JAPAN AIRLINES (JAL)
JAL airplane ticket machine Japan Airlines is the largest airlines in Japan and Asia. Founded in 1951, it has traditionally earned about 75 percent of its profits from international flights.
JAL operates in 35 countries and regions. Before it declared bankruptcy in 2009 it employed 47,000 people. For a while much of its stock is owned by the yakuza. Pokeman and the baseball player Hideki Matsui have appeared on the on the fuselage of JAL planes.
In 1983, JAL replaced Pan American Airways as the world’s largest air carrier and the world’s no. 1 airlines in terms of international traffic volume. It widely used Boeing 747s with 550 seats on domestic flights and had the world’s largest Boeing 747 fleet.Recalling that era one JAL employee told the Yomiuri Shimbun, “The whole company was exhilarated at that time. Everybody boasted that the company was the world’s No. 1 airline and had the most jumbo jets.”
Japan Airlines was ranked the No. 7 international airlines in the Travel and Leisure readers survey in 2002, 2004 and 2006. In December 2004, JAL ordered 30 Boeing 787 Dreamliners as parts of its effort to cut costs by switching to more fuel efficient planes. JAL has said that it may buys some Airbus A350s.
Japan Airlines was privatized in 1987. During the bubble economy years in the 1980s it grew a lot and unwisely investing its money in a number of ventures rather than modernizing its fleet. In the early 1990s it suffered from its unwise investments and from air traffic decline because of first Persian Gull War and other troubles.
Then troubles began and gain momentum with time. More attention was placed on being No. 1 than on watching the bottom line. The number of loss-making flights increases as JAL expanded the number of total flights. Outdated, large planes were not disposed of quickly enough and flew with too many empty seats. By 2009, JAL still had 36 jumbo jets while ANA had only 13. By then even formally profitable international flights were losing money. [Source: Yomiuri Shimbun, January 25, 2010]
The problems, one JAL executive told the Yomiuri Shimbun, were caused by a management that “hated causing ripples and always postponed solving problems,” union objections to cost-cutting measures and a “time guarantee system” that was in place to keep unions from charging management with mismanagement.
The JAL had different arrangements with different unions for different kinds of occupations, unusual in the airline industry, and guaranteed pilots pay for 65 flight hours even though they often flew much less than that. The airline was pressured by government to serve airports that should have never been built because there wasn’t enough demand.
Safety Problems with JAL
In 2005 and 2006, JAL was ordered twice by the Japanese government to improve its safety. The orders came in response to a number of incidents that included taking off and landing without permission, and parts and fragments falling from engines and aircraft. After the reports so many passengers switched to ANA that JAL mulled over raising ticket fares to compensate for the losses.
Between January and August of 2005 there were 14 incidents related to safety lapses. In January a JAL pilot was involved in a near miss at New Chitose Airport in Hokkaido after a pilot taxied his plane onto a runway with receiving permission from the control tower. In March a plane scraped its tail on the runway as it landed ay Fukushima Airport. In May a flight from Narita to Sao Paulo suddenly lost pressure and had to make an emergency landing.
In June 2005, three passengers were injured on a JAL flight when two tires came off during landing at New Chitose Airport in Hokkaido. A passenger told the Daily Yomirui, “Righter after we landed the plane lurched to the right and then the left. The impact was so strong that I’m sure I would have been thrown from my seat had I not been wearing my seatbelt.”
In August 2005, a panel from a JAL Boeing 777 fell off during landing. A Korean Air jet that landed afterwards blew a tire. No one was injured. The same month an engine burst into flames on a JAL DC-10 heading from Fukuoka to Honolulu shortly after take off. Passengers heard a loud bang. Metal fragments fell to the ground and injured five people. The fire was caught on video.
Pilot error not air turbulence was blamed for a rough ride on JAL flight between Tokyo and Fukuoka that injured 33 people in October 2002. Passengers were tossed about the cabin because of the “pilot aggressively handling the control stick after disengaging the autopilot, thereby causing the aircraft to shake violently.” Some passengers hit their head on the cabin roof. Four were seriously hurt. In June 1997, a JAL MD-11 suddenly jerked violently due to pilot error, resulting in injuries to 14 people.
Recent Safety Problems with JAL
JAL has also been criticized for flight and maintenance problems. In March 2006, it was reprimanded for mishaps related to its reverse thrusters. In one case the thrusters failed to engage because maintenance workers forgot to take out the safety catches. An inspection of a maintenance facility found workers doing shoddy work t meet deadlines. An inspection of planes found one plane that was allowed to fly even though it had cracks in its landing gear.
