Japan's ANA posts 01/02 loss, sees profits ahead

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By Daisuke Wakabayashi

TOKYO, May 24 (Reuters) - All Nippon Airways Co Ltd (ANA), Japan's
second-largest carrier, said on Friday it fell into the red in 2001/02, hit
by weak demand for overseas flights, but it vowed a return to profit despite
growing competition on domestic routes.

ANA posted a net loss of 9.46 billion yen ($75.68 million) for the year
ended March 31, its fourth group loss in five years, after the September 11
attacks in the U.S. triggered a sharp decline in the number of people
travelling overseas.

For the current year, ANA said it expected to post a group net profit of two
billion yen, with sales rising to 1.28 trillion yen from 1.20 trillion in
2001/02.


Last year's result was worse than the consensus estimate from research firm
Multex, which was for a group net loss of 8.5 billion yen, and the forecast
for the current year came in below the Multex forecast of a profit of 7.7
billion yen in 2002/03.

ANA holds a market share of almost 50 percent on domestic routes, leaving it
less exposed than Japan's largest carrier Japan Airlines Co Ltd (JAL) (9201)
to the September 11 attacks, which prompted many Japanese travellers to
cancel overseas trips.

ANA said the number of passengers on its international flights fell 19.7
percent in 2001/02 from a year earlier, while customers on domestic flights
edged 0.8 percent higher last year.

"On international flights, we see a recovery in passenger numbers to
pre-September 11 levels this year," Yasushi Morohashi, executive vice
president at ANA, told a news conference.

The airline said it expects revenues from its international flights to rise
almost 20 percent in 2002/03, while revenues from its domestic flights are
seen rising a more modest 2.4 percent.

JAL said earlier this month it expected a recovery in overseas flights after
the summer and defied analysts' expectations of a loss, predicting a return
to profit this year.

Indicative of the upbeat outlook, ANA expects an operating profit of 41
billion yen in 2002/03, up 78.5 percent from 2001/02.

Another bright spot for ANA is an expected boost in flights to Asia, spurred
by increased demand for flights to China and the opening of a second runway
at Tokyo Narita Airport.

TOUGH TALK ON JAL-JAS MERGER

However, the good cheer from ANA about the relatively strong showing of its
domestic routes may be short-lived, as its stronghold looks threatened by
the planned merger of JAL and Japan Air System Co Ltd (JAS) (9203) under a
holding company in October.

The JAL-JAS merger would create the world's sixth-largest airline by
passenger volume. Full business integration is expected by the spring of
2004.

The original merger plans were deemed anti-competitive by Japan's Fair Trade
Commission, because it gave the merged entity an unfair advantage in the
domestic market.

A revised plan was approved in April. That included the return of nine
landing slots at Tokyo's Haneda Airport to the Transport Ministry in
October, a 10 percent fare reduction on all domestic flights and a price
freeze for three years.

The merged group believes it will lose 25 billion yen in revenues from the
fare reduction, but that will be offset by annual cost savings of 73 billion
yen.

"If they say they will lose 25 billion yen in revenue, we want to take back
at least 20 billion," said ANA's Morohashi.

"We will not lose to the merged company."

ANA said it would not cut fares across the board, but would be more
strategic. However, analysts are sceptical.

"The airline industry is plagued by excess competition...ANA will probably
suffer when JAL reduces prices by 10 percent after the merger with JAS,"
said Hiroshi Nishida, General Manager at Mitsubishi Trust Asset Management
Co Ltd.

ANA also announced it would seek shareholder permission to shift 82.6
billion yen to retained earnings from capital reserves.

Shares in ANA closed up 2.44 percent at 378 yen before the earnings
announcement, compared with a 0.03 percent fall in the Nikkei 225 average
(N225).

($1=125)

(Additional reporting by David McMahon)


©2002 Reuters Limited.

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