Weak yen a double-edged sword for Japan Airlines as inbound travel soars, outbound demand dips
JAL’s outbound numbers have remained lacklustre, with demand at about half of pre-pandemic levels on the back of a weak currency and inflation.
The yen’s relentless slide has been a double-edged sword for Japan and its flag carrier Japan Airlines (JAL), with international tourists flocking to visit but locals putting overseas travel on the backburner.
JAL’s outbound numbers have remained lacklustre, with demand at about half of pre-pandemic levels on the back of a weak currency and inflation, said the airline’s managing executive officer Ross Leggett.
The yen has been hovering near historic lows against the United States dollar, escalating fuel and operational costs for the airline.
“Our aircraft costs are all in US dollars. So, the depressed yen increases our costs considerably,” Mr Leggett told CNA’s Roland Lim on the sidelines of the International Air Transport Association (IATA) Annual General Meeting and World Air Transport Summit in Dubai.
“(Also), the Japanese market is still depressed. Compared to 2019, the Japan origin traffic is about 50 per cent of what it was. But we've been able to backfill that lack from… increased inbound demand, which has been very positive.”
With Japan’s US$62 billion currency intervention offering little reprieve to the yen’s persistent slide, JAL said it is difficult to see a quick recovery in demand for outbound flights.
RECORD INTERNATIONAL VISITORS
While the weak yen has made vacations abroad more expensive for people in Japan, it has sweetened travel deals for tourists visiting the land of the rising sun.
Japan welcomed more than 3 million visitors in March, a record-breaking high for a single month, driven by the nation’s scenic cherry blossom season. Most tourists were from North America and Asia, said Mr Leggett.
The surge in international passengers propelled a stunning turnaround in revenues and earnings last year for JAL from pre-pandemic 2019 levels, with its revenue soaring about 20 per cent year-on-year.
During the summit, JAL announced a code-share deal with Indian budget carrier IndiGo to sell tickets on each other’s flights.
This will allow the Japanese carrier to expand its network to 18 destinations on IndiGo’s network, including New Delhi and Bengaluru. India’s air travel market is currently the third biggest in the world, after China and the US.
CHINESE MARKET CONCERNS
While JAL’s outbound flights to Thailand, Taiwan and South Korea have increased – in line with heightened international demand – Mr Leggett said the Chinese market remains depressed.
Traffic both ways are at just half of pre-pandemic numbers, and the airline has adjusted its schedule and capacity to cope with the lukewarm interest, he added.
He said the dampened appetite for travel is due to the economic downturn and the visa application process – Japanese citizens now need a visa to enter China, unlike before the pandemic, when they could visit China without a visa for up to 14 days.
“For the Chinese (not) coming to Japan, it’s probably more economic reasons than anything else with the slowdown of the economy in China,” he said. “For Japan, travel in general is not as strong as it used to be.”
For its premium first and business class segments, while international flights have seen strong demand, domestic business travel has levelled off at about 80 per cent compared to pre-pandemic numbers.
“I think that's mainly due to remote working – online meetings that are replacing face-to-face meetings. The 80 per cent level has been there for the last two years and it doesn't seem to be changing. Leisure travel makes up for that a little bit, but that’s our biggest concern,” he said.
JAL'S SUSTAINABILITY GOALS
During the wide-ranging interview, Mr Leggett also spoke about the airline’s sustainability push.
JAL has pledged to cut carbon dioxide emissions by 10 per cent from 2019 levels by 2030, and eventually become net-zero by 2050.
He said efforts to decarbonise are making good progress, but a slow supply of sustainable aviation fuel (SAF) remains a problem for the industry.
“We think we can get to our targets. We're on track but we still have a long way to go and (the issue is) supply more than anything else,” he said.
“There are concerns about the cost as well, as SAF is priced higher than fossil fuels. But with production increasing, once the volume is there, the price will come down as well.”