Skymark Airlines : Supplementary Material for Financial Results FY2024 (FY2024_3) with explanation（1MB）

Skymark Airlines Inc.

Supplementary Material for Financial Results for the Fiscal Year ended March 2024 (FY2023)

May 15, 2024

1

1. Financial Results for FY2023 (FY2024/3)
2. Earnings Forecast for FY2024 (FY2025/3)
3. Mid-TermBusiness Targets FY2024-FY2028
4. Appendix

2

1. Financial Results for FY2023 (FY2024/3)

3

Highlights for FY2023

*Definitions are, FY: fiscal year (from April 1 to March 31 of the next year), Q1: from April to June, Q2: from July to September, Q3: from October to December, Q4: from January to March

1

2

Increased Revenue and Income due to Strong Passenger Demand and Yield Management

• Passenger demand exceeded pre-pandemic(108% compared to FY2018) and operating revenues hit a record high, reaching JPY104 billion (+22.9% YoY)
• Operating income increased to JPY4.6 billion (+35.2% YoY) despite larger allowance for maintenance
  (approximately JPY2.0 billion) at the end of fiscal year

Addressed Higher-than-expected Cost Increases by Significantly Increasing Average Price per Passenger

• Load factor normalized to pre-pandemic levels at 83% along with significantly higher average price per passenger
• Average price per passenger (JPY12,756) increased by JPY435 compared to target and by JPY1,072 YoY
  (approximately JPY8.5 billion increase in revenue due to higher average price per passenger1)

3

4

Higher Quality Services through Continuous Pursuit of Customer Satisfaction

• No.1 On-time Departure Performance for 6 Consecutive Years (FY2017-2022) 2
• Won Best Customer-Satisfaction award in JCSI 2023 as "Domestic Long-Distance Transportation" 3

Propulsion of the Employee Engagement for the long-term business development

• Introduction of the Restricted Stock Unit for the employees and the establishment of the organization which specializes in improving the employee engagement

5 Dividend Forecast for FY2023 end Revised Upward with Dividend Increase

• Year-end dividend forecast revised upward to 29 yen per share (up 24 yen YoY, up 8 yen compared to forecast)

Notes：

1. Estimated effect of higher average price per passenger: YoY increase in FY2023 of JPY1,072 x 7,948,000 revenue passengers in FY2023 = Approx. JPY8.5Bn
2. Based on the on-time performance rate (a rate of flights departing within 15 minutes from the scheduled departure time to all fl ights) among "Specified Japanese Air Transport Service Providers" (12, 11, and 10 providers for FY2017 -19, FY2020 and FY2021-22, respectively) as defined in MLIT, "Information Disclosure on Air Transport Services"
3. Ranking of customer satisfaction level among domestic long-distance transportation: Includes all domestic airlines and most bullet train services. As of FY2023, the following 13 companies (Skymark, AIR DO, ANA, Jetstar, JAL, Starflyer, Solaseed Air, Peach, Kyushu Shinkansen, Sanyo Shinkansen, Tokaido Shinkansen, Tohoku Shinkansen, and Hokuriku Shinkansen)

Copyright © Skymark Airlines Inc.	4

This slide outlines our highlights for the FY2023.

As for the first point, against the backdrop of strong passenger demand, the average price per passenger was up helping us to achieve increased revenue and income on an operating income and ordinary income basis. Operating revenues exceeded JPY100 billion for the first time, reaching JPY104 billion. Operating income increased to JPY4.6 billion, but because of higher-than- expected operating costs in Q4, this figure was lower than expected. We will talk more about this later.

The second point is the average price per passenger. We are increasing the average price per passenger continuously along with enhancing operating quality in this fiscal year. Through thorough yield management, we were able to maintain our load factor at an appropriate level while achieving significant increases both year-on-year and compared to target.

The third point is the result of our efforts toward customer satisfaction. As a result of our continuous efforts to improve the quality of our service to provide customers with comfortable air travel, we were not only ranked top for on-time departure performance six years in a row, but also received high rates for customer satisfaction.

The fourth point is that we began to make earnest attempts to raise worker engagement, as we had been unable to do due to the of the COVID-19. We created a special division with the goal of fostering a pleasant work environment and decided to introduce restricted stock unit for the employees. Thanks to these financial results, we plan to pay a higher-than-expected year- end dividend of 29 yen per share.

4

Overview of Financial Results for FY2023

Operating revenues reached a record high, and although operating income fell short of forecasts, revenue and income increased thanks to higher revenues that outweighed cost increases

vs.

vs.

FY2023

vs.

