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US airlines fly high while virus drag keeps Japan carriers low

JAL's $530m loss more than double Delta, American and United profits

"It's hard to picture a recovery in demand," Japan Airlines' chief financial officer has said. (Photo by Konosuke Urata)

TOKYO – A massive loss reported by Japan Airlines on Tuesday brought into sharp relief the industry’s lopsided recovery, with U.S. carriers bouncing back quickly and Japanese and European peers continuing to bleed red ink.

Their divergent fortunes could give companies like Delta Air Lines and American Airlines a distinct edge in the post-pandemic landscape, allowing them to turn temporary discrepancies into lasting leads.

Japan Airlines on Tuesday reported a 57.9 billion yen ($529 million) net loss for the April-June quarter. Though a solid cargo business and cost cuts reduced the red ink from a year earlier, passenger numbers have yet to recover from the blow inflicted by the pandemic.

"It's hard to predict a recovery in demand," said Hideki Kikuyama, JAL's chief financial officer.

JAL had said in May that its core business could regain profitability if international traffic returned to 40% of pre-pandemic levels and domestic travel hit 80% of that standard. But as of June, these figures clocked in at only around 30% and 7%, respectively.

Recovery prospects look little better for All Nippon Airways parent ANA Holdings. The company logged a 51.1 billion yen loss last quarter.

European carriers face a similarly tough position. International Airlines Group, parent of British Airways, reported an after-tax loss of 981 million euros ($1.16 billion) for the quarter, citing the ongoing impact of the pandemic.

Delta Air Lines is making capacity investments as earnings recover on the back of solid domestic travel demand.   © Reuters

By contrast, major carriers in the U.S., where vaccinations have made headway, are starting to rebound. The big three -- United Airlines, Delta and American Airlines -- reported combined net profit of $237 million for last quarter. The latter two were in the black for the first time since first-quarter 2020, while United's loss for the period was its smallest during the pandemic.

These improvements were driven largely by travel within the country. Domestic passenger traffic in June came to 85% of June 2019 levels in the U.S., compared with 32% in Japan, the International Air Transport Association said. International traffic in Europe, where short-haul cross-border flights are common, was just 31% of where it stood two years earlier.

Domestic travel also makes up a relatively large share of business in the U.S. market, with Delta and American earning about 70% of their passenger revenue from flights within the country in 2019. The comparable pre-pandemic share for ANA and JAL was about half.

The IATA expects the industry to stop bleeding cash and start breaking even in 2022 or later. Cross-border travel looks likely to recover even more slowly as the spread of more contagious coronavirus variants worldwide forces countries to maintain entry restrictions, suggesting that domestically oriented American carriers will probably stay on top for now.

These airlines are taking advantage of their rebound by adding to their fleets and expanding service, potentially positioning them to stay ahead in a post-coronavirus industry reshuffle.

"With the recovery picking up steam, we are making investments to support our industry-leading operation," Delta CEO Ed Bastian said.

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