Skymark Airlines Inc.

If an aircraft accident or serious incident occurs on an operated flight, in addition to personal and physical damage, it may result in a significant decline in social reputation, claims for damages, and suspension of operations due to administrative disposition, potentially having a material impact on business performance and financial condition. There is an inherent risk that damages exceeding the scope of aviation insurance coverage may occur, as well as a risk of industry-wide demand decline due to accidents involving other companies. The Company strives to maintain a high on-time performance rate and customer satisfaction with safety as the foundation of everything.

Fuel costs account for a significant portion of operating expenses, and sharp increases in aviation fuel prices due to geopolitical factors or changes in supply-demand balance can materially affect operating income. The Company seeks to reduce risk through commodity swap transactions, but complete absorption is not guaranteed, and since a fuel surcharge system has not been introduced, there is a risk that passing on cost increases to fares could lead to a decline in demand. There is also an inherent risk of losses arising from over-hedging in the event of a sharp reduction in flights.

Since much of the Company's major expenditures, such as aircraft lease payments, maintenance costs, and aircraft purchase payments, are denominated in foreign currencies, a weaker yen increases the yen-equivalent expense burden and puts pressure on business performance. The Company seeks to mitigate certain effects through forward exchange contracts and similar measures, but in the event of a sharp and substantial fluctuation, increased expenses and valuation gains or losses on foreign-currency-denominated receivables and payables may occur. In FY2026 (ending March 2026), the Company recorded substantial foreign exchange gains due to the rapid depreciation of the yen, illustrating that the impact can occur in either direction.

Much of the Company's aircraft fleet is introduced through operating leases, and lease obligations are expected to continue increasing going forward with the introduction of new aircraft models. Large debt repayments and lease payments may put pressure on liquidity on hand and limit the Company's ability to invest in response to changes in the business environment. If lease assets and liabilities are brought on-balance-sheet due to revisions to lease accounting standards, management indicators such as the equity ratio may decline, potentially adversely affecting financial evaluation.

The ratio of fixed costs, such as personnel expenses, aircraft lease payments, maintenance costs, and facility usage fees, is high, creating a risk that even a slight decline in the number of passengers or load factor could significantly worsen operating income. Due to years of cost reduction measures, the scope for further reductions is limited, which acts as a factor suppressing profitability. The structure is such that a decline in passenger unit price or utilization rate due to an economic downturn or intensified competition directly leads to a deterioration in business performance.

The Company relies on Boeing and specific leasing companies for aircraft procurement, and as it operates primarily with a single aircraft type, the Boeing 737, delivery delays or quality issues on the part of the manufacturer, or safety concerns regarding a specific aircraft type, could lead to major changes in flight plans and loss of public trust, potentially having a material impact on management. While reliance on a single aircraft type offers benefits in maintenance efficiency, it inherently carries the risk of limited alternative options.

Core operations such as reservations and sales, check-in procedures, and flight operations management are highly digitized, and a system outage caused by a natural disaster, communication failure, cyber attack, or similar event could result in large-scale flight cancellations and operational disruption, loss of public trust, and substantial revenue decline and damage claims. Delays in development, cost overruns, or failure to achieve required functionality when introducing or updating new systems could also hinder business operations and potentially necessitate impairment of software assets. There is also a concurrent risk of leakage of customers' personal information and credit card information, which could lead to legal sanctions and damage to brand value.

If the Company is unable to secure the necessary number of specialized personnel holding national qualifications under the Civil Aeronautics Act, such as pilots, flight operations officers, and maintenance engineers, due to changes in the employment environment, this could constrain route maintenance and business expansion. Since in-house training requires a long educational period, flexible increases in staffing are difficult, and if labor disputes such as strikes occur, this could disrupt operations and affect business performance. Similar risks also exist with respect to labor shortages or disruptions among some seconded flight crew members and outsourcing partners.

Landing and takeoff slots at congested airports such as Haneda Airport form the foundation of the Company's business, and if slots are reduced or cannot be obtained as planned due to policy reviews or reallocation, execution of business plans could become difficult. Failure to effectively utilize held slots could also adversely affect profitability and business results. Slots are largely subject to administrative discretion, representing a risk that cannot be controlled by the Company alone.

Demands for greenhouse gas emission reductions are intensifying under international frameworks such as CORSIA and domestic laws, and if a carbon tax is introduced or noise and waste regulations are tightened, substantial expenditures may arise for investment in updating to new aircraft models, procurement of SAF (Sustainable Aviation Fuel), and pollution cleanup costs, potentially pressuring business performance. There is also a risk that the reduction or abolition of the time-limited reduction measures for the aviation fuel tax, or increases in airport usage fees, could affect profitability and cash flow. Regulatory compliance costs are on an increasing trend over the medium to long term, becoming a structural challenge for the industry as a whole.