JAL, ANA Court U.S. Corps.

<B>JAL, ANA Court U.S. Corps.</B>

By David Jonas

Facing stiff competition and pressures on yields and revenues in the domestic market, Japan Airlines has intensified U.S. corporate sales efforts to further boost lucrative international operations. The carrier has scored several new corporate accounts in recent months, including such purchasing giants as IBM, General Electric, PricewaterhouseCoopers and Time Warner.

Meanwhile, All Nippon Airways, facing similar pressures at home, is in the midst of a four-year corporate plan that centers around a huge increase in overseas flying. Traditionally a domestic carrier, ANA--with five U.S. gateways and help from its new Star Alliance allies--also is repositioning itself as a premiere international carrier.

JAL's focus on large U.S. corporations began about three years ago when the yen began losing value and Japanese corporations no longer could fill the carrier's need for high-yield international business traffic. As a result, a roster of 35 U.S.-based corporate accounts in 1997 has swelled to more than 250 today.

"We are looking at the top 100 travel buyers here and going after them," said John McGhee, JAL's vice president of passenger marketing of the Americas. "The return, of course, can be excellent, and securing the big guys validates our product for many other corporations. The ones and twos can really add up."

With the addition of sales reps in Chicago, Dallas and Los Angeles, JAL now has corporate sales reps in most major U.S. markets, each with "a fair deal of empowerment," McGhee said. "We are looking for dollar volume but remain aware that we can't have 100 percent of a corporation's transpacific traffic."

Indeed, Mark Williams, travel leader for the Americas at PricewaterhouseCoopers, said McGhee had "done his homework" prior to negotiations, which ended in a new agreement in January. "He knew where our spend was and where JAL could help us, but understood that he wasn't going to get all our business," Williams said. "They have better service and more frequency into the markets we need, compared with the carriers we already were aligned with."

JAL's impressive list of U.S. corporate clients also includes Citibank, Merrill Lynch, Seagram Universal and UTC, one of the few companies taking advantage of JAL's Executive Plus program. The program, which isn't that new but has remained fairly unknown to U.S. travel managers, is designed for the business traveler and includes limo service to and from all U.S. gateways and extremely competitive rates at major hotels in Japan.

"We decided to throw some money into this program to get the best rates at these properties, which are far better than the corporate negotiated rates," McGhee said. "We know many companies have programs with the larger hotel chains, but Executive Plus can really provide added value at quality properties." Those little perks, along with JAL's reputation for good service, has many buyers looking at the carrier as a viable alternative to United and Northwest, its chief competitors across the Pacific.

"I would bet there is a lot more westbound demand than eastbound demand, i.e., Japan-based demand is inadequate to cover costs of operations; this is a big motivator to gain U.S.-based demand," said Rolfe Shellenberger, senior consultant at Runzheimer International, adding that JAL likely has more ability to satisfy upgrade demands. "Also, JAL can make a lot of money with fairly deep reductions in fares for business and first class. So can United and Northwest, but they probably hate to shave their margins."

Meanwhile, JAL's corporate mileage program--which rewarded both the individual traveler and the corporation with frequent flyer points--was discontinued a while back. Now, JAL will make special arrangements for individual corporate accounts in certain cases, but any such program would be independent from JAL's existing frequent flyer programs.

JAL hopes high-yield international traffic will alleviate problems at home. Japan's domestic aviation industry became completely deregulated earlier this year, prompting new entrants to come on the scene and force lower fares. Also, JAL this spring began a cooperative shuttle between Tokyo and Osaka with All Nippon Airways and Japan Air Systems--its two largest domestic competitors--to stem the tide of travelers opting for high-speed rail.

Despite the fact that domestic rival All Nippon Airways officially joined the Star Alliance last fall, JAL has no immediate plans to join a global grouping. "We see it in almost every RFP these days: Which alliance are you part of?" McGhee said. "We answer that we are 'an affiliate' of Oneworld, but choose to go it alone." Going it alone, however, includes bilateral agreements with most Oneworld members, including American Airlines, as well as links with Swissair and a recently expanded codeshare pact with Air France.

For its part, ANA is suffering from the same domestic problems as JAL, despite higher passenger numbers, and recently submitted proposed wage cuts to its labor unions. The first-ever companywide salary reductions are meant to "secure funds needed for future development" and improve less than stellar financial performance. However, like JAL, international passenger traffic is strong, and increased 13 percent to just under 4 million for its year ending March 31.

"Our international business traffic is growing in two ways," said Brian Dwyer, ANA's vice president of marketing and sales of the Americas. "One is new product growth, including our newest markets of Chicago and San Francisco, and second is customer retention." Dwyer noted that another factor affecting growth is the codeshare alliance with United. "Growth out of Washington, for example, has been quite surprising thanks to the United relationship and the fact that government employees now can fly with us," he said, citing a clause in the Fly America program, which allows federal employees to fly on airlines that codeshare with U.S. carriers. It also doesn't hurt to have the only nonstop flights between Washington and Tokyo.

ANA is looking to even out its operations, now predominantly domestic, by striking a balance with international service. "We are working toward that balance and hope to achieve it by 2002 or 2003," Dwyer said. "So there is a clear thrust for our international divisions to substantially increase revenue production."

Of course, that means a deeper focus on the business traveler and to appeal to that high-yield segment, ANA by November will expand its "Chicago Style" product, which was first designed to give travelers to and from Chicago an enhanced inflight experience. Now dubbed "Super Style" and also available to New York, Los Angeles by the end of the month and San Francisco by year-end, the product includes a fully equipped business center on the upper deck of the 747-400s, a bar area on the main deck and an on-demand audiovideo system.

Also, ANA's Star Alliance participation means greater access to and conveniences for business travelers in North America, including lounge access, frequent flyer reciprocity, through checkin and other customer service benefits. ANA also is leaning on the Star Alliance to help it establish international e-ticketing.

Meanwhile, ANA continues to rely on travel agencies as its primary U.S. distribution vehicle. "We are one of the few carriers that still pays full commissions and I have done that deliberately," Dwyer said. "I want ANA to really stand out on that playing field.