Japan Airlines – Tourism, airports and airlines are all in play

Japan Airlines (JAL) can be said to be a mirror of the country whose flag it carries. Problems at JAL have been building for years, but action has been delayed and avoided in favour of maintaining the all-important status quo. The enormity of the problem has now got so large, action can no longer be avoided. The main components of the situation are coming together in a fascinating corporate and political play.

JAL is bankrupt and needs to restructure. 13 000 staff are to go, 16 route cuts have already been announced with more to come, pensioner’s benefits need to be reduced, plus no doubt other announcements are to be made.

All Nippon Airways (ANA) is in a strong market and financial position ready to take over and operate additional international routes, but will not want to be forced into taking over JAL’s own operations. JAL’s troubles can be traced back, in part, to the badly executed takeover of Japan Airlines System (JAS) with the clashing of corporate cultures, and missing the opportunity to join a global alliance grouping first, allowing ANA to accrue major benefits from being a part of Star.

ANA needs to take great care about significant route expansion on the North Pacific at this time, as it is currently applying for antitrust immunity with the US DOT for a joint venture with Continental Airlines (CO) and United Airlines (UA).

JAL has received competitive approaches from American Airlines (AA) and Delta Airlines (DL) to make investments and to be part of their restructuring. All the more significant following the announcement of “open skies” between Japan and the USA. At the moment JAL’s President is reported to be in favour of DL’s offer, whether that can go through will be tested in the next few months, but the cost of changing alliance will need to be evaluated, and JAL will be in an even potentially weaker situation than it finds itself in at oneworld. JAL has lost forever the chance to be a founding airline of a global airline and hence determine the rules by which the game is played.

There is a major struggle going on between the global alliance groupings of Star, oneworld and Skyteam. If ANA can manoeuvre correctly, Star could be the major beneficiary, with the prize of a weakened JAL going to oneworld or Skyteam, but this is by no means certain.

The outcome of JAL’s restructuring, still to be decided, will determine the path that can be taken. The new government, heavily involved in deciding the outcome, is beholden to two minority political parties who make up the coalition, adding further complexity and uncertainty.

The airline market demand for passengers and cargo remains weak, and probably the one common item in all these corporate manoeuvrings is the consolidation of operations in the medium term.

No doubt interesting times and it will be fascinating to see the game unfold in 2010! Not to mention the insight given to Japan and one of its most high profile corporate members.

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