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Japan Airlines joins oneworld
By Andreas Spaeth
Founded in 1951 and hence rich in tradition, Japan Airlines (JAL) had for many years tried to hold its ground in the competitive struggle without aligning itself with any alliance. A complicated network of bilateral agreements with other airlines all over the world was thought to be sufficient. Under its emblem of the tsuru, a Japanese variety of crane, JAL flew it alone.
But eventually the Japanese were forced to recognise that today's world of air travel is no longer suited to lone operators unless they have the virtually unlimited resources of an Emirates Airlines. Apart from JAL and Air China (which is shortly to become a member of the Star Alliance), Emirates was previously the only one among the top ten international airlines without a firm alignment to one of the three camps. Now that JAL has been a member of oneworld since 1 April, all of the 20 biggest suppliers apart from Emirates are tied to one of them, and 60 percent of the entire global passenger capacity offered now lies in the hands of alliances.
“The competition has developed from a rivalry between individual airlines into a rivalry between alliances,” said oneworld Managing Partner John McCulloch in Tokyo on the occasion of the entry of this new member from the land of the rising sun. And JAL is not just any old airline, but an “unbelievable force in Asia”, as Qantas CEO Geoff Dixon pointed out in appreciation of the new member in Tokyo. Within the oneworld alliance, whose members in the Asia-Pacific region up to now have been confined to Cathay Pacific and Qantas, JAL is leap-frogging to the top three as the biggest airline in the Far East. The other members of oneworld include American Airlines, which mentored JAL as it prepared for membership, and British Airways. In terms of passengers carried per year, JAL's 56 million lie far behind American (119 million), but well ahead of BA (41 million). With the accession of JAL, oneworld has acquired almost 50 new destinations, some 40 of them in the important Japanese market and the rest in China and other Asian countries.
For JAL, membership comes at the right time, as the airline is in poor shape and is hoping that oneworld will help it escape from its plight. Excessive costs and persistent losses caused by an ageing, inefficient fleet have caused JAL a lot of trouble. In part this is still the unwelcome legacy of the merger with domestic airline Japan Air System (JAS) three years ago.
The JAL Group's loss for the last financial year came to the equivalent of almost Euro300 million. A series of safety-related incidents on JAL flights, which until very recently had the effect of shattering the trust of the extremely sensitive Japanese public, is still making it difficult to achieve the aspired-to return to profit in the present financial year.
As Chief Executive Officer Haruka Nishimatsu, who was only appointed to his present position in 2006 after the worst was over, points out, “For us, joining oneworld is linked with an internal restructuring, we plan to create a new JAL.” Nishimatsu is obviously more dynamic than his predecessor and, as the former head of JAL's office in Frankfurt, he even speaks some German. One of the essential changes in strategy in his view is the opening up of services to non-Japanese passengers. “Up to now we have offered a service that was primarily focused on Japanese customers and was not good enough for foreigners,” he conceded in an interview with FLUG REVUE. “Now we intend to improve our communication with foreigners too.” On the other hand, JAL has employed flight attendants from Germany on European routes for some years now.
Membership of oneworld should bring the company tangible financial benefits: JAL expects its income to rise by the equivalent of Euro18 million per year simply as a result of the synergy effects of alliance membership. At the same time Nishimatsu has introduced a tough restructuring plan that envisages 4,300 job losses by 2010, around eight percent of the present workforce of 53,000.
One of the most important areas for the revitalisation of JAL is the future fleet policy and the resulting route and product strategies. The Boeing 777, of which JAL operates a total of 38 aircraft in the -200 and -300ER versions, plays an important role both on domestic and long-haul connections. Now that JAL is a member of the alliance, two of them will now fly with special paintwork. All the most important European routes were already changed over from the 747-400 to the 777, which is a lot more economic to operate, in April of last year.
“Our routes to Europe are highly profitable,” Nishimatsu is pleased to report, “and although the 777 offers fewer seats, the number of passengers has fallen by only one percent, whereas our costs are now 9 percent lower despite the high price of fuel.” At the same time the 747 fleet, still one of the biggest in the world, remains a millstone round JAL's neck. The airline is keen to reduce its wide-body capacity and to increase the proportion of short- and medium-range jets from the present 71 percent to 79% by 2010 through firm orders for 30 Boeing 737-800's. These are to be initially deployed on international routes to China. In addition, the airline has placed an order for ten Embraer 170's, the first of which are due to arrive in 2008.