Operating Revenues

FY2018

FY2022

FY2023

Financial

Financial

FY2022

FY2018

(JPY Bn)

Unit: JPY MM

Forecast

Forecast

Broke the record

Operating

88,207

84,661

104,075

+22.9%

+18.0%

102,300

+1.7%

120.0

Revenues

104.0

Passenger

85,623

82,044

101,395

+23.6%

+18.4%

99,300

+2.1%

90.0

88.2

90.3

84.6

Revenues

Other

2,583

2,616

2,680

+2.4%

+3.7%

3,000

▲10.7%

Revenues

60.0

47.1

Operating

81,002

81,207

99,406

+22.4%

+22.7%

96,700

+2.8%

34.0

Expenses

30.0

Operating

74,200

75,718

93,377

+23.3%

+25.8%

－

－

Costs

SG&A

6,801

5,488

6,029

+9.8%

▲11.3%

－

－

0.0

Operating Income

7,205

3,453

4,668

+35.2%

▲35.2%

5,600

▲16.6%

FY2018

FY2019

FY2020

FY2021

FY2022

FY2023

Operating Income

8.2

4.1

4.5

+0.4pt

▲3.7pt

5.5

▲1.0pt

Margin (%)

Operating Income (Loss)

Ordinary

8,832

3,713

7,463

+101.0%

▲15.5%

5,600

+33.3%

Income before

8,820

2,500

7,463

+198.5%

▲15.4%

5,600

+33.3%

(JPY Bn)

7.2

Income Taxes

10.0

4.6

3.4

Net Income

9,122

5,726

2,997

▲47.7%

▲67.1%

5,800

▲48.3%

2.2

Adjusted Net

5,769

1,635

4,882

+198.5%

▲15.4%

3,662

+33.3%

Income1

▲5.0

Dubai Crude Oil Price

64.8

68.5

74.2

+8.4%

+14.5%

79.6

▲6.8%

(After Hedging)(US$/Barrel)

Exchange Rate Used for

111.3

133.7

142.9

+6.9%

+28.4%

-

-

▲20.0

▲ 16.6

Fuel Cost (After

Hedging)(JPY/US$)

Exchange Rate Used for

Foreign Currency

110.7

118.5

129.4

+9.2%

+16.9%

121.5

+6.5%

Transactions

(After Hedging)(JPY/US$)

▲35.0

▲ 31.6

Dividend per Share

－

5.0

29.0

+480.0%

－

21.0

+38.1%

FY2018

FY2019

FY2020

FY2021

FY2022

FY2023

(JPY)

Note：

1. Income Before Income Taxes ×(1－effective tax rate 34.59%)

Copyright © Skymark Airlines Inc.

5

This is an overview of financial results for the FY2023.

Against a backdrop of strong passenger demand, operating revenues reached a record high of JPY104 billion, an increase of 22.9% from the previous year. Operating income was JPY4.6 billion, an increase of roughly JPY1.2 billion compared to the previous year, and ordinary income was JPY7.4 billion.

On the other hand, net income was JPY2.9 billion, down on the previous year, due to the recording of income tax adjustments.

Adjusted net income, which is the basis for our 35% dividend payout ratio, was JPY4.8 billion, resulting in a significant increase in dividends.

5

Trend of Travel Demand

Strong passenger demand continues, with FY2023 at 108% compared to pre-pandemic(FY2018) and 113% compared to FY2022

Passenger Demand

Revenue passengers (in thousands),																							Revenue passengers vs. FY2018 (%)
Number of seats (in thousands)
3,000																COVID-19																							120%
							108% 107%																			106%				107%	106%	110%	108%
				104%																				102%
100% 100% 100% 100%																					2,472
	2,457 2,396																			2,451 2,405 2,435 2,441 2,453 2,419
2,500							2,316															95%		100%
		2,268 2,271			2,287														2,264
		2,210	90%											2,189
2,151					2,127					2,048																		2,082 2,024
2,000		1,969						1,982									2,006	77%	1,954	77%		1,961				1,951		80%
													1,874		1,866				1,890
		1,848 1,808 1,832												1,840
1,758
											1,684
								1,626
											60%	1,545
1,500																			1,415	1,353																60%
																		51%
																48%
														1,114	43%
													40%							51%
																	996
1,000																		919																			40%
										806 780			836
											779
500											16%																													20%
											287
0																																									0%
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4		Q1	Q2	Q3	Q4		Q1	Q2		Q3	Q4	Q1	Q2		Q3	Q4		Q1	Q2	Q3		Q4
		FY2018				FY2019					FY2020				FY2021						FY2022							FY2023
																	Revenue passengers						Number of seats						Revenue passengers vs. FY2018

Copyright © Skymark Airlines Inc.	6

Next, we will talk about the quarterly trend in travel demand.

Passenger demand remained steady with the number of revenue passengers in FY2023 at 108% compared to pre-pandemic, FY2018, levels, and 113% compared to FY2022.

