Lessons from JAL’s bankruptcy

SOME 25 years ago when All Nippon Airways (ANA) commenced international operations, I asked one of its officials in Tokyo what its mission would be. He said: “Kill JAL.”

Today, upon news of Japan Airlines’ bankruptcy petition, ANA board member and executive vice president of alliances and international affairs Keisuke Okada allegedly said: “I have been waiting for this for more than 30 years.”

Japanese citizens proud of their national heritage may heave sighs of pity that a national icon should succumb to this end, but business observers have long seen it coming despite government subsidies to try and save it – the airline incurred a debt of US$25 billion, faced mounting pressure from stakeholders and did not much better with a recovery plan that came too little too late.

It would be easy for JAL to blame the competition – principally ANA – and, of course, the global economic recession, which is not an exception to JAL. As if to lend credibility to the first premise, Transport Minister Seiji Maehara hinted that the government may review its two-airline policy for international routes. This has angered ANA, which is already not pleased with the government’s capital injections into the embattled airline.

Perhaps more pertinent is the question as to why and how JAL has not been able to cope with the challenge of a home rival even as it continues to uphold a reputation for impeccable service. Will a restructured JAL be in a better position to face the competition, i.e. if Mr Maehara does not change his mind?

Gone are the days when a national flag carrier could take for granted its perpetual existence come what may. The business of flying profitably takes precedence over the pride of flying the flag. All the more so, in cases of cross-border ownerships. (American Airlines and Delta Airlines have been knocking on JAL’s door with interest to take a stake in the airline).

As the skies become increasingly liberalized, the competition intensifies. Few airlines can hope to survive continuing to operate the way they did, whether it involves managing finances and resources or customer expectations. This demands quick reactions to situational changes and a spirit of constantly innovating.

Here is a case in point: for too long JAL, known for its efficiency, seems to be catering almost exclusively to a Japanese audience even on its international routes; other customers feel somewhat alienated by, for example, its limited inflight entertainment in other languages and the crew’s limited use of English.

Apparently, the bane of JAL’s operations is bureaucracy that prevents it from making fundamental changes to align itself with shifts in the industry. It continues to operate unprofitable international routes even as the recession worsens.

The restructured JAL will be leaner by some 16,000 employees, about a third of its original force. Optimists think it will be a veritable rival for ANA. Until that happens, ANA is seizing the opportunity to strike while the iron is hot. Mr Okada makes no bone about this being a fair game, that ANA will take advantage of JAL’s “sickness” to grow its own strength.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

One Response to Lessons from JAL’s bankruptcy

  1. “Will a restructured JAL be in a better position to face the competition, i.e. if Mr Maehara does not change his mind?” – I think so.. I feel that if JAL is able to reduce it’s debt, operate profitably, they can do much good for the local economy. Assuming their headquartered in a city in Japan, I’m sure that region could use a boost in jobs and over spending.

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