NICHOLAS IONIDES SINGAPORE
Japan Airlines (JAL) and Japan Air System (JAS) announced on 12 November their intention to merge, in the first major realignment of the country's airline industry in more than 30 years.
The carriers say a joint holding company will be established in September 2002 and operations should be integrated from spring 2004.On present standings, it should create one of the world's largest airline groups at $19 billion.
The merger is seen as a natural step for the two carriers, and had been the subject of speculation for years, especially as the market has changed following the launch of new low-cost players in 1998. Although JAL is Japan's largest carrier, its domestic operation is half that of All Nippon Airways (ANA), which has a 49% share of the domestic market. JAL and JAS together, however, will be able to claim a matching 48% share.
The merger announcement has come as JAL is suffering on the international front from the global industry slowdown and is looking to boost domestic operations, which have been less affected as traffic has held up relatively well.
JAS, meanwhile, has a small international network and although it posted profits last financial year, it has regularly lost money. It is thought that 30% shareholder Tokyu Corp, a rail company, felt unable to turn JAS around on its own and helped push the two carriers into a merger after leaking news of initial talks to local media.
JAL is already the second-biggest shareholder in JAS with a 8.25% stake. The holding dates back to 1970 when JAS was formed out of a merger between TOA Domestic Airlines and Japan Domestic Airlines.
JAL had long described itself as a passive investor in JAS and its executives had repeatedly denied that there were plans to merge. The two carriers have been co-operating more in recent years, however, through IT partnerships and other operational tie-ups. At one point JAS even codeshared on JAL flights between Tokyo and Seoul.
JAL and JAS claim their merger will allow for the expansion of international and domestic services and improve stockholder value. Some believe it could also lead to more consolidation in the market, possibly through the merger of low-fare independent carriers Skymark Airlines and Air Do. ANA may also seek to ally with the small low-cost players to boost its domestic market hold.
JAL and JAS are establishing a special committee to oversee the detailed planning of the new organisation and say the company's name, logo and head office location have yet to be decided.
They are planning to integrate their operations by the spring of 2004, however, with the creation of four business divisions responsible for domestic passenger operations, international passenger operations, cargo operations and the operations of associate companies.
Source: Airline Business
