Aviation Industry Overview
11, 01. 2004
An Age of Two Major Airlines Begins in Japan with the Consolidation of JAL and JAS
The second passenger terminal of Haneda Airport where common use was startedon December 1,2004.
As consolidations of airlines, centered on those in Europe and the United States, progressed one after another and international competition intensified, the 9.11 terrorist attacks that occurred in the US in September 2001 became a serious blow to airlines around the world. Japanese airlines were not exempted. Furthermore, the war against Iraq that began in March 2003 as well as the outbreak of the acute respiratory syndrome (SARS) and the bird flu made matters even worse. Air passenger traffic, focused around those for international flights, declined and sales fell sharply.
It was while such major tides were hitting that Japan Airlines Co., Ltd. (JAL) and Japan Air System Co., Ltd. (JAS) integrated their operations in October 2002 to establish Japan Airlines System Corporation (name changed to Japan Airlines Corporation in June 2004). The turnover of the new JAL Group was two trillion yen, bringing JAL to a number three position in the world. With this integration, an age of two major airlines (JAL and All Nippon Airways Co., Ltd., or ANA) began in Japan.
However, the future of these two major airlines in Japan may not be so rose colored. The consolidated results of the new JAL Group (for the year ending March 2004) reported a sharp decrease in its international passenger traffic, a mainstay of the group's revenues. JAL posted net losses of 88.6 billion yen for the fiscal year. This was the largest deficit ever for JAL, and as a result there were no dividends paid to shareholders. Meanwhile, partly because the proportion of domestic flights - which were unaffected - was high, ANA posted profits for the year through cost reductions despite the fact that turnover remained basically unchanged from the previous year. Although international passenger traffic is heading towards recovery in FY2004, the high appreciation of crude oil prices is working against profit-making.
Emerging Airlines Still Unable to Take Off Due to the Price War
Meanwhile, emerging airlines have been subjected to a fierce price war against the two major airlines, on top of which weak managerial planning and lack of funding have placed them under difficult circumstances. After competing against the major airlines, Hokkaido International Airlines Co., Ltd. (Air Do) fell into a severe business environment and filed for bankruptcy protection from creditors under the Civil Rehabilitation Law in June 2002. Air Do later concluded an alliance with ANA and is trying to rehabilitate its operations. As a result of this alliance, Air Do posted profits in FY2003, the first time for it to do so since the airline was founded in 1996.
The business environment for Skynet Asia Airways Co., Ltd. (headquarters in Miyazaki City), which operates flights between Tokyo's Haneda Airport and Kyushu's Miyazaki and Kumamoto airports, is similar to Air Do. The Industrial Revitalization Corporation of Japan (IRCJ) announced in June 2004 that it would support the rehabilitation of Skynet Asia Airways' operations. Corporate rehabilitation is said to be made through the development of new air routes.
Deregulation Proceeds in Stages From 1986
The basics of Japan's airline administration were that it regulated everything even down to the minute details. Licenses were granted per route, and the number of flights and even fares were subject to regulation. Airport landing slots were approved at the same time as the number of flights, etc. Furthermore, the monopolization of commercial passenger flights by three major airlines continued, and it was an industry that saw absolutely no competition. What changed this was movement that took place in the US. The Airline Deregulation Act was enacted in America in 1978, and entry by newcomers and the liberalization of fares gradually progressed. Discount fares were set, and fare levels dropped. Reorganization of the aviation industry in the US proceeded rapidly, including the failure of time-honored Pan American World Airways, Inc. in 1991.
In Japan, deregulation of the skies began in 1986. The system of segregating the route operations of the three airlines - international and domestic routes for JAL, overall domestic routes for ANA, and local domestic routes for Japan Air Systems - was abolished. In 1994, it was decided that a certain number of flights from Haneda Airport's landing slot would be allotted to companies with a late start, and air fares, which were based on an authorization system, were deregulated.
Aircraft maintenance hangar of All Nippon Airways Co.,Ltd.
Skymark Airlines launched its Haneda - Fukuoka route in September 1998, and Air Do began operating flights between Haneda and New Chitose Airport (Hokkaido) in December the same year. In 2000, the setting of routes and changes in the number of flights were essentially liberalized, air fares also went from a permission system to a prior notification system. This was how airline deregulation proceeded in stages in Japan.
Three Key Points towards the Future