As a countermove, all the Airbus A300B2/B4's belonging to the former JAS have been retired, as have the last Japanese turboprops NAMC YS-11. The MD-87 is to be taken out of service this year and the MD-81 by 2010. Meanwhile the phasing out of the Boeing 767 is set to begin in 2008, and that of the Boeing 737-400 in 2010.
In the meantime the active rundown of the 747 fleet continues. “We have too many 747's, it is inefficient. Reducing their numbers will significantly boost our profitability,” says Nishimatsu. As of the end of January 2007 seventy jumbos were still flying in JAL colours, 14 of them cargo aircraft. By the end of March 2008 this number will be down to 60. But even then JAL will still be operating six of the ageing 747-200's, four of them freighters, and 10 equally long-in-the-tooth passenger versions of the 747-300. With the Boeing 747 retirements and the new acquisitions of Boeing 777's and 767-300ER's, along with the first of 30 firm orders for the Boeing 787 due for delivery from 2008, the average age of the fleet employed on international routes will fall from 12 in 2005 to 8.5 in 2009.
At the same time the fleet upgrade should reduce fuel consumption by 14 percent. With the entry into service of the 787, JAL is planning to return to some European destinations such as Munich, Hamburg and Copenhagen from which it withdrew some time ago because the 747 proved too big to be economic.
However, Haruka Nishimatsu also believes it is important to find a better balance between domestic and international business. “Before, the ratio was two-thirds international passengers and only one-third domestic. We had to increase the proportion of domestic flights in order to provide more feeder flights for the international flights,” he explains, pointing to examples of now defunct carriers like Pan American and Sabena which had concentrated disproportionately on intercontinental traffic.
“That was also one of the most important reasons behind the merger between JAL and JAS. Despite all the difficulties, it was definitely the right decision.” According to Nishimatsu, today half of JAL's customers are on domestic flights and half on international flights. “50 percent on international flights is still a bit too high,” he believes. “The international traffic is like the top section of our body, but we also need a solid lower section in order to be active.”
As well as the safety problems that caused customers to flee in droves to competitor ANA, which traditionally has been strong on flights within Japan, mistakes in the JAL product strategy are also responsible for its present weakness at home. Thus, the “Superseat” Business Class popular with managers travelling around Japan was scrapped in favour of a slimmed down Premium Economy class, which did not go down well with the status-conscious Japanese businessman. Now JAL is back-pedalling and plans to introduce a First Class on its mainstay domestic routes as well, and hence to offer three classes on flights within Japan for the first time. On the international routes, an additional Premium Economy cabin is to be introduced this year, following the example of JAL's competitor ANA. By 2010 the equivalent of nearly Euro366 million will have been invested in improved safety systems.
With all these measures JAL is hoping to be fit for the start of a new era in Japanese aviation expected to be inaugurated in 2009, when capacity at the notoriously congested airports of Tokyo-Narita and Tokyo-Haneda will finally increase. But this will also mean more competition for the dominant airlines, JAL and ANA, both from abroad and from the no-frills sector.
Haneda, the fourth biggest airport in the world with 65 million passengers in 2006, which previously had concentrated almost entirely on domestic flights, is to gain a fourth, 2,500 metre long runway to be raised in the water of Tokyo Bay at right angles to today's main runways by December 2009. “This will have the effect of increasing capacity there by 40 percent, the airport tells us,” says Haruka Nishimatsu.
Nowhere in the world is the average size of the aircraft using an airport – 330 seats – as big as in Haneda, from which most flights last only one hour. In New York JFK or London Heathrow, the average aircraft holds only 150 passengers. Situated close to the city of Tokyo, Haneda is to be increasingly opened up to international flights once the new runway is operational, whereas today it boasts only a sprinkling of international departures bound for Korea and Taiwan.
Meanwhile in Narita, the international gateway to Japan, it should by then be possible to fully extend the parallel runway, which currently measures only 2,180 metres due to unresolved disputes with a farmer over the necessary land purchase, making it so far unsuitable for intercontinental flights. The number of possible flight movements per hour should then increase from 46 takeoffs and landings to 51. This could enable some of the foreign airlines that have long been waiting for traffic rights and slots to obtain landing rights – which will then pit them against a presumably stronger JAL.
From page 20 of FLUG REVUE 6/2007
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