Japanese travel agency JTB cuts capital to $ 1 million in shock therapy

TOKYO – Pandemic-stricken travel agency JTB will reduce its capital to 100 million yen ($ 949,000) from around 2.3 billion yen, Nikkei has learned, in a drastic step that turns the Japanese leader from the industry into a small business for tax purposes.

The shareholders approved the capital reduction on February 12, which takes effect on March 31. The paid-up capital will help absorb a large net loss forecast for the current year.

The unlisted seller of tour packages becomes the latest Japanese company to shrink in response to collapsing demand for travel and restaurants.

JTB fell to a group net loss of 78.1 billion yen for the half of April through September, and its retained earnings fell by about half in the six months to 79.9 billion yen.

As the travel industry continues to struggle, JTB expects a record pre-tax loss of around 100 billion yen for the full year ending in March. A capital increase would have been another option to regain financial health, but would have required finding buyers for new shares.

Businesses have the ability to carry forward losses to offset future profits and reduce tax payments. Japan allows small and medium-sized businesses to offset more of their future profits this way, which could be a godsend once JTB can make a comeback.

Small and medium-sized businesses are also exempt from local business taxes, which large businesses must pay when they lose money.

Several companies affected by the coronavirus have adopted a similar strategy to reduce their tax burden. Restaurateurs Kappa Create and Chimney have announced capital cuts to 100 million yen. Low-cost airline Skymark Airlines plans to reduce its capital by 9 billion yen at present.

The outlook for the travel industry remains bleak more than a year after the start of the coronavirus era. JTB’s travel transaction volume plunged 96% on the year to 5.1 billion yen in May, according to the Japan Tourism Agency. Despite a limited recovery thanks to Go To Travel grants designed to encourage domestic tourism, its domestic travel transaction volume fell 41% from the year in December amid a resurgence of COVID-19 cases.

Competition has also suffered. HIS, which focuses more on international travel, saw an 87% drop in transactions in December, while KNT-CT Holdings was down 56%. Travel books are believed to have suffered even larger declines since January, after Japan declared a state of emergency in the hard-hit areas.

Even with the state of emergency ending in March, few expect an immediate recovery in tourism. International travel in particular “won’t come back until at least next year,” an industry official said. JTB generates around 30% of its turnover from international travel.

In addition to the capital reduction, JTB announced plans in November to reduce national branches by 25% and 6,500 group-wide employees.

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