Consolidated financial results of the JAL Group for the half year ended September 30, 2003

Japan Airlines System Corporation the holding company established on October 2, 2002 to oversee the integration of Japan Airlines and Japan Air System announced the consolidated financial results of the JAL Group for the half year ended September 30, 2003. The results include the consolidated results of Japan Airlines and Japan Air System.

Total operating revenues for the six-month period were 944.5 billion yen. Operating costs were 992.9 billion yen, resulting in an operating loss of 48.5 billion yen. Ordinary income was a loss of 49.9 billion yen and the first half net result was a 57.5 billion yen loss.

International passenger and cargo traffic volume and revenue were drastically affected by the negative impact on demand resulting from the Iraq conflict and the outbreaks of SARS. On domestic routes there was an increase in individual passenger traffic and revenue resulting from the group's improved schedule, following the integration of the Japan Airlines and Japan Air System domestic networks. The JAL Group also announced a revised forecast for the year ending March 31 2004.

First half factors

- International passenger traffic was drastically hit by the impact of the Iraq war and the outbreaks of SARS in China and South East Asia, costing the JAL Group more than two and a half million customers. The international passenger total was only 4,950,407 - 34.3% down on the same period last year. International passenger revenue fell by 29% to 250.7 billion yen.

- Domestic traffic was boosted by improvements to the network through integration of the JAL and JAS route systems, ending duplication and offering a more convenient and competitive schedule. An immediate result of this integration was an improvement in the ratio of individual travelers to group passengers. Domestic passenger traffic volume measured in revenue passenger kilometers (RPK) rose 2.0%. Domestic passenger numbers increased by 2.7% to 24,298,624. Domestic passenger revenue increased by 4.0 % (up 13.6 billion yen).

- International cargo traffic was 6% lower than last year mainly due to reductions in freight capacity caused by the suspension of many passenger flights as demand fell. Freight demand on transpacific routes was down. Revenue was 5.0% lower than the first half last year (down 3.7 billion yen).

- Fuel costs increased from US$27.5 per barrel of Singapore kerosene last year to US$30.6 per barrel, but Group total fuel consumption was lower due to flight suspension, saving 7.6 billion yen in fuel expenditure by comparison to last year. However, despite the lower consumption, first half fuel expense was up by 1.3 billion yen because of the fuel prices increase.

- As international passenger demand fell, JAL adjusted flight capacity and frequency, using smaller aircraft or suspending services where necessary, achieving cost savings of 37.7 billion yen.

- The average US$-Yen exchange rate last year was 124.5 yen. However the average rate for the period was 118.6 yen to the US$, benefiting the Group's air transport segment by 6.3 billion.

- Non-operating revenues included 15.5 billion yen in credits from manufacturers relating to aircraft purchase (9.6 billion yen down on the first half last year).

Factors contributing to FY2003 - year ending March 2004

- International passenger demand continues to be affected by the Iraq war and the SARS outbreaks. Although business travel is now back to previous levels the negative effect on leisure travel in the Japanese market remains and recovery is slower than expected. International passenger demand forecast for the year is expected to be 18% below the previous year (FY2002), and 4 points below earlier estimates of a 14% drop. Full recovery is expected in Spring 2004. Yield per passenger has improved by 3%, an increase of 2 points on the previous estimate.

- Domestic passenger demand is stable and a further increase in the ratio of individual passengers to group travelers is expected and yields are improving following fare increases in July.

- Exchange rates are having a negative impact on revenues but international cargo demand forecast is expected to remain steady, although lower demand on transpacific routes continues.

- Aviation fuel cost is based on Singapore Kerosene at a market price of US$32.5 per barrel. The total fuel bill for the year is estimated at 242 billion yen, 4 billion yen less than in the previous year.

- The impact of Iraq and SARS on the operating results forecast is worse than previously expected by an extra 20 billion yen in revenue losses. Other minus factors are decreased cargo revenue of 6.5 billion and increased fuel costs of 15 billion yen. However these will be offset somewhat by plus factors such as adjusting flight capacity to match falling demand thus saving 8.5 billion yen and exchange gains of 7 billion yen, to a final minus factor of 26 billion yen, increasing the original operating income forecast from a loss of 22 billion yen to a loss of 48 billion yen.

- Assumptions on which the forecast is based include an exchange rate of 110 yen against the U.S. dollar;

- Non-operating income will include aircraft credit memos to the value of 30 billion yen.

- The Group forecasts a net loss in the year ending March 31 2004 and does not plan to pay a dividend.

The Iraq/SARS impact on the total Group sales revenue will be worse than previously expected by 34 billion yen, increasing the total estimated sales revenue loss from 162 billion yen to 196 billion yen. Operating income loss due to the Iraq/SARS factors will be greater by 20 billion yen, from the earlier estimate of 115.5 billion yen to a total of 135.5 billion yen. Earlier urgent remedial measures totaling 37 billion yen in cost savings have been increased by a further 8.5 billion yen cost saving to a total of 45.5 billion yen.