ANA Results for FY2001

24 May 2002

Adverse conditions continued to affect the Japanese economy for the period under review. Further, the tragic events of September 11 in the U.S. led to an immediate and significant downturn in demand for international travel. Responding to these severe circumstances, the ANA Group executed a variety of cost reduction measures and marketing initiatives aimed at stimulating travel. 

In this operating environment, the ANA Group reported consolidated operating revenue of Yen 1,204.5 billion, down 5.9% and operating income of Yen 22.9 billion, down 72.1%. Consolidated recurring profit decreased 97.8% to Yen 1.4 billion, and consolidated net loss for the fiscal year was Yen 9.4 billion. 

On a non-consolidated parent company basis, operating revenue at ANA was Yen 915 billion, down 5.3%, operating income Yen 18.4 billion, down 72.2% and recurring loss was Yen 0.7 billion. Net loss for the year was Yen 12.8 billion. All comparisons are year-on-year.

For the fiscal year, ANA Group airlines - All Nippon Airways Co., Air Nippon Co., Air Japan Co. and Air Hokkaido Co. - carried more than 49.3 million passengers: 45.8 million on domestic routes, an increase of 0.6%, and 3.5 million on international routes, down 19.8%.

Given the difficult challenges surrounding it, ANA outlined its Corporate Strategy Plan for FY2002 and 2003. ANA will place renewed emphasis on product/service quality and customer satisfaction and position itself as a managing holding company into which strategic management functions of all group companies are centralized for improved value creation and competitive strength.

ANA is forecasting consolidated results for the fiscal year ending March 31, 2003 of Yen 1,275 billion in operating revenue, a recurring profit of Yen 23 billion and net profit of Yen 2 billion.

I. Management Policy

1. Keynote 

Keeping operational safety as the prerequisite condition, the ANA Group seeks to further improve the quality of air transportation service, to drastically improve the profitability of the entire group, and to win confidence of customers and shareholders.

2. Medium Term Management Strategies And Issues To Be Addressed

Based on the Medium Term Corporate Plan which covers the period through fiscal 2002, the Group has endeavored to improve its profitability and to strengthen its financial position during the past three years starting in Fiscal 1999. As a result, targets were attained more expeditiously than contemplated in the plan through the previous fiscal year.

During the fiscal year under review, however, the circumstances surrounding the ANA Group have undergone violent changes as exemplified by events following the September 11 terrorist attacks in the United States and the merger plan between Japan Airlines and Japan Air System. This has created a significant disparity between what was envisaged when the plan was drawn up and the realities.

Focusing attention on the next two years, when radical changes are imminent, the company has adopted the "ANA Group Corporate Strategy Plan," providing guidelines for corporate management in the fiscal years 2002 and 2003, and the "Corporate Reform Plan" containing specific measures to implement the Strategy Plan.

Under these plans, the ANA Group continues its endeavors to become a leading corporate group in Asia with air transportation as its core. Its primary target, however, is not to become the biggest, but rather to become the first in quality, customer satisfaction and value creation.

Based on these targets, efforts will be redoubled to pursue "value creating management," so that income from domestic operations will be stabilized, profitability of international operations improved and the earnings of the ANA Group as a whole will improve in fiscal 2003 to achieve dividend payment.

The company is now determined to put into practice the following action plans in order to increase customer satisfaction, to improve the corporate financial position, and to pursue value creation.

(1) Group Management System

In order to establish a group management system capable of unifying strategies and expediting managerial operations, the parent ANA is positioned as a managing holding company, into which the management strategic functions of all group companies are concentrated and under which the competitive power in the market place is strengthened. Under this system, each business (air transportation, hotel, real estates and trading) operations is given clear accountability and sets up an operational system with a high degree of flexibility.

(2) Management Executive System

The tenure for each member of the Board of Directors and senior vice presidents has been set at one year with a view to clarifying the management accountability for targets achievement per fiscal year. The management executive system is strengthened through functional positioning of personnel, while group companies take measures to place right persons at right positions, including the promotion of younger employees, to increase business execution capabilities.

(3) Management Control System

Management control for "ANA Group" shall be executed based on each group business operations, namely, air transportation, hotel, real estates and trading. Meanwhile, "ANA's Value Creation (AVC)" management index, which was introduced during the year under review, will be revised during the current fiscal year so that all group companies will have common value standards under their respective AVC. AVC is ANA's management index introduced in fiscal 2001 to create the shareholder value, and represents a balance obtained by subtracting the amount of capital spent from after-tax operational profits. Target control under the new system will begin during the current fiscal year.

