Japan Airlines posts Q1 loss as high fuel costs weigh - UPDATE

But Asia's largest carrier stood by its previous forecast that it expects to post a small profit for the full year to March 2007, aided by a turnaround in the performance of its international operations with domestic passenger demand also showing signs of a rebound.

"Our performance in the first quarter was hit hard by surging fuel costs, combined with a weak yen," JAL director Tetsuya Takenaka told a press conference on the results.

In the quarter, the airline posted a net loss of 26.8 bln yen, down from a year earlier loss of 38.4 yen. It also recorded an operating loss of 31.9 bln yen, little changed from the year earlier loss of 32.0 bln yen.

Revenue though rose 3.7 pct to 522.2 bln yen.

The biggest contributor to the sustained loss was fuel costs which rose by 10.1 bln yen from the year before to 97.4 bln yen, while the firm reaped just 13 bln yen from an additional fuel surcharge on domestic and international tickets.

"With fuel costs now running at higher than expected levels, we may need to hike the surcharge on international tickets further before the end of this year," Takenaka said, without elaborating further.

In the first quarter, the cost of Singapore kerosene, which provides the benchmark for JAL's jet fuel charges, averaged 82.0 usd per barrel, sharply higher than the year ago average of 66.7 usd.

For the full year to March, JAL has forecast an average cost of 75 usd per barrel.

"We will also work hard to reduce the total volume of fuel used and depending on the situation, we may also need to examine the option of selling some assets," Takenaka said, without elaborating further.

JAL also attributed its continued losses to operational problems, including a number of emergency landings, which prompted many travellers to switch to rival ANA.

"A series of operational problems weakened our position against competitors, and this further weighed on the performance," Takenaka said.

As a result, the number of international service passengers in the quarter was down 5.8 pct year-on-year, while the number of domestic passengers fell 1.6 pct.

"But we think the downturn in domestic demand has bottomed out and we have experienced some recovery since April," Takenaka said.

JAL also pointed to some bright spots in its international service, where, in order to cut costs, it has halted six international routes starting last October.

"Thanks to a downsizing of the fleet (as a result of the route reductions) the operating loss in the international passenger service division was nearly halved in the first quarter from a year ago," JAL finance department general manager Toshiyuki Kawarabata told the same press conference.

As a result of the airline's passenger load factor, rose to 69.9 pct in the first quarter from 65.4 pct a year earlier.

For the year to March 2007, JAL forecast net profit of 3 bln yen, operating profit of 17 bln yen and revenue of 2.30 trln yen, all unchanged from its previous estimates.