Some airlines are reducing capacity to and from Japan in response to declining demand that has followed the tragedy there. Though cuts in service have been characterized as short-term, the crisis' impact on airline finances and longer-term passenger demand is as yet unknown. Some airline executives and analysts, however, expressed optimism for a rebound later in 2011.
"Over the next two to three months, we will undoubtedly see some fairly significant drop-off in demand and drop-off in booking," said Delta Air Lines president Ed Bastian last week during a J.P. Morgan investors conference. "We also expect over the balance of the year, as the country rebuilds, as the government brings the money to pour into the economy and attract business and get the economy moving and the rebuilding effort underway, there is going to be a fairly significant demand pickup. Our expectations at the present time is that this is somewhere between a six-to-nine-month one-time event."
International airline capacity to Japan from all regions in April will be down 2 percent compared with this month and largely flat from April 2010, according to airline schedule data pulled for The Transnationalthis week by OAG.
While American and Delta have made what they described as temporary cuts to Japan services, United-Continental Airlines at press time had not announced adjusted schedules.
Citing "decreased demand," American from April 6 through April 26 will suspend a daily Dallas/Fort Worth-Narita flight and its recently launched New York-Haneda service. "During the suspension, American and its Oneworld partner, Japan Airlines, will continue to serve Narita from [New York] JFK, with one daily flight each, and American will continue to operate one daily flight to Narita from DFW," according to a carrier statement issued on Wednesday.
Delta, which has the largest Japanese presence of any U.S. carrier, claimed it would remove up to 20 percent of its capacity to and from Japan through May, including suspension of services from Detroit and Los Angeles to Tokyo's Haneda airport. Bastian cited "demand weakness." Delta also plans to delay the April 6 launch of nonstop flights between Tokyo Narita and Guangzhou, China, to July 5 in response to the crisis.
"Delta continues to operate nonstop service between Japan and every city in the U.S. and abroad that was served at the time of the March 11 earthquake," the carrier noted on Monday in an updated advisory.
The two dominant Japanese carriers largely have maintained service between Japan and U.S. business markets, though Japan Airlines between April 6 and April 27 plans to cut capacity "on a portion of its international routes by decreasing flight frequency and switching to smaller aircraft," according to a company statement. JAL, which this week emerged from the Japanese equivalent of bankruptcy protection, will cut 74 weekly flights on 11 international routes, including those from Tokyo to Beijing, Hong Kong, Honolulu, Seoul and Shanghai. It will also use smaller aircraft on certain routes. Those cuts, JAL claimed, would help it "to secure profitability as travel demand decreases."
Japan's number-two airline, All Nippon, has "not announced any capacity changes to its international service to Japan," according to a spokesperson. "However, we are planning to downsize the aircraft for approximately 80 Japan domestic flights."
The overall drop in demand to Japan comes just as the Japanese carriers ready joint ventures with U.S. partners. Both JAL (with American) and ANA (with United-Continental) have been cleared to begin antitrust-immune cooperation, effective April 1. Deutsche Bank analyst Michael Linenberg in a research note suggested those joint ventures could serve as "an effective means to rationalize capacity" to and from Japan.
Demand Recovery And Financial Aftershocks
Airline executives and analysts expressed optimism that air travel demand to and from Japan would bounce back within a matter of months. In a research note issued on March 16, Morgan Stanley analyst William Greene cited the International Air Transport Association chief economist Brian Pearce in noting that "air travel demand has historically been quite resilient to demand shocks by natural disasters." Greene suggested the potential for a "V-shaped recovery" in which demand snaps back and quickly as it dropped off.
Dahlman Rose & Co. analyst Helane Becker this week in a research note pointed to earlier precedent: "The earthquake in Kobe disrupted traffic for two months." Uncertainty about the extent and duration of the nuclear crisis, of course, could make this time different than previous natural disasters.
IATA on March 18 claimed it was "too early to assess the long-term impact of the Japanese tragedy on the global air transport industry." The organization estimated that the Japanese aviation market represents nearly 7 percent of global traffic and 10 percent of global revenues, or $62.5 billion. "A major slowdown in Japan is expected in the short term," according to IATA director general Giovanni Bisignani. "The fortunes of the industry will likely not improve until the effect of a reconstruction rebound is felt in the second half of the year."
With about 8 percent of Delta's systemwide revenues touching Tokyo, the carrier has the most exposure of any U.S. carrier to the Japanese market, and the disaster could cost it between $250 and $400 million in lost revenue this year, Bastian estimated. He expected the carrier to report a $50 million revenue hit for the first quarter alone.
Other carriers have provided fewer details on the financial impact. Deutsche Bank analyst Mike Linenberg in a March 15 research note wrote that United-Continental had the second-largest exposure among U.S. carriers to Japan, with an estimated 5 percent of 2010 sales touching Japan, followed by American, with an estimated 3 percent.
Cleared For Takeoff
The World Health Organization, the International Civil Aviation Organization and other United Nations bodies have "confirmed that there are no restrictions to normal air transport operations at Japan's major airports, including both Haneda and Narita," according to IATA.
The U.S. State Department on its travel alerts page, however, "strongly urges U.S. citizens to defer travel to Japan at this time and those in Japan should consider departing." The State Department did not explicitly forbid travel to Japan, noting "commercial flights have resumed at all airports that were closed by the earthquake, except Sendai Airport, and commercial seats are available at the time of this posting."
The article originally was published in Business Travel News.