Japan Airlines counts the cost of Tokyo crash

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Flights in and out of Tokyo’s Haneda airport continue to face cancellation and delays following a fatal accident between a Japan Airlines aircraft and a smaller plane on the runway earlier this week.

On Thursday, markets opened for the first time since Japan’s New Year’s holidays. Shares of Japan’s second-biggest airline began trading with a glut of sell orders. By the end of the day, however, the price had recovered.

Transport authorities are investigating the details of the collision, with a view to ensuring that such an unusual and tragic accident, in which five people died, does not happen again.

For the airline, which updated its investors on Thursday, the loss of the Airbus A350 aircraft will be covered by insurance. There will be other costs: JAL is offering ticket refunds for customers with reservations through March 31 this year that wish to cancel their flights.

The disaster could mean an operating loss of about ¥15bn ($105mn), according to JAL estimates. This is significant given its net profit of ¥61.6bn in the six months to September had been a rare turnaround from steep losses during the pandemic. The airline is still assessing the full impact on its earnings forecast for the year to March.

Longer-term prospects remain strong. Until now, airline demand in Asia has lagged the recovery in the US and Europe following the pandemic slump. Chinese tourists and demand for long-haul flights, two of the most lucrative sources of revenue, have been slow to return in the region.

However, passenger revenue for JAL’s full service flights had already returned to pre-pandemic levels last year. Operating margins have been improving thanks to hefty price rises and a steep increase in the average revenue earned for each passenger kilometre flown. For JAL, that figure is up by more than 50 per cent compared to pre-pandemic levels.

Shares of JAL trade at 12 times forward earnings, around triple the levels of US peer United Airlines, reflecting growth expectations. That premium should remain intact.