Financial Performance - Japan Airlines reported total revenues growth of 20.1% year-on-year and 19.2% compared to FY2019, with capacity increasing by 2% compared to FY2019 and 16.6% year-on-year [2] - Full Service Carrier revenues grew 17.5% compared to FY2019, driven by a 17.2% increase in international passenger revenues, with capacity recovery at over 85% compared to pre-pandemic levels [2] - Domestic passenger revenues decreased by 0.6%, with capacity recovery at over 96% [2] - The cargo business experienced a revenue decline of 40.7% year-on-year, although revenues remain 45.5% higher than in FY2019 due to increased unit revenues [2] - The LCC segment saw nearly 120% year-on-year revenue growth, with Zipair achieving 140.9% growth and Spring Japan 61.1% growth [2] Geographic Performance - International operations showed strong growth, with Full Service passenger revenues up 28% compared to FY2019 and 49.1% sequentially [2] - Capacity in Europe and Asia/Oceania decreased by 14-15%, yet revenues increased by around one-third [2] - Long-haul operations to America saw an 8.1% increase in capacity and nearly 60% growth in revenues [2] - Overall capacity growth was 1.9% with a revenue growth of 19.2%, indicating strong unit revenues driven by international business [2] Cost and Margin Analysis - Ex-fuel costs increased by 11.3%, exceeding the 8.7% inflation rate, indicating challenges in cost control [2] - Fuel costs have risen significantly, but EBIT margins improved due to strong international unit revenues [2] - The company expects revenue growth of nearly 17% for FY2024, with costs projected to grow by 15.1%, suggesting potential EBIT margin expansion [3] Stock Valuation and Outlook - Japan Airlines stock is considered a buy with a projected 31% upside, despite recent stock price declines [4] - FY2023 EBITDA was stronger than expected, leading to a projected total EBITDA increase of around 8% for the 2023-2027 timeframe [4] - The stock trades below its median EV/EBITDA valuation, indicating potential for investment [4] - The price target has been adjusted from $11.29 to $10.32, reflecting a decrease in stock prices while analyst estimates for EBITDA remain stable [4] Investment Considerations - Japan Airlines presents an interesting investment case, though demand recovery has been slower than expected, particularly in Q4 FY23 [5] - Weakness in travel markets to China and Hawaii, along with potential plateauing of domestic results, raises caution [5] - Continued strength in international unit revenues and growth in the low-cost carrier segment are positive indicators [5]
Japan Airlines: Why I Remain Bullish