The Asianist

Balanced and fact-based analysis of Asian affairs

The Turbulent Flight of Japan Airlines

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I’m in Japan now on transit after a pretty turbulent Japan Airlines (JAL) flight. But that pales in comparison to the company’s own financial turbulence over the last few years.

Most began to notice the fledgling airline’s troubling trajectory in 2010, when its multi-trillion yen bust triggered one of the largest corporate failures in Japanese history.

In fact, the airline’s wings had been clipped much earlier. As early as the 1990s, once other Japanese airline companies ANA and JAS were authorized by the government to compete with JAL on both domestic and international route, and Japan endured an economic downturn, the company began posting operating losses. Key reasons for its declining profitability included rising pension and payroll costs as well as serving several unprofitable routes.

The company underwent several efforts to increase its profitability. It cut thousands of jobs and transferred parts of its operations to a new subsidiary in the 1990s, merged with JAS in 2002, an joined the Oneworld Alliance founded by several large airlines in 2007. Yet, since 2001, the company has received four major government bailouts and has struggled to stay afloat.

Since the bankruptcy in 2010, JAL has taken radical steps pull off a turnaround. It has drastically cut its flights, slashed pensions for employees and culled thousands of jobs. And, after a tortuous negotiation process, it entered into a joint business arrangement with American Airlines to offer customers greater benefits and travel options across the Pacific which began just last month. It also plans to launch a new route between Tokyo’s Narita International Airport and Boston Logan International Airport starting next April, making it the only carrier to link Asia and Boston directly with non-stop service.

Yet questions still remain over whether these measures will work in the longer-term. This year, for the first time, All Nippon Airways (ANA) overtook Japan Airlines to become the most popular Japanese carrier in terms passenger traffic. While ANA witnessed an increase of 1.6 percent in passenger volume, JAL saw a sharp decline of 12.6 percent. ANA’s massive investments in new technology and improved facilities and efforts to create Japan’s first low-cost carrier may see it steal an even larger market share in the next few years and further stall JAL’s rehabilitation efforts. If so, the airline should fasten its seat belts and prepare for a turbulent future ahead.

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Written by Prashanth Parameswaran

May 30, 2011 at 6:42 pm

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