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Japan Airlines Group, Asia's largest commercial air transport company by revenue, said flight operations and customer programs "will not be interrupted" after filing on Tuesday for a court-supervised corporate reorganization. The company confirmed that it obtained court approval to pay for fuel and other services, honor customer tickets (for both its own flights and codeshare services) and maintain loyalty program accounts. For now, JAL intends to operate business as usual and continues to accept new reservations, but its longer-term strategies could include significant changes to its network, substantial fleet renewal and an alliance defection.
According to published reports, JAL will accept support from and align with Delta Air Linesand the SkyTeam alliance, thereby abandoning AA and oneworld after just three years.
Coming after years of financial instability, JAL's state-funded restructuring will be supported by several financial institutions and the Enterprise Turnaround Initiative Corporation of Japan, "a joint-stock corporation established and authorized by the Japanese government to provide support for the revitalization of certain corporations as stipulated by laws," according to JAL. "We are confident that the swift revitalization of JAL Group will be achieved after which JAL Group will be reborn as a leading airline group that could again lead the global airline industry."
According to ETIC, JAL's woes have been caused by a disproportionately international network, compared with competitors, that is more susceptible to "broad fluctuations in demand"; a number of unprofitable routes and excess personnel that grew further after the 2002 merger with Japan Air System; a large fleet of Boeing 747s designed to meet mass transit demand and maximize limited available slots at Tokyo’s Haneda and Narita airports but became unprofitable during "slack demand" periods; old IT systems; "a bloated management structure; and a corporate culture that strived for infallibility, making them unable to respond promptly to changes in the business environment."
ETIC acknowledged that JAL, despite accruing $25 billion in debt, "made a considerable independent effort to break away from their high cost structure," including workforce reductions, fleet downsizing and "thoroughly revised international and domestic routes from the standpoint of profitability." Those measures, according to ETIC, did not produce "a fundamental improvement in earnings" before the global economic slump and H1N1 influenza outbreak dampened demand.
Remedies And Alliance Implications
Seeking "a fundamental reform of JAL in a short period of time," ETIC's plan calls for JAL to "swiftly retire" old, inefficient airplanes in favor of smaller "advanced" aircraft; "decisively withdraw from unprofitable routes, while maintaining network coverage by utilizing its alliances"; cut the workforce "in line with diminished supply"; establish a flexible decision-making structure; and invest in IT systems and infrastructure.
Meanwhile, the oneworld alliance to which JAL currently belongs and the rival SkyTeam alliance--both jockeying for months to position themselves as a JAL benefactor and therefore secure JAL's participation--issued statements of support after the company began bankruptcy proceedings. "Japan Airlines' position in the oneworld alliance is unaffected by the announcement," according to a oneworld statement. " Oneworld remains convinced that its proposals for JALare vastly superior in every respect to any alliance alternative available to the airline."
Reportedly on the verge of snatching JAL away from oneworld, Delta and SkyTeam said they "stand ready to provide assistance and support in any way possible. Delta has been in discussion with JAL in hopes of forming a strategic SkyTeam partnership that would provide significant benefits for JAL and all of its stakeholders."
By either remaining in oneworld or switching to SkyTeam, JAL likely would seek antitrust immunity with its primary U.S. partner now that the United States and Japan have signed a liberalized air transport treaty.
According to a JAL statement, the airline will conduct "business operations under the Open Skies policy by leveraging our multiple alliances to expand our networks." JAL at press time had not officially announced any plans to either leave oneworld or join SkyTeam.
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