JAL, ANA emerge from turbulence

Japan Airlines, once Asia’s largest carrier, has gone through bankruptcy protection and major restructuring, while rival All Nippon Airways is pushing ahead with expansion plans, writes Andrzej Jeziorski.

6th Jun 2011



JAL, ANA emerge from turbulence


 Japan Airlines, once Asia’s largest carrier, has gone through bankruptcy protection and major restructuring, while rival All Nippon Airways is pushing ahead with expansion plans, writes Andrzej Jeziorski.

For years, Japan Airlines (JAL) and All Nippon Airways (ANA), were respectively Asia’s largest and second-largest airlines by sales.
Much has changed. JAL filed for bankruptcy protection in January 2010, having posted three annual losses in four years and a deficit of almost 100 billion yen (US$1.2 billion) in a single quarter. ANA, meanwhile, has picked up the mantle and recently reported recovery in annual profit and revenue, as it prepares to become the world’s first operator of Boeing’s new 787 ‘Dreamliner’ and to launch a new low-cost carrier (LCC).
Tokyo-based JAL emerged from bankruptcy protection in late-March as a heavily-restructured entity, having shed one-third of its workforce, grounded 103 aircraft and obtained 225 billion yen in funding from financial institutions.
“Finally, the thinking has changed at JAL,” Chairman Kazuo Inamori told reporters on 28 March. “People have realized that if we don’t take care of things ourselves, no one is going to do it for us.”
Japan’s flag-carrier cut back unprofitable services, eliminating 49 destinations from its network, including Amsterdam, Milan and Sao Paolo. The former operator of the world’s largest fleet of Boeing 747 jetliners then retired the last of that aircraft type to focus on small and medium-sized twinjets such as the single-aisle 737 and twin-aisle 777.
The carrier compensated for the downsizing by increasing co-operation with its partners in the Oneworld global airline alliance, increasing code-sharing with Hong Kong-based Cathay Pacific Airways and setting up a joint venture with American Airlines.


 Earthquake impact


As it happened, JAL’s emergence from administration happened just weeks after the 11 March Tohoku earthquake and tsunami, which devastated the north-east of the country and severely damaged the Fukushima nuclear power plant. As a result, travel demand to the country plummeted and the carrier responded by scaling back international services during April.
By the time JAL completed its restructuring, the earthquake had caused international passenger numbers to drop 25 percent year-on-year, with a decline of 28 percent in domestic demand, company President Masaru Onishi said.
In February 2010, JAL – which was worth more than US$6 billion a year earlier – was delisted from the Tokyo Stock Exchange.
The airline’s restructuring was led by the state-backed fund Enterprise Initiative Corp of Japan (ETIC), which provided a 350 billion yen capital injection and now holds 97 percent of voting rights in the company. Eight other companies acquired 12.7 billion shares, increasing JAL’s capital to 362.7 billion yen, while 11 financial institutions provided 255 billion yen in financing.
ETIC said in 2010 that it may apply to sell shares in JAL by March 2012, although its own regulations permit it to work with the airline until January 2013.
Perhaps in an effort to remind others of its former glory, the restructured airline has also re-adopted the crane livery that it used during the mid-1980s, a time when it was the world’s largest airline for international traffic. Analysts now say that they doubt the carrier will grow back to its former scale, focusing instead on expansion through alliances.
JAL’s partnership with American covers ten trans-Pacific routes, including Tokyo-New York and Beijing-Chicago. The alliance is expected to increase sales and cut costs, generating a benefit of about US$150 million a year for the partners, American has said.
Onishi said in January that the airline is interested in pursuing similar partnerships with other members of Oneworld, which includes carriers such as British Airways, Qantas, Royal Jordanian and LAN.

 

Job cuts


By December 2010, JAL had cut 14,500 jobs from its workforce, with a final target of 16,000. The airline had closed and sold some businesses, offering some employees early retirement. Meanwhile, creditors including Mitsubishi UFJ Financial Group, Mizuho Financial Group and Development Bank of Japan agreed to forgive 552 billion yen of debt.
With all these steps in place, the carrier posted a record operating profit for the year ended 31 March, totalling 188.4 billion yen, or US$2.33 billion, compared with a loss of US$1.65 billion a year earlier. JAL admitted, however, that it had made a loss during April as a result of the earthquake.
The operating profit was almost triple the carrier’s target of US$791 million, specified in the rehabilitation plan, helped by exchange-rate gains with the strengthening yen and lower-than-expected fuel costs.
Still, operating revenue fell 9 percent to S$16.81 billion, but exceeded the US$16.81 billion target.
For the current business year, the carrier’s turnaround plan calls for group operating revenue of 1.223 trillion yen and operating profit of 75.7 billion yen. However, Inamori told reporters in Tokyo that the airline may fall “considerably” short of the revenue target, while still meeting the operating profit goal.
While JAL has been struggling back to its feet, rival ANA has been pursuing growth plans as it prepares to launch its new low-cost unit in 2012 and to begin 787 operations later this year, after multiple delays to the aircraft’s development.
Boeing and ANA issued a statement on 26 May, clarifying how the companies would co-operate to prove the 787’s readiness to enter commercial service. Operations will be simulated across several airports in Japan, using the manufacturer’s second flight-test aircraft, ZA002.
The validation is scheduled to take place the week of 4 July, Boeing says. Destinations expected to be covered include Tokyo’s Haneda Airport, along with airports in Osaka (both Itami and Kansai), Okayama and Hiroshima.
“This will be the 787's maiden appearance in Japan,” Boeing said. ANA has 55 of the twin-aisle twinjets on order, which it plans to deploy across its route network. The aircraft “is an integral part of ANA's strategy to strengthen its position and support its growth and expansion plans,” the manufacturer added.