(4) Air Transport 

To maximize managerial efficiency, the ANA Group will actively appropriate management resources in conjunction with network reorganization and region of flight operation. 

- ANA will operate wide body aircraft (B767, B777, B747) in main markets from Tokyo's Haneda and Narita airports.

- Air Nippon (ANK) will operate narrow body aircraft (A320, B737) mainly for the local market. In fiscal year 2002, A320 aircraft operations will be gradually consolidated at Air Nippon.

- Air Japan (AJX) will operate B767's in its business area, international operations to Asia and resort destinations.

- Aim for operation of turbo prop aircraft at Osaka's Itami airport in FY2003 and review establishment of new company for this service.

- Beginning with ANA Connection* complement the ANA network with a low cost scheme through tie-ups with other companies.

- Build an international network with Asia, namely China at the foundation and build the network to the next level with strategic code-share alliances.

- Increase revenues and reduce costs through tie-ups and code-share alliances on international network with Star Alliance partners.

- In close cooperation with Nippon Cargo Airlines, ANA will introduce a B767 Freighter in September 2002 to meet rapid demand for cargo transport in China and Asia. 

(5) Related Business Operations

With primary emphasis on attaining a higher return on investment, ANA will, under the Corporate Reform Plan, seek to improve the profitability of hotel, trading, real estates and other diversified operations. Steps will be taken to reduce interest-bearing debts through curtailment of investments by optimum redistribution of existing management resources and recovery of cash by selling and liquidating assets.

Corporate Performance and Financial Conditions

OVERVIEW

During the fiscal year under review, the Japanese economy deteriorated further due to factors such as fiscal recession caused by the delay in disposal of bad loans, worsening of corporate balance sheets resulting from sluggish exports caused by a global economic slowdown, and the resulting fall in private-sector capital investments.

This situation was aggravated by the September 11 terrorist attacks in the United States, coupled with a slump in personal consumption, numerous bankruptcies and a record high unemployment rate. Thus, the economic situation in Japan became particularly serious during the latter half of the fiscal year.

Under these circumstances, ANA's consolidated revenue totaled Yen1,204.5 billion (down 5.9%), operating income Yen 22.9 billion (down 72.1%) and recurring income Yen 1.4 billion (down 97.8%). The net loss for the period stood at Yen 9.4 billion after transfer of extraordinary profits from the sale of investment securities to bad debt provisions, extraordinary losses including those resulting from appraisal on investment securities, corporate tax and adjustments of tax amounts through tax effect accounting. 

On a parent company basis, revenue for the period came to Yen 915.0 billion (down 5.3%), operating income Yen 18.4 billion (down 72.2%), and recurring loss Yen 0.7 billion. Following an appraisal of loss on the stocks of affiliated companies, net loss for the year was Yen 12.8 billion.

The following is a summary of operating results by business segment.

Air Transportation

During the first half of the fiscal year under review, the Japanese airline industry carried about the same number of tourist passengers on international flights as in the year earlier but the number of business travelers showed some signs of decline because of the protracted recession. Following the terrorist attacks in the United States in September, however, sharp declines marked both sectors.

The September 11 terrorist attacks also affected domestic flights as there was a steep decrease in the number of passengers especially on routes to and from Okinawa. As the airlines endeavored to create new demand, however, smooth recovery was seen toward the end of the fiscal year.

In response to these new circumstances, the ANA decommissioned one Boeing 747-200B from its international fleet, and released two Boeing 747SR-100s and two Boeing 767-200s from the domestic fleet at the end of their respective lease periods.

In international operations, the ANA Group pursued the theme of "selection and concentration" and took flexible measures to cope with changing circumstances by launching new service on high-demand routes, suspending service on low-demand routes and increasing and decreasing the number of flights on certain routes. The number of flights out of Narita Airport was increased, while a major change in the flight schedule was made in view of a drastic fall in demand in the wake of the terrorist attacks. On North American and Southeast Asian routes, for example, some flights were either suspended or reduced, while smaller aircraft were introduced on others. Excess aircraft resulting from these measures are now being used to increase flights to China and South Korea, where the demand is expected to be robust.

On the domestic front, new flights were added to the Tokyo-Osaka shuttle service and to Tokyo-Fukuoka and other high-demand routes. On some routes, flights were suspended, reduced or transferred to Air Nippon Co., Ltd. All these measures were aimed at reorganizing the routes for the entire group, striking a balance between supply and demand, and improving profitability.

