Japan Airlines Corp. said on Friday that it had returned to profit in the year to March after two straight annual losses, but forecast a 23 percent drop in earnings this year amid high fuel costs.

Asia's largest carrier has moved to restore its financial health by slashing thousands of jobs, scrapping unprofitable routes and stepping up lucrative business class services.

"Downsizing efforts have paid off," Yoshimasa Kanayama, an executive board member of the company, told a news conference.

Japan Airlines posted a net profit of 16.9-billion yen ($163-million) in the year through March, compared with a net loss of 16.27-billion yen the previous year.

The bottomline profit was the highest since the airline reported 30-billion yen in net profit for the year to March 2005.

Earnings were slightly higher than the carrier's revised estimate earlier this month of a net profit of about 16-billion yen.

Operating profit surged from 22.9-billion to 90.0-billion yen, the highest since it integrated domestic carrier Japan Air Systems in 2002.

But revenue dropped 3.1 percent to 2.23-trillion yen because JAL sold most of its stake in Jalux Inc., which operates retail outlets at airports.

For the current financial year to next March, JAL forecast a net profit of 13-billion yen, operating earnings of 50-billion and revenue of 2.18-trillion.

"Even though the JAL Group has made great strides towards achieving its overriding goal of building a robust management framework, a business structure which can produce profits even in the face of factors such as rising fuel costs or slowing demand, the business environment continues to be severe," a JAL statement warned.

Among other uncertain factors were possible penalties by European Union authorities over alleged air cargo price-fixing. JAL already agreed to plead guilty and pay a fine of $110-million to the US Justice Department over price-fixing charges.

Kanayama, however, said its profit target was "still within reach" by raising fuel surcharges, cutting costs and promoting tickets for high-end customers.

The carrier can also expect 42-billion yen in extra profit from the sale of nearly half of its shares in credit and mileage card unit JAL Card to Mitsubishi UFJ Financial Group.

In the last year, passenger revenue from international routes increased by 4.0 percent, helped by cost-cutting efforts and strong ticket sales for flights to China, South Korea and Southeast Asia.

But domestic passenger demand was stagnant due to tough competition.

The airline said that it had managed to reduce its operating expenses by 139-billion yen to help it cope with soaring jet fuel costs. JAL shrank its workforce by 2207 people over the year.

The airline has had a difficult time since its 1987 privatisation and a tricky merger with Japan Air Systems that was finally completed in 2004.

The carrier has been pressured by rising fuel costs and a series of safety scares that benefited rival All Nippon Airways.

AFP