose 12 percent of their pay. As of the fiscal year ended this past March, JAL had 19,211 employees.
Board members, who took a pay cut in April, will see additional reductions ranging from 23 percent to 40 percent, JAL spokesman Stephen Pearlman said.
"We are in an extremely severe situation," said JAL's chief executive, Toshiyuki Shinmachi, whose salary cut will be in the 23 percent to 40 percent range.
JAL's net loss of $101.67 million for the fiscal first half ended Sept. 30 compared with a year-earlier profit of $700.75 million.
The company, which reports according to Japanese accounting standards, expects to rebound with a profit in its next fiscal year, sticking with forecasts announced in March of $287.19 million in net income.
Like many other airlines, JAL is struggling with high fuel prices. Jet kerosene traded in the Singapore oil market recently topped $70 a barrel, far above JAL's initial forecast of an average of $54 for this fiscal year. JAL now expects to pay an average of $77 a barrel for fuel for the full fiscal year.
On top of the higher fuel costs, JAL suffered from sluggish demand on key international routes, such as to China and Southeast Asia. A series of safety-related incidents also bit into revenue on its domestic services, as some passengers defected to rival airlines like All Nippon Airways, known as ANA.
"Passenger demand is very weak," said Credit Suisse First Boston analyst Osuke Itazaki. "It's okay for ANA, but JAL is failing to get more passengers, especially for domestic lines. Passengers are shifting from JAL to ANA."
JAL's shares fell 1 percent on the Tokyo Stock Exchange yesterday, suggesting the market had already priced much of the company's troubles into the stock.