In addition to solid demand centered around leisure and VFR, the continued strong demand is most likely due to wider domestic travel and inbound tourism owing to the weaker yen and inflation.

6

Continuous Increase in Average Price per Passenger in Q4 FY2023, Successfully Offsetting Cost Increase

Increased by JPY1,293 (+11.1%) compared to Q4 FY2022 while maintaining high load factor

Trend in Average Price per Passenger / Load Factor		Results of Q4 Average Price per Passenger Increase
(Each Year's Q4 Results)		and the Estimated Effect of that Increase

(JPY)	Average Price per Passenger				12,916
13,000	Load Factor
						11,957
			11,507		11,312		11,622
		11,004		11,133
11,000
10,579
							100%
	84%	83%	82%					82%
9,000
						78%	80%
				71%
7,000								60%
					50%	47%
5,000
							40%
	Q4	Q4	Q4	Q4	Q4	Q4	Q4	Q4
	FY2016	FY2017	FY2018	FY2019	FY2020	FY2021	FY2022	FY2023

	Q4 FY2023	Q4 FY2023
	Increase in	Increase in
	# of Revenue
	Average Price	Revenue
	Passengers
	per Passenger
vs. Q4 Target	JPY454	1,951k	c.JPY0.8bn
vs. Q4 FY2022	JPY1,293	1,951k	c.JPY2.5bn
vs. Q4 FY2018	JPY1,408	1,951k	c.JPY2.7bn

Factors of Average Price per Passenger Increase

• Strong passenger demand
• Continuously improving service quality, including high on- time performance and improved customer satisfaction
• Thorough yield management
• Price revision for winter schedule (from October 29, 2023)

Copyright © Skymark Airlines Inc.	7

Next, we will explain our efforts to increase unit price.

Average price per passenger in Q4 FY2023 was JPY12,916, a significant increase of JPY1,293 compared to the same period last year.

The price compared to the Q4 target was up by JPY454. If we multiply this increase by the number of revenue passengers at 1,951,000, we can calculate that our increase in revenue due to the average price increase in Q4 alone is roughly JPY0.8 billion.

Remarkable thing is that even though the average price per passenger has increased significantly, we have been able to maintain a high load factor. We have been working on increasing average price per passenger continuously through high operating quality and believe that this will be a major success in terms of future yield management.

7

Load Factor and Yield Performance(Q1-Q4)

While the load factor1 reached almost same level as FY2023 target, average price per passenger (JPY12,756) was +JPY1,072 YoY and +JPY435 compared to target with a significantly higher yield2

Load Factor		Yield

	(Unit: JPY)
100%	12.5
COVID-19	COVID-19

90%							FY2023 Average Price
84%						per Passenger : JPY12,756
84%	83%	83%		12.0
		vs. Target: +JPY435
		80%		Target			vs. FY2022: +JPY1,072
80%
						vs. FY2019: +JPY1,227
					11.5
70%		74%				11.0	11.0	11.0
					11.0

12.0

Target

60%										10.5
								10.5	10.3
50%					52%								10.4	10.5
				49%
40%								10.0
0%								0
FY2016	FY2017	FY2018	FY2019	FY2020	FY2021	FY2022	FY2023		FY2016	FY2017	FY2018	FY2019	FY2020	FY2021	FY2022	FY2023

Notes：

1. Load Factor is calculated as follows: RPK (revenue passenger kilometers) / ASK (available seat kilometers)
2. Yield is calculated as follows: Passenger Revenue / RPK

Copyright © Skymark Airlines Inc.	8

The next slide represents the load factor and yield.

Load factor was 83%, maintaining an appropriate level similar to pre- pandemic levels.

The yield was JPY12.0, and the average price per passenger was JPY12,756, an increase of JPY435 compared to target and a significant increase compared to pre-pandemic levels in FY2018.

We will continue to work on yield management while maintaining a load factor at appropriate levels.

8

Changes in Operating Income (vs. FY2022)

Although costs increased due to weak yen and high crude oil prices, profits recovered significantly by increased sales with the demand recovery and yield management

Allowances increased by approximately JPY2.0 billion due to a review of allowance for maintenance carried out at the end of each fiscal year

(Unit: JPY Bn)

3.4

FY2022

after hedging			FY2022		FY2023
Crude oil price		68.5$/BBL		74.2$/BBL
FX rate		118.5JPY/$		129.4JPY/$		+1.2
Revenue			Market
increase			fluctuations1
+19.41			▲8.10
							Fuel costs	Aircraft
							and tax
							lease
							▲1.23	payment
									+0.04

1 Details of changes in market fluctuations Cost incurred from changes in difference between exchange rate after hedging and oil price after hedging

