Times are hard at home, so All Nippon Airways is looking abroad for its growth.
Kieran Daly/Tokyo and Kansai
Throughout the world, governments are cheerfully embracing the concept of instant deregulation of their air-transport services. The consequences of this are sometimes dramatic, frequently unforeseen and, occasionally, disastrous to airlines which suddenly find themselves acquiring dinosaur status.
Characteristically, Japan is doing things in more measured terms, but, for All Nippon Airways (ANA), which is seeing competition unleashed on a domestic market which contributes almost 85% of its revenue, the experience is proving quite traumatic enough.
The forthcoming years will present a vast corporate challenge to an airline, which to a great extent will have to re-invent itself and in inherently difficult circumstances. ANA's management can be forgiven for looking with undisguised relief at the re-assuring predictions of rampant traffic-growth in Asia for the next two decades. It knows that it will have to look to that traffic volume to compensate for continuing difficulties in improving operating margins.
Vice-president of international marketing and sales Koji Yamashita is frank in his appraisal of the situation, saying: "It's the first time that ANA has faced bumpy weather. The Government is introducing deregulation and it is the first time that ANA has faced a serious and fierce recession. Also, Kansai Airport has just started with an unstable situation, so it is a very serious environment.
"The recession is now four years old and is the worst since the [Second World] War. This has affected the mentality of the management and we are squeezing and squeezing. It is difficult to lay people off, but the company has said very clearly, that some staff will have to go. We are now reviewing the wage and benefit system. We are going to have some contract-based cabin attendants and non-Japanese-national cabin attendants. Most importantly, without increasing manpower, we want to try to utilise our aircraft as much as possible."
The airline is also delaying Boeing 747-400 deliveries and is expected to announce changes to its Boeing 777 and/or Airbus A340 delivery schedules imminently.
DEREGULATION THREAT
As Japan emerges from recession, however, ANA's fundamental problem is that its huge domestic operation is under threat from deregulation which will leave Japan Airlines (JAL) and Japan Air System (JAS) increasingly free to compete with it. The strong domestic yields, which have underpinned ANA's growth so far, will soon be history. Yamashita says: "The domestic environment is going to change quickly. For 30-40 years the Japanese industry was controlled by, the Ministry of Transport giving traffic rights. It was all regulated. But the situation is going to change. Deregulation is coming and so is discounting. A new fare-system is going to be introduced, but we can already just file discount fares. So, from now on, volume is there, but yield will be on a down-wards trend."
The chosen solution is a swing in emphasis to ANA's international operations, with particular stress on Southeast Asian routes. International capacity accounts for 25% of ANA's seats, but the airline wants to push it up to 33% or more over the next five years. It might have an even more ambitious target, but the airport-slots position at Narita and Kansai, at both of which ANA is something of a latecomer, makes faster progress difficult.
Yamashita says: "Overall, our international volume compared with domestic volume is small, but the total number of passengers has grown dramatically. We do not have a domestic monopoly any more - JAL and JAS are entering, too. So, there are three major carriers competing on some routes and double-trunks are common.
"We are moving to international operations because the demand is there. There is still only 10% of Japan's population flying internationally compared with, say, 57% in Germany and 17%, even in North America. That leaves a lot of space for capacity increases. Realistically, deregulation will add domestic competition - so volume will be there, although the yield is down; but, at the same time, I can see very strong and healthy growth internationally."
Examination of the statistics shows how ANA has reached its conclusion. In the six months to 30 September 1994, 6.9 million Japanese traveled abroad - 14.2% up on the previous year. The second half of ANA's financial year is expected to yield similar results, compared with a total of 12.4 million foreign travelers in the whole of the previous year. Inward travel was steady at about 1.8 million visitors. ANA's results mirrored the overall Japanese position, but, notes Yamashita, while international traffic soared and load factors leaped by 7.4 points, revenues climbed by just 3%, reflecting the difficulty with yields. Domestically, ANA's offered capacity rose by 5% in the first half, but the traffic increase was less than half of that, leaving the average load-factor down from 62.2%, to 61.1%.
STILL OPTIMISTIC
Yamashita stresses that, despite the challenges, there is cause for optimism. "The trend is up. The leisure market is very strong and high-yield traffic is also coming back on London and New York," he says. ANA introduced a 1,270mm-pitch business-class seat in April 1994 and saw the number of occupied seats rise by 8%.
It also has enough first-class traffic to justify maintaining that service even as other carriers drop it. Yamashita explains: "First-class has suffered, but we have to accommodate some Japanese VIPs, including members of parliament, ministers and company chief executive officers. The demand is very limited, but it is always there."
He continues: "For the next two or three years, the first priority is Asia - particularly increasing traffic to China from Narita and Kansai, but also to Jakarta, Kuala Lumpur, Manila and, most importantly, Saigon. The market in Asia is still growing and it will continue to grow."
Source: Flight International
