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AI helps Japan Airlines pack planes even tighter

Profit increase on horizon as higher fares make up for fuel costs

JAL filled 9% more seats for the April-June period, even as capacity on international routes grew 7%.

TOKYO -- An AI-guided pricing system is helping Japan Airlines fill international flights to capacity, raising hopes that the carrier will reverse a predicted drop in annual operating profit to an increase despite high fuel prices.

JAL replaced a decades-old passenger management system with Amadeus' Altea program, which uses artificial intelligence to adjust ticket prices to match flight demand for maximum revenue.

The impact has far exceeded expectations, lifting occupancy rates on international flights, which in turn raised per-customer revenue.

More than 80% of seats on international flights are now occupied by paid passengers. And taking into account those riding free on reward programs, few empty seats are left, eliminating the need for discounts. With flights practically full, even JAL staffers complain that they cannot reserve seats for business trips.

JAL's revenue passenger kilometers on international routes grew 8.8% for the April-June period, surpassing 7% growth in transport capacity, according to quarterly earnings. Net unit prices increased 2%, excluding factors like fuel surcharges, even as the airline reduced business-class seats and increased economy seats. "This feat was thanks largely to the system upgrade," a company finance official said.

The AI is well-suited to the task of optimizing ticket prices based on past sales data, and losses due to misread demand have decreased as a result. When the upgrade was made, JAL Chairman Yoshiharu Ueki reportedly likened the change to "switching out a bamboo spear for a machine gun."

The upgrade cost the airline 80 billion yen ($722 million), amortized over five years at 16 billion yen in annual depreciation costs. JAL expected the resulting increase in sales to start exceeding these costs starting in the year ending March 2020. But the AI grows more adept as it absorbs more data, and a net gain could come as early as this fiscal year.

JAL has forecast operating profit to decrease 4% on the year to 167 billion yen for the term ending March 2019. But it will "strive to achieve an increase," said Norikazu Saito, the senior managing executive officer in charge of finance and accounting.

If the AI system's benefits can also offset the earnings impact from high fuel prices, it could lift JAL's slumping shares. The average price of kerosene has been above $80 on the Singaporean market, compared with $69 per barrel in the year ended this March. "The impact on earnings from rising crude oil prices is becoming priced into" the company's stock, according to Ryota Himeno of JPMorgan Securities Japan.

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