TOKYO -- Pandemic-hit travel agency JTB will cut its capital to 100 million yen ($949,000) from around 2.3 billion yen, Nikkei has learned, in a drastic move that transforms the Japanese industry leader into a small business for tax purposes.
Shareholders on Feb. 12 approved the capital reduction, which takes effect March 31. The freed-up capital will help absorb a big net loss forecast for the current fiscal year.
The unlisted seller of tour packages becomes the latest Japanese company to shrink itself in response to the collapse in demand for travel and restaurant dining.
JTB sank to a group net loss of 78.1 billion yen for the April-September half, and its retained earnings fell by roughly half over the six months to 79.9 billion yen.
As the travel sector continues to struggle, JTB expects a record pretax loss of around 100 billion yen for the full year ending March. A capital increase would have been another option for regaining financial health, but would have required finding buyers for new shares.
Companies have the option to carry over losses to offset future profits and reduce tax payments. Japan lets small and midsize companies offset more of their future profits this way, which could be a boon once JTB can make a comeback.
Small and midsize businesses are also exempt from local size-based business taxes, which large corporations must pay event when they lose money.
Several coronavirus-hit companies have taken a similar strategy to reduce their tax burden. Restaurant operators Kappa Create and Chimney have announced capital reductions to 100 million yen. Budget carrier Skymark Airlines plans to reduce its capital from the current 9 billion yen.
Prospects for the travel industry remain grim more than a year into the coronavirus era. JTB's travel transaction volume plunged 96% on the year to 5.1 billion yen in May, according to the Japan Tourism Agency. Despite a limited recovery thanks to Go To Travel subsidies designed to encourage domestic tourism, its transaction volume for domestic travel was down 41% on the year in December amid a resurgence in COVID-19 cases.
The competition has suffered as well. H.I.S., which focuses more on international travel, logged an 87% drop in transactions in December, while KNT-CT Holdings was down 56%. Travel books are believed to have suffered even steeper declines since January, after Japan declared a state of emergency in hard-hit areas.
Even with the state of emergency set to end in March, few expect an immediate recovery in tourism. International travel in particular "won't come back until at least next year," an industry executive said. JTB earns around 30% of its sales from international travel.
In addition to the capital reduction, JTB announced in November plans for reducing domestic branches by 25% and groupwide employees by 6,500.