Special report: JAL's future

19 Jan 2010 by Mark Caswell

Japan Airlines (JAL) is expected to file for bankruptcy today. It is an ignominious development for one of Asia’s largest airlines and one which is a symbol of national pride in Japan.

However, passengers will suffer no inconvenience as JAL will continue trading under a government-backed rescue scheme, similar to US Chapter 11 bankruptcy protection.

JAL will be restructured under the guidance of the Enterprise Turnaround Initiative Corporation of Japan (ETIC). It is expected that its route network will be reorganised and jobs cut in order to reduce its current debts of US$16 billion and enable it to trade more profitability in future.

Controversially JAL may have to decide whether to stay with its existing partners in Oneworld (main members include British Airways and American) or defect to the rival Skyteam (whose main members include Air France and Delta) alliance.

To this end both Oneworld and Skyteam are wooing JAL with offers of financial support. A Oneworld spokesman says the alliance will offer JAL “commercial benefits totally US$2 billion over three years.”  Skyteam says it will “support JAL and stands ready to provide assistance in any way possible.”

The Japanese government is said to favour Skyteam membership. Perhaps one reason is that fact that Northwest (now part of Delta) helped establish JAL in 1951.

But do not expect a decision soon as no formal announcement on timing has been made. It is expected to be months before developments emerge regarding the future route network and alliance membership. That is because JAL has traditionally acted cautiously so decisions are not hurried.

If JAL were to switch alliances it would then be a further period before the change could take effect. When airlines have changed allegiances in the past it has been one or two years before the various linkages are put in place. Until then passengers will see no changes.

If JAL were to join Skyteam it would be a blow to Oneworld which will have no representation in NE Asia. On the other hand, Skyteam member Korean Air (which carries many passengers to and from Japan via nearby Seoul) might feel miffed at its rival entering the same alliance. Korean Air could not switch to Star (because its local rival Asiana is in that alliance) so might it defect to Oneworld ?

JAL’s passenger traffic at London Heathrow has been declining over the years. It is partly because of the economic situation in Japan and partly because of increased competition. Over the past couple of decades rivals like Virgin Atlantic and fellow Japanese carrier ANA have appeared on the scene. Then there has been further competition from indirect carriers based in mainland Europe, Asia and, more recently, in the Gulf region.

Two years ago JAL was operating three flights a day to Tokyo and Osaka. Last summer, Osaka disappeared in favour of  a twice daily Tokyo service. This winter JAL service is down to a bare minimum of a single daily flight.

This is in stark contrast to JAL’s Seventies heyday. It was a time when the likes of Cathay Pacific were unknown in Europe and even SIA and Thai were not well established.

That was the time when JAL operated numerous flights a day between London and Japan via either the Polar or Silk routes. [Today’s trans-Russian routes were unknown as the Soviets would not grant overflying rights].  Besides Tokyo and Osaka, JAL carried UK passengers on B747 flights to cities like Rome, Teheran, Delhi and Bangkok. It also had traffic rights between these cities so you could fly JAL between Delhi and Bangkok. Economy class seating on JAL’s B747s was superior with only nine seats across (compared with 10-across now) and the legroom was several inches more than today.

All in all, the main question to be asked is why Japan, with a population roughly twice that of the UK, has not been able to support two international airlines ?

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Report by Alex McWhirter

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