Japanese Carriers JAL, JAS Pave Way For Merger

Faced with sharp downturns in demand and revenue on both domestic and international networks, Japan Airlines and Japan Air System by the end of the month expect to finalize details for an integrated holding company paving the way for a full-scale merger. If completed, the combination of two of Japan's three largest carriers would pit a 49 percent domestic market share against market-leading All Nippon Airways.

JAL and JAS also plan to integrate lucrative international flights, including the former's global network and the latter's intra-Asian services. For JAL—already the fourth largest foreign carrier in terms of capacity, behind only Air France, British Airways and Lufthansa—the merger would mean an improved standing among the world's global commercial airlines and a stronger domestic feed for its high-yield international operations. For JAS, the merger would relieve economic and competitive pressures in the Japanese domestic network. The companies expect the combined network to improve customer service while reducing overall costs.

JAL reportedly will maintain its full portfolio of bilateral alliances with foreign carriers, including American Airlines. After details are worked out by the end of January, each company will aim for shareholder approval at respective meetings in June, followed by government approval. If given all the necessary green lights, JAL and JAS will incorporate the new holding company in September and begin merging operations.

Should JAL and JAS progress toward integration, All Nippon Airways would be pressured to improve its own operations. The company last month warned of an estimated $90 million net loss for its fiscal year ending March 31, and in November suspended nonstop service between Tokyo and Chicago through March 30. The carrier has yet to announce whether or not service will resume at that time and, in the meantime, has boosted frequencies on intra-Asian routes.

ANA also may rely more heavily on its Star Alliance partners for both traffic feed and streamlined airport operations. Member airlines last month agreed to close numerous lounges at airports where customers currently have access to at least two such facilities and eliminate overlapping ground-handling contracts.

Meanwhile, JAL recently began installing new first-class sleeper seats on aircraft operating between New York and Tokyo. All flights on the route will have the new seats by mid-February. Also, daily service between Los Angeles and Tokyo now features a reconfigured business class sporting seats with a 62-inch pitch and a 152-degree recline.