Japan's ANA cites terrorism as Q1 net profit tumbles

[TOKYO] The parent company of Japan's All Nippon Airways on Wednesday cited "terrorist incidents" in Europe and earthquakes at home for helping drag its April-June net profit down more than a fifth.

ANA Holdings posted net profit of 6.6 billion yen (S$86.4 million) for its fiscal first quarter, 20.7 per cent lower than the same period last year, adding that a strong yen also took a bite out of its bottom line.

The airline's cargo business struggled in the quarter, while demand for domestic flights were affected by deadly earthquakes in southern Japan in April.

"Revenues and profits for the period were affected by (the) Kumamoto earthquake and terrorist incidents in Europe, in addition to exchange rates and crude oil market conditions," ANA said.

A sharp rally in the yen is threatening profits at major Japanese firms as it makes them less competitive overseas and shrinks the value of repatriated profits.

Demand for flights to Europe have taken a hit following a series of attacks including last week's murder of an 85-year-old French priest.

The killing at a church in northern France came less than two weeks after a 19-tonne truck was ploughed into a crowd celebrating Bastille Day in Nice, killing 84 people and wounding more than 300, while there have also been attacks in Germany.

Despite worries about violence weighing on demand for Europe-bound flights, ANA said its overseas business still saw stronger results owing to an expansion of international routes.

The firm left its profit and sales forecasts unchanged for the fiscal year to March 2017. It expects net profit to hit 80 billion yen, operating profit at 145 billion yen and sales of 1.81 trillion yen.

The results come after rival Japan Airlines (JAL) said last week its three-month net profit more than halved.

Falling oil prices have helped carriers' profits - fuel is often an airline's single-biggest expense - but JAL said it wasn't enough to make up for weak travel demand at home and abroad.

Like ANA, the airline cited Japan's killer quakes for denting tourist travel to the region, while revenue on international routes slumped owing to "stagnant" demand.

JAL offered little detail on the sharp profit decline but Japan's leading Nikkei business daily had reported that growing personnel costs on the back of a pilot shortage as well as the negative impact of terror attacks in Europe were key factors.

Such attacks are expected to remain a "downside driver" for airlines, said Hiroshi Hasegawa, an analyst at SMBC Nikko Securities.

He also cited the rise of low cost carriers as a worry for Japanese airlines in huge regional market China.

ANA said it launched discount fares in the quarter to fill a "demand gap" on Chinese routes.

"The prospect for aviation demand in China is another concern in the wake of severe competition with (low-cost carriers) there," he said.

AFP