In a February 2008, a JAL 747 with 446 people aboard began taking off while another plane was on the runway at New Chitose airport in Hokkaido. The 747 was accelerating when an air controller told the pilot to abort the flight The pilot was blamed. He had been given orders to enter the runway and wait to take off. A similar incidents happened with a JAL plane at the same airport in 2005 The control tower issued a warning twice. The pilot said afterwards that he misheard instructions to wait and thought the air controller said to prepare for “immediate takeoff.”
A couple days late a JAL entered a runway without permission in at Komatsu Airport in Komatsu, Ishikawa Prefecture. In September 2007, a JAL plane that landed at Kansai Airport responded to instructions for another plane and crossed a runway without permission.
In May 2009, a baggage container was sucked into a JAL plane engine at Los Angeles International Airport as the plane was getting ready to take off. No one was hurt. The flight was canceled and the passengers were put on other flights.
In June 2008, a JAL flight originating in Hawaii was cancelled because a 53-year-old copilot couldn’t make the flight after spending two nights in jail for urinating a Honolulu park.
JAL's Brief Recovery and More Problems
In March 2006, JAL President and CEO Toshiyuki Shinmachi and other top executive resigned. Haruka Nishimatsu was named as the new CEO. By 2007 JAL was beginning to recover as a result of cost-cutting effort. In February 2007 the airlines announced plans to lay off 4,300 employees as part of a plan to restructure the company. This move along with reducing flights on unprofitable routes and an increase in revenues from international flights helped returned JAL to the black for the first time in three years with a ¥16.92 billion profit in fiscal 2007.
JAL made a profit in the April to June quarter in 2008 as a result of cost cutting efforts and increased demand by international business travelers. In March 2008 JAL received promises of ¥151.5 billion in loans from 14 firms a to make improvements and purchase more fuel-efficient aircraft along with promises to cut costs by downsizing its fleet of planes and cutting personnel expenses by cutting bonuses and reducing employee allowances.
Fuel costs for JAL in 2008 were over ¥532 billion, an increase of ¥119 billion in 2007. In early 2009, JAL began making tests flights with biofuel made from camelina, an inedible grass/
JAL received a $2 billion in loans in 2009, with 80 percent backed by the government. JAL has history of bailouts. It received emergency loans in 2001 to defray losses after the 9-11 attack.
JAL Problems Become Serious
Over the years JAL had become very bloated with 47,000 employees, 110 subsidiaries, including its travel agent and hotel management company, and business ties with over 2,910 companies in Japan alone. All of these employees, businesses and commitments made it hard for the company to respond and trim down when business was slow.
One survey found that a third of JAL’s 150 domestic flights in the first three months of 2009 were less than 50 percent full, often regarded as the measurement that decides whether a flight is profitable or not. JAL has also had some problems with its international sector and dropped several flight like the ones between Nagoya and Paris. Osaka reduced service to China and India.
JAL is expected to lose $2.65 billion in fiscal 2009-2010. It lost $1 billion in the April-June 2009 quarter. To save money JAL has axed unprofitable international routes, switched to smaller planes and saved some fuel by doing things like switching from glass to plastic wine bottles. JAL’s largest union accepted a plan to cut the pensions of current staff by 30 percent and for those already retired to take a 50 percent cut.
JAL lost $630 million in fiscal 2008 as a result of the global economic recession, a loss of business travelers and decline in international cargo. It lost $125 million in fiscal year 2006-2007 and $375 million in fiscal year 2005-2006. The losses were blamed on deferred tax adjustments and an expensive early retirement program. The airline had also been hurt by high fuel costs and loss of passengers due to safety concerns.
JAL went through a turbulent period at the end of 2009 and the beginning of 2010 when its stocks dived on news the government was eyeing a liquidation-aid plan and then rebounded on news that the government would provide $2 billion in a bailout plan.
JAL Goes Bankrupt
In January 2010, JAL and two of its subsidiaries filed for bankruptcy protection. The combined liabilities of the three JAL companies was 2.32 trillion yen ($29.6 billion), the largest liability to have been incurred by any private company outside of the financial industry and the largest bankruptcy ever in Japan. JAL was partly run into the ground by its close links to the Liberal Democratic Party government, which built too many airports and forced JAL to operate too many money-losing routes to them.
“In October 2011, it was revealed that the bailout of Japan Airlines cost taxpayers a total of 47 billion yen ($600 million), the Board of Audit has confirmed. The 47 billion yen was a part of a 67 billion yen public financing package extended with a government-backed guarantee to JAL in June 2009, before the airline filed for bankruptcy. [Source: Yomiuri Shimbun, October 18, 2011]
The rehabilitation plan called for the airline: 1) to cut 15,700 staff members---about a third of its workforce---by the end of March 2011; 2) to sell off or get rid of 57 of JAL 110 subsidiaries, including its travel agency and hotel management company, by March 2011; 3) to drop more domestic and international routes; 4) to get rid of 747 and use smaller, more energy-efficient planes; 5) to trim the overall size of the company by a third by March 2013; and 5) close 27 of its 60 branch offices overseas. The job cuts will include laying off 530 cockpit crew and 1,300 flight attendants.