As a result, revenue from air transportation for the year under review totaled Yen 978.4 billion (down 5.8% from the previous year) and operating income Yen 18.7 billion (down 74.1%).

Domestic Passenger Services

Intra-group restructuring of flight routes was implemented as ANA increased the number of flights on the Tokyo-Osaka shuttle and on Tokyo-Fukuoka route, while transferring the Osaka-Saga, Osaka-Odate Noshiro and Kansai-Kagoshima routes to Air Nippon Co., Ltd.

During the first half of the fiscal year, the number of domestic passengers increased steadily, especially on trunk lines. After the September 11 terrorist attacks, however, the number of passengers fell sharply, especially on the Okinawa route, as people started refraining from flying.

The company responded to this unfavorable situation by various measures to lure passengers, including the "Rakunori Cash-Back Campaign," launched in January this year under which one out of every 50 passengers will get the full fare refunded. As a result, demand started showing signs of recovery from the year-end and New Year holidays.

Promotional fares were also offered in a flexible manner to attract more passengers to domestic flights. For example, the Chowari super-discount fares were available on 66 days during the fiscal year under review compared with 45 days in the previous fiscal year, bringing to 2,150,000 the number of passengers taking advantage of discount tickets throughout the group, a sharp increase from 1,300,000 in the previous year.

While continuing package tours like "ANA's Paradise Okinawa" and "ANA's Pika Natsu Campaign," ANA launched the new "Okinawa Campaign" to regain passengers to Okinawa, following cancellation of student excursion tours to the islands by many schools in the wake of the terrorist attacks.

Acceding to customer suggestion, ANA launched in June a new service called "Rakunori," under which the time limit on ticket purchase is abolished and passengers can check-in without obtaining tickets, thus simplifying and expediting the entire process from reservations to boarding.

As a result, the number of passengers on domestic flights during the fiscal year under review increased by 0.6% to 45.8 million, but revenue declined by 1.4% to Yen 662.7 billion.

Domestic Cargo and Mail Service

From the outset of the fiscal year, sluggishness marked the volume of domestic cargo handled by ANA, particularly items related to information technology, reflecting the prolonged recession. A decrease was also seen in domestic movement of export and import goods.

The domestic cargo business suffered further as some of the customers switched to land transportation after the company adopted stringent precautionary measures to detect explosives as part of its drive to ensure safety following the terrorist attacks.

In an attempt to boost revenue, ANA operated 20 non-scheduled, all-cargo-and-mail flights in December, the first of its kind in its history.

The volume of domestic cargo for the year fell by 11.0% to 387 thousand tons, while revenue dropped by 12.5% to Yen 24.7 billion.

A large volume of direct mail sent out in connection with the "My Line" telephone selection campaigns boosted ANA's handling of domestic mail by 9.2% to 85 thousand tons in volume and by 8.0% to Yen 11.4 billion in value.

International Passenger Services

In international operations, a new route between Tokyo and Ho Chi Minh City was opened last summer, while the Nagoya-Honolulu service was suspended in October.

To cope with the sharp drop in the number of international travelers following the terrorist attacks, ANA suspended service on the Tokyo-Chicago, Tokyo-Mumbai, Tokyo-Kuala Lumpur and Osaka-Bangkok routes, and operated the Tokyo-Washington route with smaller aircraft.

By using excess aircraft arising out of these measures, frequency between Tokyo and Seoul were increased to daily service, while the number of flights was increased on the Tokyo-Dalian and Osaka-Qingdao routes.

Code-share operations were launched with bmi british midlands a member of Star Alliance, to four destinations from London, providing added convenience to passengers flying to the United Kingdom.

In August, London-based cabin attendants began service aboard ANA flights for the first time, further improving the quality of in-flight service.

On the marketing side, a new regular discount known as "Bijiwari" (Business Class Discount Fares) was introduced for business class passengers traveling to North America and London, who purchase round-trip tickets in advance.

Bargain discount economy class fares to North America and Honolulu were introduced in September under the brand name of "Chowari G-E-T" (Super Discount Fares) as an international equivalent to the "Chowari" (Super Discount Fares) which had become quite popular on domestic routes.

The number of international passengers during the year fell by 19.8% to 3,510,000 and the revenue dropped by 18.2% to Yen 169.7 billion.

