Japan Airlines buyers beware: Some operational quirks and potential headaches
The fate of Japan Airlines continues to be the most riveting ongoing aviation story. For decades, high demand, restrictive policies and constrained airport capacity made traffic rights to Tokyo Narita the Holy Grail of Asia.
Times have changed and other hubs have emerged, making South Korea's Incheon, for example, an excellent access point to China, while Hong Kong is a very desirable gateway to the region.
Nonetheless, Japan continues to wield huge economic influence and serves as the home base for countless global companies. And while inbound tourism is currently reduced by a strong Yen and Japanese, hard hit by the recession, are curtailing their foreign travel, the potential remains and Japan will doubtless benefit as the pendulum reverses its swing.
All of this makes Japan (in addition to its physical proximity to Great Circle routes) a market that will have continued appeal. Hence, the fuss over JAL's future and its ownership.
See related articles:
- Japan Airlines and the future of global aviation. Japanese Government holds the aces
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JAL's impact at Narita
Chart 1 lists the international destinations served nonstop from Narita. Destinations shown in bold are operated by JAL. Those in standard typeface are "served" by JAL through a codeshare partner - in some cases its own subsidiary, JALways. Finally, the italicised points are served exclusively by other carriers.
Of the 73 destinations, 24 have direct JAL flights - 33%. By adding the codeshare partners, the number of markets in which JAL participates rises to 43, or 59%. Nonetheless, over 40% of the destinations served from Narita have no JAL presence or participation.
Chart 1: Tokyo Narita's International non-stop services
AMS |
SGN (VN,JO) |
|
AKL (NZ) |
HKG |
HKT |
BJS |
HNL (JO only) |
|
BNE (QF) |
HOU |
POM |
IST |
TAO |
|
CNS (JO) |
JKT (JO) |
ROM |
CAI |
KOA (JO only) |
|
CEB |
BKI |
SFO |
CTU |
KUL |
SEA |
CHI |
LON |
SEL |
CKG |
LAX |
SHA |
CHC (NZ) |
MFM |
SHE (CZ) |
CMB |
MLE |
SIN |
CPH |
MNL |
SYD (JO) |
DFW (AA) |
MIL |
|
DEL (JO) |
MSP |
YTO |
DPS (JO) |
MOW |
YVR |
DTW |
BOM |
VIE |
FRA |
MUC |
WAS |
OOL |
NKG (MU) |
XMN |
GUM (JO) |
NYC |
SIA (MU) |
HGH |
NOU |
ZRH |
HAN (JO) |
PPT (TN) |
|
HEL (AY) |
PAR |
This low penetration is surprising perhaps, because as Japan's longstanding legacy carrier, JAL enjoys global name recognition. That, along with Japan's status as the world's third largest economy, makes most observers incorrectly believe that it is a carrier with a huge global network, linking Japanese firms to their widely scattered business locations. But the reality is a bit different.
Disproportionate domestic operation
Of the almost 53 million passengers JAL carried last year, almost 78% were domestic customers, a far higher percentage than is found among most of its peers. For instance, in Aug-2009, American Airlines' domestic traffic percentage was 62% and for Delta, 60%. Possible partner Air France saw only 13% of its traffic generated domestically and Malaysia Airlines, serving a nation separated by lots of water, dedicates only 41% of its output to domestic routes.
All this makes JAL a far more domestic airline than most major carriers, a condition that will remain true of the airline after its likely realignment with a foreign partner. It also begs the question of just how effective a foreign owner will be in understanding and operating as a primary players in Japan's internal market. Additionally, should all of this reorganisation lead to a greater low cost presence domestically in Japan, the new part-owner will find almost 80% of its acquisition under assault from new domestic competitors.
Unusual pricing strategies
Given the large losses registered by JAL of late, one might assume that fares have been dropped to unsustainable levels. Looking at dates in November on Kayak.com, reveals fares within Asia were comparable to those charged by other carriers on the same route. However, looking at long-haul, a different pattern emerged.
Two destinations, Paris and JFK, were selected for this analysis, departing Narita on 03-Nov-2009 and returning on 10-Nov-2009. The results, as shown in Chart 2, were surprising.
Chart 2: Toyko to Paris and New York
NRT-CDG 3/11/09-10/1109 | ||
---|---|---|
AF operated and sold | JL operated-AF sold | JL operated and sold |
USD917 | USD1,489 | USD3,902 |
NRT-JFK 3/11/09-10/11/09 | ||
AA operated and sold | AA/JL combo AA sold | JL operated and sold |
USD783 | USD3,812 | USD1,076 |
First, the partner airline's flights were less in both instances - for Paris by an astounding differential. And to Paris, the JAL flights, if sold by Air France as codeshare services, were less than half of the amount charged by JAL.
