Management StructureAugmenting Fundamental Quality, IncreasingCorporate Value ... Management StructureThorough Attention to Shareholders, and Improvementof Capital Efficiency Based on Management TargetsOn the premises of Maintenance of flight safety and Pursuit of goodqualityservice, the basic policy of management of the <strong>JAL</strong> Group isto make the requisite reforms of organization and systems required soas to enable attainment of stable profits even under conditions ofintensified competition, so as to provide a continuous return to allstakeholders, including shareholders, customers and society, employeesand financial position.The entire Group is working hard to determine performanceobjectives based on management targets, and improve capital efficiencyin order to thoroughly implement the policy of according highimportance to shareholders.- Achievement of 10% return on equity on a consolidated base- Raising the ratio of cash flow originating in operations to consolidatedinterest-bearing liabilities, including lease and pension payobligations, to 10% or higher- Adopt in each division, in-house company and related company theintra-Group control indicators (J.VASE) that provide a measure ofcorporate value, in order to achieve the objective for return on equity- Further improve the system for investor relation’s activities, bymeans including strengthening the Shareholders’ ServiceDepartment.In the area of corporate governance, each company in the <strong>JAL</strong>Group has introduced a performance evaluation system, which isbeing used to link the objectives of each company to objectives of theGroup as a whole. By the adoption of enterprise resource planning(ERP), we will further clarify the responsibilities of each companyand strengthen the function of monitoring. In addition, the companyis using equity policy to contribute to the unification of Group strategy.With regard to operations related to air services this has entailedmeasures such as the exchange of shares in March 2000 whereby<strong>JAL</strong>ways was made into a fully owned subsidiary. Also, the companyis proceeding with strengthening of the functions of the standingauditor in order to further improve corporate governance.Strengthening of the Group’s Managerial System andOrganizationThe six key factors in the following two areas have been identified asthe basic venues for management of the <strong>JAL</strong> Group. By work relatedto these factors, the intangible assets of the company, embodied inquality of service and in its personnel, will enhance the value of thecompany.In the area of Strengthening the Group foundation, these factorsare vital:- Improvement of safety quality,- Offering of high-quality service by the Group as a whole,- Elevating customer satisfaction by further reform of the corporatestyle.In the area of Maximizing corporate value, these are vital:- Improving the utilization of assets, including attaining a consolidatedROE of 10%,- Augmenting the role of air transport as an industry,- Augmenting the company’s social role as a corporate citizen.Second, in the area of Improvement of the <strong>JAL</strong> Group’s managerialsystem and organization, <strong>JAL</strong> group functions are separated into- Functions governing the Group as a whole,- Passenger, cargo and other operating segments,- Marketing, engineering and maintenance, and airport service functionsegments,- Functions that are to be shared in common within the Group.With the objective of optimization in keeping with each of thesefunctions the company is carrying out, for example, the followingspecific policies.- Participation in the Cash Management Center: Of the 89 domesticconsolidated companies in the <strong>JAL</strong> Group, 72 are participating in ajoint-operation Cash Management Center. Further, 46 are joining tooperate and use an Accounting Center. These organizations willimprove the efficiency in use of capital, and of accounting tasks (endof March <strong>2001</strong>).- Personnel cutbacks: It is anticipated that there will be a reduction of4,200 ground personnel by the end of fiscal 2002 (relative to the levelat the end of fiscal 1998).- Shifts of route service: As of fiscal <strong>2001</strong>, 15% of all internationalpassenger flights operated by the groups were by <strong>JAL</strong>ways (exclusiveof code-sharing flights). Of domestic operations, those using B737shave all been transferred to <strong>JAL</strong> Express, and from April <strong>2001</strong>, deliveryof CRJ200 regional jets has begun and these are now in service inaddition, the further transfer of routes to J-AIR is to be promoted. Asa result, more effective route management will be realized.Increasing Income and Reducing CostsThe Approach to Increasing IncomeTransfer of business operations to marketing companies: marketingcompany, <strong>JAL</strong> Sales Network, has been established, as a subsidiaryfully owned by <strong>JAL</strong>. By April <strong>2001</strong> almost all marketing activities inJapan has been transferred to this company. Our intention in doingthis is to improve the overall marketing ability of the company,acquire greater ability to respond to diversified market requirements,and lower business operating costs on a company-wide scale. The8
Cargo Division transferred marketing operations in Japan to <strong>JAL</strong>Cargo Sales as of April <strong>2001</strong>; this company operates closer to themarket.Price strategy: In the domestic market, in accordance with provisionof the revised Civil Aviation Law (effective as of February 2000),<strong>JAL</strong> has greatly expanded its menu of discount fares, and improvedthe offerings available in the reduced-price <strong>JAL</strong> Goku (Goku is theJapanese reading for the Chinese name Sun Wukong, the MonkeyKing) scheme for international travelers. The company also hassought to increase the ratio of high yield customers, and increase theunit price. In addition, the company has taken a pro-active stanceregarding e-business, and has introduced e-discounts and e-tickets,both of which have elicited a swift response from customers.Improvement of product quality: During fiscal <strong>2001</strong> the companywill improve the seats and seat pitch in business class compartmentsof aircraft operated on major routes, improve in-flight meals,and renovate DC10s, to enhance customer evaluation and improvecompetitiveness.The Approach to Reducing CostsReduction of landing fees: Through the Scheduled AirlinesAssociation of Japan (Isao Kaneko [President, <strong>JAL</strong>], chairman), thecompany is endeavoring to have landing fees, that are high relative toother countries, reduced by one-third for domestic flights arriving atHaneda and by about 9% for international flights arriving at KansaiInternational Airport.Reducing cash outflows from the Group: To improve consolidatedcash flow, in addition to reviewing the details of contracts withvendors and paying greater attention to purchase prices, the companywill work to achieve a more flexible structure of fixed and variablecosts, using such means as the sale of assets, expansion use of leasesand expanded scope of outsourcing.By means of these measures for reduction of costs, the objectiveof a 10% reduction in unit transport costs relative to that of 1997 wasachieved in 1999 (followed by a small increase in 2000 because ofhigher fuel costs).
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