Creditor banks gave about about $3.5 billion in unsecured loans to JAL of which about $440 million was extended by the state-backed Development Bank of Japan, which will be compensated by the government using taxpayer’s money.
The state-sponsored Enterprise Turnabout Initiative Corporation, who put together the rehabilitation plan, will invest about $3 billion in JAL. It and the Development Bank of Japan will establish a $6 billion credit line for the airline. The credit line helped ensure JAL’s commercial credit claims, allowing it fuel its planes and land at airports.
Because JAL wants to continue flying credit protection was extended to cover: 1) commercial suppliers of essentials such as fuel and in-flight meals; 2) leased aircraft; 3) air tickets; and 4) mileage program points.
Stocks and bonds were not guaranteed and their value declined to a few cents a share, JAL said it would try to honor pension obligations but defaulted on fuel futures bets. Among those who may suffer the most from the bankruptcy are people that live in remote areas on unprofitable routes that depend on JAL flights that will end up being cancelled.
JAL Reforms and Improvements
Kazuo Inamori, founder and honorary president of Kyocera Corp, was named chairman of JAL. He introduced an “amoeba-style” of management that aims to give each employee a sense of responsibility by dividing the company into small groups, each of which has an independent accounting system.The airline continued operating as normal after the bankruptcy. Under the rehabilitation plan it is hoped JAL will turn itself around and earn a $900 million profit in 2012.
Since its corporate bankruptcy in 2010, JAL has pulled out of loss-making routes, reducing its domestic routes from 144 to 109 and its international routes from 64 to 47. Meanwhile, it has also reduced its fleet from 278 aircraft to 214. International routes that were scrapped included ones from Narita to Mexico City, Sao Paulo, Amsterdam, Milan, Brisbane, Rome, San Francisco, Bali and Qingdao. A decision was made to keep money-losing domestic routes to cities that otherwise lacked critical air links and used airports without a key source of revenues.
Part of the rehabilitation plan called for bringing back the old iconic circular crane logo that was used from the 1950s to 2008. JAL grounded the last remnants of what was once the largest Boeing 747 fleet in the world as it cut 103 planes. It’s last 747 flight was in March 2011.
A plan introduced in April 2010 called for increasing the number of those offered early retirement from 2,700 to 8,000. To save money cabin crew and even pilots cleaned up the cabin between flights rather than having the work done by an expensive contractors. This measure alone reportedly saved the airline $3.5 million. Having cabin attendants help with check in and boarding could save JAL $6 million a year.
In November 2010, JAL considered firing 250 employees as not enough pilots and cabin staff were taking up voluntary retirement offers. The action was taken in the face of fierce objections by labor unions.
JAL has also said that it is considering launching a low-cost carrier. In July 2011 it said going o team up with Australia’s Jetstar, an offshoot of Quantas, to offer cheap flights beginning in 2012.
JAL Tie-Up Plan with American and Delta
In February 2010, JAL and American reached a basic agreement on a comprehensive tie up that mainly includes code-sharing for flight services. For a while it looked like JAL and Delta were going to make a deal, which would have meant that JAL would have switched from the One World system to the Sky Team Group, to which Delta belongs. But in the end JAL stayed with One World, which includes American, British Airways, Iberia and Qantas. Sky Team includes Delta, Air-France-KLM, and Korean Air.
In September 2009, JAL began negotiating with American Airlines, the world’s No. 2 air carrier, about a possible merger and with Delta about a alliance and $5 billion loan. It also talked to Air France-KLM about a possible tie up. American wanted JAL because it only had an eight percent share of the Pacific routes linking Japan and the United States while JAL has 22 percent. Delta, which had recently acquired Northwest, Airways held 32 percent before deal with JAL.
In the end JAL remained allied with American Airlines as part of the One world airline grouping. JAL and American Airlines have combined their transpacific operations.
JAL Posts Profits in Fiscal 2010 and 2011
By August 2010, things were beginning to improve. The airline said it would turn a ¥10 billion profit for fiscal 2010. In November 2010, JAL and its creditor banks agreed to a loan worth about $3.2 billion, In March 2011, JAL emerged from court protection after it said it had paid $4.5 billion in restructuring debt. JAL recorded an annual operation profit of $2.3 billion in fiscal 2010-2011, triple the company’s target, on annual sales of $160 billion. JAL reported a net profits of $150 million the April-June quarter of 2011, a sign that restructuring efforts were paying off. JAL chairman Inamori said the company was on line to achieving its goal of an operating profit of ¥17.17 billion for the year. This occurred even though JAL was hurt the falling number of passengers in the wake of the earthquake and tsunami in 2011.
