David Knibb
After a bad year for all three major Japanese airlines, the debate is now whether their woes are temporary or due to deeper, more fundamental problems.
Japan Airlines claims to have resolved its problems and cleaned up its balance sheet by taking a US$1.2 billion write down. After cutting back marginal routes such as Tokyo-Hong Kong and dropping domestic fares, JAL predicts it will end this financial year with a $110 million profit.
Standard & Poor's has a different perspective on JAL's future, however, and has downgraded both JAL's short and long term ratings. S&P predicts JAL will face waves of new competition after the opening of a second runway at Tokyo's Narita airport in 2000, and JAL will be forced to boost its fleet and promotion expenses just to stay even. What little savings it gains in labour costs, according to S&P, will be offset by other expenses, resulting in a worse financial position. Moody's has also put JAL on credit watch for possible downgrade.
S&P does not single out JAL alone for criticism; its outlook for All Nippon Airways is also gloomy. Narita's second runway will allow ANA to exercise new rights as an incumbent under the Japan-US bilateral, says S&P, but will force it to expand its fleet to exploit that opportunity. Simultaneously, ANA's historic advantage on domestic routes will erode as Japan continues its gradual domestic deregulation. By 2000 all local capacity and price controls will be gone and competition will intensify, especially on trunk routes.
As the weakest of Japan's majors with the least efficient fleet, Japan Air System will suffer the most from increased competition, says S&P. JAS has already announced restructuring moves aimed at cutting unit costs by more than 10 per cent in three years. Consistent with S&P's prediction about changes in domestic competition, JAS has already started shifting capacity from low-volume to trunk routes.
One criticism analysts level at all of Japan's major airlines is their high labour costs and intransigent unions that block real reforms. The current pilots strike at All Nippon Airways seems to bear that out. ANA is trying to replace a 30-year old salary system that pays pilots for more hours than they typically fly with a plan that would link salaries more closely to actual flight time. ANA says it would benefit pilots who want to fly more hours.
In protest, ANA international pilots walked out for 15 days during April. At presstime they had suspended their protest during 'Golden Week,' but were threatening to resume further strike action at the end of the national holiday. 'I don't want this halt to be a temporary truce,' announced a worried transport minister Takao Fujii. The recent pilot strike has already cost the airline an estimated $29 million.
Source: Airline Business
