MIAMI – Bloomberg News has reported that in an interview, Heizo Takenaka, a close advisor to Japanese prime minister Yoshihide Suga, has called for a restructuring and stated that the airlines should “become one”.
Although Japan has suppressed the COVID-19 with success, the travel restrictions imposed in and around Japan has caused hardship for ANA (All Nippon Airlines) and JAL (Japan Airlines).
While the statements made by Mr. Takenaka are not official policy, as a senior advisor, his opinions will be considered heavily by the Suga administration. Mr. Takenaka also indicated that the airlines would require more government funding in the long term.
Despite the prospects of vaccines being introduced next year, the wounds of the aviation industry will take much longer to heal.
ANA’s Financial Standing
Although ANA is the larger airline, its financial standing is considerably worse than that of JAL. Compared to JAL, ANA has a significantly larger international route network. This complicated network has stretched ANA’s fleet and resources thin.
After over-expansion in the last decade, JAL opted to focus on codeshare flights within the Oneworld Alliance. Similar to JAL, ANA will be selling shares worth approximately ¥198bn. The airline has forecasted a loss of US$4.82bn for this year.
JAL’s Financial Standing
This month, Japan Airlines raised funds through a public stock offering, the first time the airline has done so since 2012. According to the airline, approximately 100 million new shares will be sold, which will raise an estimated ¥167.9bn.
The funds will in part be used to continue its fleet renewal program of the Airbus A350 as replacements for aging Boeing 777s in its domestic fleet.
According to planespotters.net, the airline has already taken delivery of eight brand new Airbus A350-900 aircraft as replacements for its aging fleet of Boeing 777s and Boeing 767s. The new aircraft, based at Haneda International Airport, can be seen flying on various domestic routes to Naha, Fukuoka, and Sapporo.
The Airbus A350 deliveries mark the first airline in Japan to operate the type, and the first Airbus aircraft to be operated by JAL since retiring their Airbus A300s in 2011. The remainder of the funds raised by the share sale will be used to support their low-cost carrier initiative through ZIPAIR Tokyo and Jetstar Japan.
ZIPAIR Tokyo initialized operations this year, operating used Japan Airlines Boeing 787 aircraft in a new low-cost cabin design to Bangkok and Seoul. The new airline, initially designed to take advantage of planned increased demand due to the Tokyo 2020 Olympics, has needed to adapt to a COVID-19 affected world, operating both cargo only and passenger flights.
Jetstar Japan, a joint venture between Qantas and Japan Airlines, is an airline designed to directly compete with ANA’s subsidiary, Peach Aviation. The remainder of the funds is to be used to offset losses caused by this year’s circumstances.
A History of a Merger Drama
The Japanese aviation industry is no stranger to mergers. In fact, the practice has become a part of the industry’s history and has a large part in the current configuration of the industry.
In 2001, Japan Air Systems and Japan Airlines began the process of merging in order to control half the Japanese market, and create the 6th largest airline in the world. At the time, ANA opposed the merger in an attempt to retain the position as the largest airline in Japan.
In 2010, JAL declared bankruptcy after mismanagement and being stretched too thin globally. Despite being one of the largest airlines in the world, they could not keep up with the management.
A similar idea of merger was proposed at the time, but was struck down by ANA, who did not want to take in the weaker airline.
What Could a Merger Look Like?
At this point, it is unclear what a possible merger would look like. Despite operating in a duopoly, the airlines have different growth strategies.
ANA has focused on a domestic low cost strategy, as well as a broad international network, while JAL has focused on bolstering its full service domestic operations, and looked to the Oneworld Alliance for an international network.
In addition, the fleets of the airlines have some contrast. ANA operates Airbus A380 aircraft to Hawaii, as well as Airbus A321neo aircraft in the domestic market. Japan Airlines, on the other hand, operates the Airbus A350 on domestic flights.
The long-haul fleets of both airlines would have more synergy, however. Both airlines operate Boeing 787 and Boeing 777 aircraft for long haul flights.
The starkest contrast is perhaps the difference in airline alliances. ANA is a core member of Star Alliance, while JAL is a member of the Oneworld Alliance. A merger, creating one of the largest airlines in the world, would certainly not benefit customers.
Having such stiff competition between the two airlines has worked well for the customers so far, as the airlines compete to acquire and maintain customers. Having one large airline in Japan would also quickly kill off the smaller airlines in Japan, creating one of the largest airline groups.
Featured image: JAL/ANA composite image. Photos: kochan Kleps
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