Smoothing the way


“ANA is eager to introduce the innovative 787 Dreamliner to Japan,” said Shinichiro Ito, the company’s president and chief executive. “Giving our employees the opportunity to gain experience with the airplane will help ensure a smoother entry into service later this year.”
According to Scott Fancher, Boeing’s vice-president and general manager of the 787 programme, the tests will “prove out [the aircraft’s] capabilities and reliability in a revenue-like environment”.
ANA maintenance crews will also practice maintenance and servicing of the 787 during the validation. This will include typical ground servicing activities, fit checks of airplane jacks and maintenance hangar stands, towing and refuelling and other routine maintenance operations.
Similar service-ready validations have been conducted with great success on previous Boeing programs, including the 777, 737NG and 757-300, Boeing says.
The manufacturer says it now plans to deliver the first 787 to ANA “in the August to September timeframe”.


The airline revealed more details of its plan for a new low-cost unit in February, saying that the new carrier will operate a fleet of five single-aisle aircraft in its first year, with the goal of expanding to 15-20 within five years. ANA is considering both the Boeing 737 and the Airbus A320, but has made no decision yet.
The new carrier will be based in Osaka, and will begin flights to as many as four domestic and four international destinations in its first twelve months.
The yet-to-be-named LCC will be a joint venture with Hong Kong’s First Investment Group. ANA will take a 39 percent stake, while First Investment will hold 33.3 percent. The rest will go to other Japanese investors.
First Eastern Chairman Victor Chu has previously said the airline is committed to leasing 10 narrowody aircraft, with the first to be delivered in September, although ANA declines to confirm this.

 


 Loss reversed


In late April, ANA said resurgent demand and cost-cutting helped the airline post net income for the business year ended 31 March of 23.2 billion yen, reversing the year-earlier loss of 57.3 billion yen.
Last year “was a year of business growth and improved operational performance by enhancing competitiveness and improving cost structure,” said ANA’s Ito.
“We expanded our international business during the fiscal year with the addition of new services and increased capacity. At the same time, we maintained a tight control on costs in line with the plan set out in ANA’s FY2010-11 Group Corporate Strategy,” he said. “As a result, our air transport business achieved an increase in revenue and improved profitability compared to the previous year when ANA’s performance was affected by the global recession.”
Operating revenue rose 10.5 percent to 1.36 trillion yen. However, the ANA chief struck a cautious note about the outlook for the company.
“Future prospects for the Japanese economy are unpredictable, given substantially higher oil prices, the uncertain outlook for global business, fluctuations in exchange rates and the impact of the March 11 earthquake,” Ito said. Although ANA’s operation in Sendai was suspended after the tsunami caused by the earthquake flooded the airport, ANA “played an important role in helping support recovery efforts by operating relief flights to Fukushima and Yamagata, and providing transport of relief supplies and relief workers,” he added.
ANA said it experienced strong growth in both business and leisure traffic on domestic service during the year, despite the effect of the earthquake in the final month. Total domestic passenger numbers for the 12 months exceeded those of last year by 1.7 percent.
The carrier said it resumed operations between Haneda and Tokushima in October, introducing seasonal flights and larger, widebody aircraft on routes where demand exceeded expectations. The Group also opened a new passenger lounge in the expanded domestic terminal at Haneda Airport in a move to stimulate demand, and introduced a new air-miles programme, the ANA Card Family Mileage programme.
This resulted in 3.4 percent growth in domestic passenger revenue over the previous year, with the total rising to 652.6 billion yen.

 International recovery


On international services, ANA said it experienced “a marked recovery in business demand across all destinations”.
The carrier introduced new routes from Haneda to Los Angeles, Honolulu, Bangkok, Singapore and Taipei, following the opening of the new International Terminal at the Tokyo airport in October 2010. It also added frequencies to Seoul’s Gimpo airport, winning more transfer business from passengers connecting from local Japanese cities via Haneda.
Other new international services included services to Munich from Tokyo’s main international airport, Narita, introduced in July, and Narita-Manila, which was added in February. The airline resumed flights from Narita to the Indonesian capital Jakarta in January.
“These route expansions and customer initiatives resulted in passenger revenue on international routes growing by 66.5 billion yen compared to the previous year; an increase of 31.1 percent,” ANA said.
 

 

Asian Aviation at a glance