Japan Airlines (JAL) continues its recovery under the leadership of President and CEO, Haruka Nishimatsu - a JAL career man with vast experience in the finance field. JAL’s latest medium range corporate plan is a solid continuation of a successful strategy launched by Mr Nishimatsu in 2006.
While there is still more work to be done to improve core profitability, Mr Nishimatsu is now confident JAL is “back to square one”. This means it can gear up to take full advantage of the huge business opportunity presented by the expansion of Haneda and Narita airports in 2010 – described by ANA President and Chief Executive, Mineo Yamamoto, as the ‘Big Bang’ for Japanese aviation.
JAL’s new mid-term strategy is based on three key elements: (1) drastic cost cutting through network reform and fleet renewal; (2) preparing for the enormous capacity expansion at Tokyo’s airports in 2010 – particularly the internationalisation of Haneda Airport; and, (3) improving products and services.
It is already clear that these measures – already in place – are working. Labour costs have been reduced and across-the-board cost reductions have been achieved. Increasing use of "lower overhead subsidiary" airlines has paid off well and this will continue in the updated plan.
That 14 major Japanese companies have agreed to take up a JPY150 billion (USD1.5 billion) preferred share stock issue is a strong indication that JAL’s corporate credibility has been restored and that the airline is seriously tackling reform – and getting results.
Just three years ago, this was not the story. Top management then was out of touch, influenced by the traditional lifetime employment mentality and years of constant, automatic growth. Faced with unfamiliar circumstances, JAL’s former chiefs simply lacked the entrepreneurial expertise to deal with the era of change they now had to face. The old management was so used to restraints on competition, thanks to a lack of airport capacity in the key Tokyo area, that it would have been ill prepared for the changes that are about to happen at that city’s airports.
On the other hand, JAL’s younger managers were very much aware of developments occurring in the industry and pushed for change – to increase JAL's international competitiveness. JAL’s Japanese service standards and product quality were falling behind – notably in the IT field and in Frequent Flyer processes.
At that time, JAL’s future rested on three essential elements – and still does.
– Downsize the international network to return to the black. JAL was no longer the national carrier with an obligation to provide service on non-profitable routes as ‘’duty’’. Since 2006 JAL has axed unprofitable international routes and boosted capacity on profitable ones;
– Prepare for 2010 when Haneda expands capacity by 40%. The expansion will create new business opportunities (and more competition from LCCs and foreign carriers). JAL will be presented with a major business opportunity when the 4th runway opens at Tokyo’s predominantly domestic Haneda Airport. The resulting increase in the number of takeoff and landing slots will lead to a major expansion in the airport’s domestic and international scheduled services (international flights there now are charters). (Current total 285,000 movements, proposed increase will be up to 407,000 movements, or an increase 40% or 122,000 movements – of which 30,000 will be for international flights.) Present daily total r/t flights: 391. Future daily limit total r/t flights 557;
– Change JAL’s alliance policy. JAL’s previous stand-alone position resulted in more than 20 bilateral alliances, while its main rivals joined global alliances to maintain international competitiveness and service and product quality. Finally, JAL’s top managers grasped this point and on 01-Apr-07, JAL became a full member of the oneworld alliance.
JAL’s new mid-term plan states undramatically that it is essential to boost its business at Haneda when the ‘Big Bang’ happens in 2010. Operations out of Haneda are much more profitable than Narita and JAL has to get as much of the Haneda action as it can in 2010.
Because JAL’s traditional thrust was on international operations, it was too much focussed on Narita, whereas rival All Nippon Airway always put Haneda and domestic business first. JAL’s current management knows that and this updated plan shows that they are fully aware of the opportunities to be made.
With thanks to Geoffrey Tudor, Principal Analyst of JAMR.