Second, while the differential between own sold and operated services to JFK was far less, if the two carriers were combined (same flights as the lower fares), the price almost quadrupled. Mind you, these are alliance partners working together for your "benefit".
Just for comparison, the NRT/JFK round trip on Delta was USD706 and ANA charged USD793 for its non-stops.
Reviewing a fare from Tokyo to the ever-popular Dubai, the analysis involved Emirates' non-stop flight from Osaka to Dubai on which JAL places its code. The itinerary therefore carries a JL code even though the passenger occupies a JL seat for only 304 miles of the 5,011 mile journey. An economy booking on the same November dates costs USD2,376 - including a stunning 15h25m (take the train!!) layover at Kansai on the return.
Depart - Tue Nov 3 2009 |
|||
---|---|---|---|
This flight leaves on Tuesday and arrives on Wednesday. |
|||
Departs: 5:20p |
Arrives: 7:00p |
||
Flight 51 |
Narita (NRT) |
Kansai International (KIX) |
|
Coach | Fare code: MLXZA1ME | Boeing 737-800 (winglets) (Narrow-body Jet) | 1h 40m |
|||
Layover in Osaka, Japan (KIX) for 4h 15m |
|||
Departs: 11:15p |
Arrives: 5:30a |
||
Flight 5099 |
Kansai International (KIX) |
Dubai International (DXB) |
|
Operated by Emirates |
|||
Coach | Fare code: MLXZA1ME | Boeing 777-300LR (Wide-body Jet) | 11h 15m |
|||
Return - Tue Nov 10 2009 |
|||
This flight leaves on Tuesday and arrives on Wednesday. |
|||
Departs: 2:50a |
Arrives: 5:20p |
||
Flight 5090 |
Dubai International (DXB) |
Kansai International (KIX) |
|
Operated by Emirates |
|||
Coach | Fare code: MLXZA1ME | Boeing 777-300LR (Wide-body Jet) | 9h 30m |
|||
Layover in Osaka, Japan (KIX) for 15h 25m |
|||
Departs: 8:45a |
Arrives: 10:00a |
||
Flight 52 |
Kansai International (KIX) |
Narita (NRT) |
|
Coach | Fare code: MLXZA1ME | Boeing 737-800 (winglets) (Narrow-body Jet) | 1h 15m |
On the same date, one can buy a ticket from Orbitz, using ANA and Emirates for USD1133 and get there faster. Something about JAL's pricing is extraordinarily unusual and certainly is not designed to be competitive.
For less than the JAL fare, American will fly you from Tokyo, via New York and London, to Dubai - though unless you are unduly fond of flying, this is not a recommended routing.
Depart - Tue Nov 3 2009 |
||
---|---|---|
This flight leaves on Tuesday and arrives on Wednesday. |
||
Departs: 5:25p |
Arrives: 12:05a |
|
Flight 901 |
Narita (NRT) |
Changi (SIN) |
Operated by Japan Transocean |
|
|
|
||
|
||
This flight leaves on Tuesday and arrives on Wednesday. |
||
Departs: 1:20a |
Arrives: 4:50a |
|
Flight 405 |
Changi (SIN) |
Dubai International (DXB) |
Coach | Boeing 777-300 (Wide-body Jet) | 7h 30m |
|
|
Return - Tue Nov 10 2009 |
||
This flight leaves on Tuesday and arrives on Wednesday. |
||
Departs: 9:40a |
Arrives: 8:50p |
|
Flight 404 |
Dubai International (DXB) |
Changi (SIN) |
Coach | Boeing 777-300 (Wide-body Jet) | 7h 10m |
||
|
||
Departs: 11:25p |
Arrives: 7:05a |
|
Flight 902 |
Changi (SIN) |
Narita (NRT) |
|
JAL: Deal or no deal?
A deal of some sort could be struck in the coming weeks. JAL and the Japanese market are simply too attractive to have acquisition derailed by complex problems. But the ultimate "winner" will possess far more than just a presence in Japan.
The extra bonus items include:
- A complex and extensive domestic network, overripe for competition from new entrants;
- An international network that lags many other national carriers in its reach;
- A pricing system, even with partners, that has some very unique and undesirable aspects.
- Home market competition with ANA, an airline also suffering hard times but showing a far better aptitude at making quick adjustments in the face of competitive challenges. Furthermore, ANA is well established in Star so that any liberalisation of the Japanese market that benefits JAL and its goals, will also be available to ANA.
- A network that is rumored to shed 50 international and domestic routes in the near future.
Regardless of just who benefits and when, this transaction has the potential to accelerate the process of change and realignment that is already evident worldwide. The final outcome will intertwine political, economic and aviation interests in new and probably unexpected ways. It will be a fascinating process.