International Cargo and Mail 

Factors like the slump in the information technology industry and the aftermath of the terrorist attacks caused the volume of international cargo to fall far below the level of the preceding fiscal year. Also contributing to this unfavorable trend were slow movement of goods resulting from rigid security measures imposed on cargo arriving in and departing from Japan and a decrease in the company's transporting capacity resulting from the suspension and cutbacks of flights on certain routes.

Among the cargo flown from Japan, decreases were noted not only in IT-related goods but also in a wide range of other items such as machinery and equipment, office equipment and semi-conductor electronic parts. A gradual recovery was seen toward the end of the fiscal year, as the U.S. economy seemed to have bottomed out.

Incoming cargo also remained sluggish, although general consumer goods from Europe and fresh foods and clothing from China maintained high levels.

The total volume of international cargo during the period declined by 20.8% to 153 thousand tons and revenue fell by 18.5% to Yen 32.9 billion.

Mail was equally affected by the recession and the terrorist attacks, but incoming mail from China and the United States continued to grow. The total amount of international mail handled during the year decreased by 7.8% from the previous fiscal year to 7.3 thousand tons but revenue was up 3.3% to Yen 2.2 billion.

Other Business

The ANA Group sought to expand revenues from such other sources as providing other carriers with aircraft maintenance, passenger check-in, baggage loading and other ground services, as well as from increased in-flight sales. Despite these efforts, revenues from these sources fell by 3.0% to Yen 74.5 billion.

Travel Services

To further strengthen its marketing capability in the travel service field, ANA Sales Holdings was established in January 2002, under which the three existing travel agencies - ANA World Tours Co., All Nippon Airways Travel Co. and ANA Sky Holiday Tours Co. - were integrated to strengthen their mutual collaboration and to elevate the efficiency of their marketing activities.

With the opening of new theme parks like the Universal Studios Japan and the Tokyo Disney Sea, these travel agencies recorded gains during the first half of the fiscal year in terms of both the number of persons and sales.

Following the September terrorist attacks, domestic travel tours were hit with a large number of cancellations, especially to Okinawa, resulting in a temporary slump. This was more than made up for by prompt and timely introduction of new programs, and, as a result, the fiscal year under review saw a sharp increase over the year earlier both in the number of tourists and revenue.

For overseas tours, promotional campaigns were conducted for a number of tours with high added-value, featuring business class flights, tours aboard ANA's exclusive "Super Vista" deluxe bus, and chartered "Orient Express" trip from Venice to Vienna. Efforts were also directed at the marketing of chartered international flights out of Haneda Airport.

Despite these and other endeavors, however, revenue from overseas travel services fell far short of the previous year's level, due to such unfavorable factors as the sharp drop in the number of travelers particularly to North America following the terrorist attacks and suspension of the code-share operations program with Ansett Australia, which ceased operations.

Total revenue in the travel service sector, including both domestic and international, reached Yen 158.5 billion for the year, an increase of 3.7% from the previous year, resulting in operating loss of Yen 80 million.

Hotel Business

During the fiscal year under review, four new members joined ANA Hotels: Nagasaki ANA Hotel Glover Hill in April under the franchise system, Guam Hotel Okura in April under the referral system, ANA Hotel Clement Takamatsu in May under the franchise system and Thallaso-Shima ANA Hotel & Resort in August under the management system.

ANA continued to implement the restructuring plan of its domestic hotel business, which called for separation of ownership and operation. In line with this policy, ANA Hotels started full-scale operations in October supporting the entire hotel chain.

Three ANA hotels located in Tokyo, Toyama and Narita, which had been managed directly by ANA Enterprises, Ltd. were placed under the control of the newly established ANA Hotel Tokyo Co., ANA Hotel Toyama Co. and ANA Hotel Narita Co., respectively. This step is aimed at enabling each hotel to concentrate on its own operations and to further increase gross operating profit.

In a bid to elevate the value of the facilities at the ANA Hotel Tokyo, the banquet rooms and entrance lobby underwent comprehensive renovations starting in July, and were reopened in September.

But the hotel business in Japan suffered reduced revenue and income during the year under review, partly because of partial closure of the ANA Hotel Tokyo and the ANA Hotel Hakata for renovations and also because of cancellations by overseas customers and parties by Japanese subsidiaries of foreign corporations at the flagship ANA Hotel Tokyo, reflecting the U.S. economic downturn and the effect of the terrorist attacks.

