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JAL gooses share price with upward revision

Analyst says long-term shareholders still favor ANA

Japan Airlines jetliners wait along a terminal building at Tokyo's Haneda Airport.

TOKYO -- Japan Airlines is trying to woo back investors.

On July 31, it released its April-June earnings, but it also announced upward revisions to its full-year estimates.

"We revised our full-year forecast in the first quarter for the first time," JAL Director Norikazu Saito said. "We wanted to let market players know that we will be able to achieve an operating profit of about 150 billion yen ($1.36 billion) this fiscal year."

For the April-June quarter, JAL's group sales were up 6% and its operating profit up 12% from a year earlier. For that, JAL can thank business travelers who spent big on international routes.

For the year through next March, the airline now expects sales to rise 5%, to 1.34 trillion yen. Although it now sees its operating profit declining 10%, to 153 billion yen, this is an improvement of 11 billion yen from its initial projection.

The revision is seen as an attempt to crawl out of a hole that JAL dug for itself in late April, when it forecast a significant profit drop for the current fiscal year. Its midterm management plan, which goes through fiscal 2020, did not help matters. It details four years of low growth.

Investors did not take kindly to the plan back in April and the next day briefly sent the airline's stock down 8%.

On July 31, Saito acknowledged that JAL had disappointed investors. Since late May, the airline has been trying to win them back. That is when JAL announced it would launch flights to Melbourne, Australia, and Kona, on the big island of Hawaii. The flights will begin in September, using Narita Airport, outside of Tokyo.

JAL has also decided to increase the number of flights to London and Bangkok, and has partnered with Vietnamese budget carrier VietJet Air.

These moves are being made in an attempt to better compete against ANA Holdings. While JAL was prohibited from making new investments and taking other measures after it emerged from bankruptcy, ANA Holdings kept growing its route network. ANA Holdings' operating profit jumped 80% on the year to a record 25.4 billion yen for the April-June quarter.

Ichiro Fukuzawa, senior vice president of ANA Holdings, said routes to Europe and North America have been especially profitable and that revenue got a boost from all the expansion the airline group has done.

JAL's profit grew less than ANA Holdings in the April-June quarter, partly due to rising costs of system investments.

But it is also at a big disadvantage to ANA Holdings, which has more routes and seats to sell and so rakes in hefty profits during boom times.

At a glance, it appears JAL was able to goose its share price with the revision. At one point on Aug. 1, the price jumped 3% from the previous day. The stock has continued to rise and closed Monday at 3,794 yen marking its year-to-date high.

But a number of market watchers think JAL expected more. Ryota Himeno, an analyst at Citigroup Global Markets Japan, said long-term investors who sold off JAL shares after the April disappointment have not returned.

JAL, it turns out, also has to fight ANA Holdings for shareholders. Many medium- and long-term investors are said to own either JAL or ANA stock but not both. One foreign institutional investor said strong April-June earnings alone will not prompt investors to trade buoyant ANA shares for JAL stock.

ANA Holdings is still considered the more attractive investment because of its growth potential.

One final note: JAL's upward revision only reflects April-June earnings; it ignores the all-important summer season, when carriers earn most of their profits. The airline's forecast for July and beyond remains unchanged.

Although JAL's July 31 announcement made its stock to rise over 6% or 200 yen in a week, the company needs to continue its aggressive policy to keep its shares at high point.

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