▲5.69:Fuel cost

▲0.94:Aircraft lease payment ▲1.38:Maintenance expense ▲0.08:Others

+ : Profit increase (revenue increase, cost decrease) ▲: Profit decrease (revenue decrease, cost increase)

4.6

FY2023

▲1.50: Changes in expenses due to review of allowance

(▲2.07 in expenses incurred due to review of allowance at the end of FY2023 minus ▲0.57 in expenses incurred due to review of allowance at the end of FY2022)

Maintenance

expenses

▲5.44

Personnel

expenses Other expenses2

▲0.81

▲2.64

2 Details of changes in other expenses ▲1.61:Increase in airport usage fees ▲1.03:Other costs incurred from demand recovery (Increase in commission fees, and travel expenses, etc.)

Copyright © Skymark Airlines Inc.	9

This slide shows the detailed changes in operating income by factors.

Due to market factors such as the continued depreciation of the yen and high crude oil prices, expenses increased by approximately JPY8.1 billion compared to the previous year. In addition, operating expenses increased more than expected, mainly due to a rise in maintenance expenses and reduced government support following the pandemic.

Maintenance expenses have increased by approximately JPY2.0 billion due to a review of allowance for maintenance carried out at the end of each fiscal year.

Despite increasing costs, sales increased, pushing up operating income by JPY1.2 billion compared to the previous year thanks to a recovery in passenger demand and thorough yield management in response to increased costs.

9

Details of Operating Expenses for FY2023

Rising maintenance expenses due to weaker yen and higher cost of maintenance parts

Expenses increased more than expected despite efforts to reduce costs, primarily other costs such as manageable expenses

						vs. FY2022
	Unit: JPY MM	FY2018	FY2022	FY2023	Change	From Market	From Other
				Fluctuations	Factors
	Number of Aircraft	26.6	29.0	29.0	-	-	-
	(Average for each fiscal year)
	Available Seat-km	9,317	10,025	10,186	+161	-	-
	(ASK) (MM seats km)
	Fuel Cost and Tax	20,706	21,392	28,318	+6,925	+5,694	+1,231
	Airport Usage Fees	7,844	4,780	6,389	+1,608	-	+1,608
	Aircraft Lease Payment	10,120	11,036	11,929	+893	+940	▲46
	Maintenance Expenses	7,060	11,053	17,890	+6,836	+1,388	+5,448
	Personnel Expenses	14,697	15,600	16,200	+600	-	+600
	(Excluding Bonuses)
	Bonuses	2,865	1,594	1,808	+213	-	+213
	Depreciation and	2,433	2,413	2,480	+66	-	+66
	Amortization
	Others	15,273	13,335	14,390	+1,054	+86	+967
	Total Operating	81,002	81,207	99,406	+18,199	+8,109	+10,089
	Expenses
	Dubai Crude Oil Price	64.8	68.5	74.2	+5.7	-	-
	(After Hedging)(US$/Barrel)
	Exchange Rate Used for	111.3	133.7	142.9	+9.2	-	-
	Fuel Cost
	(After Hedging)(JPY/US$)
	Exchange Rate Used for Foreign	110.7	118.5	129.4	+10.9	-	-
	Currency Transactions
	(After Hedging)(JPY/US$)

Major Changes from Previous Period (FY2022)

(Unit: JPY MM)

Increase in Fuel Cost and Tax	＋6,925
• Market fluctuations	+5,694

• Increases due to FX rate (weaker yen), increases in crude oil prices and aircraft jet fuel prices that remain high

• Impact of removal of interim measures	+862
during COVID-19
• Increase by recovery of # of flights etc.	+368
Increase in Airport Usage Fees	＋1,608
• Impact of removal of interim measures	+1,381
during COVID-19
• Increase by recovery of # of flights etc.	+227
Increase in Aircraft Lease Payment	+893
• Increases due to FX rate (weaker yen)
Increase in Maintenance Expenses	+6,836

• Increase due to the concentration of engine

maintenance timing, increased	+3,378
parts/components prices
• Increase due to review of allowance at the	+2,070
end of fiscal year
• Increases due to FX rate (weaker yen)	+1,388
Other	+1,054

• Respective increase in cost due to recovery in number of passengers (commission fees, outsourcing expenses, etc.)

Copyright © Skymark Airlines Inc.	10

This slide shows a detailed breakdown of operating expenses.

The main reasons for the increase in operating expenses are the weaker yen, higher fuel costs and fuel taxes due to higher crude oil prices, and higher maintenance costs due to the concentration of engine maintenance timing and higher cost for maintenance parts.

Against the backdrop of these increased expenses, we strengthened cost controls, reducing other expenses by JPY1.6 billion compared to target despite the rise in various prices. Going forward, we will strive to manage costs that are within our control.

10