April 9, 2014 7:00 pm JST

ANA to shift growth focus to international flights, mostly in Asia

TOKYO -- The Japanese airline ANA Holdings plans to increase its international flights as travel demand grows in emerging Asian countries.

     Under its mid-term business plans, the company aims to increase its annual net profit by 300% to 60 billion yen ($582 million) over the next three years from its net profit estimate for the year just ended in March. It plans to do this mostly by adding more international flights.

     ANA will focus on Asia with this strategy. However, there are lingering concerns that earnings could be hurt by overseas economic developments.

     In a recent interview with The Nikkei, ANA Holdings President and CEO Shinichiro Ito talked about the airline's plans for boosting earnings. Excerpts of the interview follow.

Q: ANA plans to increase its available seat kilometers -- the total number of available seats multiplied by the total number of kilometers flown -- by 45% during the next three years. Do you have any specific strategies to achieve this?

A: Both Haneda and Narita airports (which serve the Tokyo area) are expanding their international flight slots, but even so, Japanese airlines will only secure some 30% of these slots. To fully capture air travel demand in a rapidly growing Asia, we have to enlarge our operational scale. For starters, we raised the number of international flights departing from Haneda Airport to 23 flights on 17 routes at the end of March. Before, we had 13 flights on 10 routes.

Q: But how are you going to secure demand?

A: We will maximize our network of connections between these increased international flights and domestic flights at Haneda. We predict that the connection for international departures from domestic flights across Japan will jump to roughly 500 patterns from the current 300.

     Right now, many Japanese regional airport passengers fly non-Japanese airlines, connecting to Europe and other destinations via South Korea's Incheon Airport. I think Haneda can regain its role as a hub if it can offer better connection services. Our group travel agencies will sell a broader range of overseas tour packages that include transits via Haneda from domestic flights. We hope to increase sales from our international flights by 50% to approximately 550 billion yen over the three-year period.

Q: A business structure like that is more susceptible to overseas economic trends, terrorist threats and other factors, which could significantly impact ANA's earnings performance.

A: We plan to slash 84 billion yen in costs over the three years so that we can securely generate profits when our revenue fluctuates. Moreover, we will reform business procedures thoroughly at all our group companies in order to enhance productivity. We will also re-examine our outsourcing costs at overseas airports. Through these initiatives, we hope to achieve a 50% increase in operating profit of our international flights from around 30 billion yen at present.

     At the same time, we also intend to diversify our revenue sources. With the growth of airline markets in emerging countries, demand has been growing for pilot training and peripheral businesses. We will bolster these areas through mergers and acquisitions and help offset revenue fluctuations in the flight service business.

Q: ANA plans to cut domestic flights by 4%. This means it will operate more international flights than domestic ones for the first time. 

A: ANA has been built on the strength of our domestic flight services, but those days are gone. We can't expect mid- to long-term growth in domestic flight demand as the country's population declines and other factors. We will use smaller airplanes to respond to such changes.

     Having said that, we are seeing an increase in the number of tourists to Japan from overseas. Using our marketing base in Singapore, we will try to offer services for Asian tourists to visit many more places in Japan and let them travel more by our domestic flights.

Q: Given the target of 60 billion yen in net profit, are you also considering an increase in dividend payouts?

A: As our earnings took a hit due to higher fuel costs from a weaker yen, we have paid an annual dividend of 3 yen for the year ended in March, 1 yen less than we initially planned. If we can achieve a net profit of 60 billion yen, we hope to pay an annual dividend of 4-5 yen to pay back to our investors.

Interviewed by Nikkei staff writer Ryuhei Nakao.

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