JAL hunts for growth after radical turnaround

Bankrupt just four years ago, Japan Airlines (JAL) has returned to robust financial health and is preparing for expansion, the airline’s chairman, Masaru Onishi, told Orient Aviation’s chief correspondent, Tom Ballantyne.

July 1st 2015

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Four years ago, Japan Airlines (JAL) was on the financial ropes, with nowhere to go except controversial, government supported rehabilitation. Read More »

It was a humiliating period for Japan’s flag carrier and there were many critics, both in Japan and abroad, who did not think JAL could make itself into a competitive global force in aviation.

Fast forward to 2015 and JAL, with $12.4 billion in revenue last year, is a top performing carrier, ahead of low-cost airlines Ryanair and Easyjet and legacy rivals such as American Airlines and Singapore Airlines.

'Historically, everybody working for Japan Airlines thought we were in the transportation business. Now, everybody thinks we are in the service industry. That is a very dramatic change'

Masaru Onishi Japan Airlines chairman

“We spent three or four years after bankruptcy building up a stable foundation for our re-structured business,” said JAL chairman, Masaru Onishi, speaking on the side lines of the International Air Transport Association AGM in June, held this year in Miami.

“That was very important. During that time, we did not concentrate heavily on expansion. But from now, we would like to focus on growth.”

Onishi made it clear JAL would not embark on rapid growth. JAL wanted a cautious and measured expansion that will include significant changes to the fleet of 164 jets, including 59 B737s, 47 B767s, 46 B777s and 21 B787-800 Dreamliners.

It has ordered four more B787-800s and 20 787-900s, as well as 25 A350s, the first Airbus order from JAL in the history of the Tokyo-headquartered airline group.

Onishi said putting JAL’s finances in better shape, by cutting costs, eliminating “red ink” routes and ordering new planes weren’t the only factors in JAL’s new success.

After bankruptcy, it was decided the airline would start from scratch. The two pillars that drove JAL’s success were radical surgery on the company’s business model and the re-setting of a deep seated mindset at the airline.

“Historically, everybody in Japan Airlines thought we were in the transportation business. Now, everybody thinks we are in the service industry. That is a very dramatic change,” Onishi said.

He also revealed that JAL is now taking on more fundamental changes. While it remains a major domestic operator, it faces a problem common to its rival, All Nippon Airways - Japan has one of the most mature air traffic markets in the region so domestic traffic growth is slowing.

“Of course we would like to keep our position in this domestic market, but there are big opportunities outside Japan,” said Onishi.

“In the past, our station managers outside Japan focussed on selling JAL tickets to Japanese companies in their regions. Take our American station manager .What did he do historically? He went to Japanese companies in the U.S. to convince them to use JAL.

“But we have a big blue ocean for us. We are now changing our personnel. We are hiring and promoting local people who know their own market and their own people. So we are putting a lot of effort into attracting foreign travellers to fly on JAL.”

Onishi said JAL receives support from its oneworld alliance partners, such as American Airlines in the U.S., British Airways and Finnair in Europe, Cathay Pacific Airways in Hong Kong and Qantas in Australia.

But there are challenges too. JAL has no alliance partners in the critical Mainland Chinese market and no partnership agreements with any of the big Chinese carriers.

Onishi’s solution is to find friendly travel agents to sell JAL. “It’s the same in Southeast Asia, where we also don’t have an airline partner. But the market in that region is heavily dependent on travel agencies so we want to focus on building good relationship with travel agencies.”

One aspect of today’s competitive landscape that isn’t causing Onishi any angst is the presence of the Gulf Carriers. They are not players in the Japanese market.

He thinks Japan, being so far east in Asia has geopolitical advantages. Carriers in Southeast Asia can’t operate non-stop to the U.S., which means travellers from that region have to fly one stop, primarily through Japan or Korea.

Even if viable long-haul aircraft came along that were capable of linking Southeast Asia non-stop with the U.S. Onishi believed most passengers would still want to make the journey one-stop.

“Human beings cannot be changed so easily. Maybe the maximum flight hours they can tolerate will be 14 to 15 hours. Even that can be a pain,” he said.

“Japan is located at the end of the East and that’s a big geographical advantage when Indian or Southeast Asian people want one-stop journeys. They can break their journeys in Narita or Incheon on the way to the U.S.”