Japan Airlines Considers Scrapping Underperforming Routes

TOKYO (Dow Jones)–Japan Airlines Corp. Friday said it is considering scrapping underperforming domestic and international routes to adjust to a slowdown in travel demand brought on by the global economic downturn.

The consideration features in an outline of the firm’s mid-term business plan released on request from the Ministry of Land, Infrastructure, Transport and Tourism.

Japan’s biggest airline by revenue, known as JAL, said its international network will be reassessed and revised based on more a conservative projection of demand and profitability, while reducing its fleet and switching to fuel efficient aircraft. It didn’t elaborate.

JAL, which expects to lose Y63 billion on a net basis in the fiscal year to March 2010, will release its mid-term plan by the Sept. 30 book closing of its interim results. However rapid decline in travel demand, coupled with the spread of the A/H1N1 flu virus, prompted the authorities to ask JAL to provide an outline of the plan ahead of its formal release.

A credible roadmap for a turnaround in profitability is a prerequisite for government-mandated aid. The Nikkei reported in its Friday morning edition that the government is considering guaranteeing about 80%, or around Y60-80 billion, of a roughly Y100 billion syndicated loan for JAL now being determined by the state-backed Development Bank of Japan and three major private-sector banks.

A spokesman for the DBJ declined to comment.

Meanwhile, in a press release, JAL said, “we will consider drastic cost cuts among other steps, with nothing deemed sacred,” adding, “we will transform into a business structure that does not overly rely on the economic recovery.”

Airlines worldwide may post losses totaling $9 billion in 2009 because of reduced demand and poor yields amid the global economic slump and spread of swine influenza, said the International Air Transport Association earlier this month. Asia-Pacific airlines are likely to be the worst performers this year with expected losses totaling $3.3 billion.

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