All Nippon Airways confident due to 2011 financial success but there are changes ahead

Japan's All Nippon Airways (ANA) has achieved the impressive accomplishment of posting a record profit not only in the current economic environment but in the year immediately after Japan's Mar-2011 devastating earthquake and tsunami. ANA's JPY97 billion (USD1.2 billion) operating profit came on the back of international growth and early introduction of cost-cutting measures. While ANA may enjoy this momentum for another year or two, its medium- and long-term strategy is far from certain and could challenge the ability to repeat ANA's recent gains.

The Japanese market is about to undergo a significant structural shift with the introduction of LCCs that will reshape domestic and short-haul regional flights. ANA is fully aware of new LCCs - its subsidiary Peach was the first to market and ANA will shortly co-launch AirAsia Japan - its management plan has seemingly not taken the carriers into full consideration. Rival Japan Airlines is planning to decrease its exposure to the domestic market, already lower than at ANA, while ANA is planning to grow its LCC-exposed domestic network.

History suggests ANA's domestic strategy is in substantial need of revision.