Hotels outside Japan were also affected by the terrorist incidents, but the decrease in revenue was kept to a minimum through efforts to meet market needs and continued endeavors to maintain costs at optimum levels. The hotel in Vienna, in particular, was able to keep the same profit level as in the previous year.

Revenue from the hotel business during the fiscal year totaled Yen 75.6 billion, down 9.6% from the previous year, and operating loss stood at Yen 0.6 billion.

Other Businesses

Revenue from trading and selling of goods during the year fell short of the previous year's level, as a slump in the machinery and paper-pulp segments more than offset gains scored by ANA Trading Co., Ltd., in sale of aircraft parts. 

Infini Travel Information Co., Ltd., which provides a reservation and ticketing system for international flights, suffered a major setback due to a drastic decrease in the number of international passengers. But ANA Information Systems Planning Co., Ltd., which develops, maintains and operates information systems, posted a large increase in revenue because of the receipt of orders from Group companies for large-scale system development, expansion of the scope of its maintenance and operation activities, and expansion of its customer base. As a result, total revenue in the information and communications segments showed an increase over the previous year.

ANA Real Estate Co., Ltd., which sells and rents real estate and maintains buildings, renovated a number of buildings to strengthen their competitive position, and was successful in maintaining high occupancy ratios and in keeping rental revenue at the previous year's level. Because no condominiums were sold during the year under review, total revenue in the real estates business showed a decline from the previous year.

Total revenue in other businesses totaled Yen188.1 billion, down 1.5% from the year earlier and operating income totaled Yen 4.9 billion, down 22.0%.

CASH FLOW

Although the ANA Group suffered a net loss before income taxes during the fiscal year under review, cash flow from operating activities showed a net inflow of Yen 33.9 billion, due mainly to increases in depreciation expenses, employee retirement benefit provisions and other costs not involving cash outflow.

Cash inflow from investment activities, expenditures totaled Yen 132.4 billion due to the acquisition of tangible and intangible assets due to advance payments for new aircraft purchase of components, renewal of IT and airport facilities, and renovation of banquet rooms at ANA Hotel Tokyo. As a result, cash outflow from investment activities totaled Yen 123.9 billion.

In financial activities, net cash inflow was Yen 69.1 billion. The amount consisted mainly of long-term borrowing such as emergency loans to cope with terrorist attacks in the United States, while the outflow included repayment of long-term debt and redemption of corporate bonds.

As a result, the balance of cash and cash equivalents at the end of the fiscal year stood at Yen 188.6 billion, a decrease of Yen 19.0 billion from a year earlier.

DIVIDEND PAYMENT POLICY

The Company considers it an important task to reward its shareholders with a proper return, while striving to strengthen the managerial foundation to assure stable growth.

During the fiscal year under review, the Company was beset with a number of unfavorable factors like a drop in the number of travelers following the terrorist attacks, incremental expenditures to meet soaring insurance costs, and losses related to the evaluation of stocks of consolidated companies. As they were treated as extraordinary charges, the company suffered a net loss on a parent company basis. ANA regretfully cannot help resigning to pay dividends to shareholders, as in the previous year.

FISCAL YEAR 2002 ENDING MARCH 31,2003 - FORECAST

Brighter aspects of the outlook for the immediate future include the weakening of the Japanese yen, bottoming out of the U.S. economy and improvement in international economic conditions, which all point to an end to declining exports and a resurgence in the manufacturing sector. Counterbalancing these favorable tendencies are a continued decline in the private sector capital expenditure, a slump in consumer spending and a high rate of unemployment. When all these matters are taken into consideration, it appears unlikely that the Japanese economy will settle into a full recovery any time soon.

In the Japanese airline industry, only a slow recovery is being made in the number of international travelers, giving rise to a pessimistic view that the impact of the terrorist attacks will linger on for some time.

In these circumstances, ANA will endeavor to implement the Corporate Reform Plan to resume stable dividend payment at an early date.

For the fiscal year ending in March 2003, ANA anticipates that consolidated revenue will total Yen1,275.0 billion (up Yen 70.5 billion from the previous year), operating income Yen 41.0 billion up Yen 18.1 billion?, recurring income Yen 23.0 billion (up Yen 21.6 billion), and net income Yen 2.0 billion (up Yen 11.4 billion).

Assumptions used in arriving at these figures are an exchange rate of 130 yen to the dollar and market price of Dubai crude oil, which is an indicator of jet fuel price, of US$25 per barrel, kerosene price of US$31 per barrel.