In May 2011, Jiji Press reported: “Japan Airlines said it made a record profit for the second straight year in fiscal 2011 (April 2011 to March 2012), netting a group operating profit of 204.92 billion yen ($2.62 billion).The figure for the year ended in March was larger than the previous year's profit of 188.4 billion yen ($2.41 billion). It shows progress in JAL's rehabilitation, and the firm is aiming to return to the stock market in autumn this year. [Source: Jiji Press, May 15, 2012]
“For fiscal 2011, revenue stood at 1.2 trillion yen and net profit at 186.61 billion yen.JAL's profit was the result of cost cutting. Passenger numbers fell, reflecting the airline's reduction in routes and the impact of last year's March 11 earthquake. In November 2011, the Journal of Commerce Online reported: “JAL specifically cited the withdrawal from unprofitable routes, continuous review of the group’s fleet on each route, thorough reductions in fuel expenses and other fixed costs, and the introduction of a new sectoral revenue management system. On international cargo operations, JAL said, “Alongside efforts to stimulate demand for air cargo transportation between international gateways and local regions after the internationalization of Haneda airport [in Tokyo], JAL has also been carrying increased amounts of automotive parts and other cargo goods related to the Great East Japan Earthquake.” [Source: Hisane Masaki, Journal of Commerce Online, November 8, 2011]
In fiscal 2012, year, JAL anticipates an operating profit of 150 billion yen, down 26.8 percent, and a net profit of 130 billion yen, down 30.3 percent. Revenue is expected to rise 1.3 percent to 1.22 trillion yen. On JAL’s growth strategy for the next five years, the Yomiuri Shimbun the airline would increase its passenger transport capacity on international routes, cut its transport capacity on domestic routes by 3 percent, while increasing the capacity on medium- and long-distance international routes. It will spend about 478 billion yen ($6,1 billion) years on new aircraft, including 29 of Boeing's powerful new midsize 787 Dreamliner planes, to replace its old aircraft. [Source: Yomiuri Shimbun, February 17, 2011]
“JAL's business strategy on its international routes is, as JAL'S new President Yoshiharu Ueki said, "to reinforce medium- and long-distance routes flying to and from countries in Europe, North America and Southeast Asia," while avoiding competition with low-cost carriers, or LCCs, which are strong on shorter routes. [Ibid]
New ANA Boeing 787 Dreamliner
All Nippon Airways replaced Japan Airlines as Japan’s biggest carrier in terms of passenger traffic in fiscal 2010-2011 for the first time since JAL’s integration with Japan Air System in fiscal 2002. ANA said its domestic and international traffic in the year ending March 31, 2011 increased 1.6 percent from the previous year to 43,059,622 passengers against 41,923,452 for JAL, which is now undergoing corporate restructuring. ANA’s domestic traffic expanded 0.8 percent to 38,246,715 passengers for the first rise in four years. Its international traffic increased 8.8 percent to 4,812,907 passengers for the second straight year of increases. [Source: Kyodo, May 17, 2011]
In March 2011, the month in which the disastrous earthquake and tsunami occurred, ANA’s international traffic fell 10.6 percent from a year earlier to 412,485 passengers as air transport demand dwindled. It was first fall in 20 months. ANA’s domestic traffic declined 20.2 percent to 2,765,175 passengers the same month, the first drop in six months.
In 2005, ANA passed Japan Airlines as Japan’s biggest domestic carrier. ANA lost about $300 million in fiscal 2009 on revenues of $13.5 billion. ANA was back in the black with a profit ¥2.98 billion in April-June quarter of 2010 and a profit of ¥37.5 billion ($457 million) in the nine months from April to December 2010. ANA lost $90 million in fiscal 2008, its first loss in six years. Fuel costs in 2008 were over ¥307 billion, an increase of ¥41billion in 2007
It earned $250 million in profits in fiscal year 2006-2007 and recorded record profits of$640 million in 2007-2008 primarily on the sale of its hotel business. It was ranked the No. 8 international airlines in the Travel and Leisure readers survey in 2004.
In December 2006, ANA announced that it was quitting the hotel business to reduce its debt and concentrate on aviation, and it was going to sell off land and hotels worth around $1 billion. In April 2007, ANA sold 13 hotels for ¥281 billion to Morgan Stanley who called the deal the world’s “leading real estate opportunity.”
Whale and other sea creatures have been pictured on ANA planes. In 1999, ANA introduced the world's first onboard rice cookers. First and business class passengers can chose to sit at work stations with fax machines, phones and a self-serve bar.
ANA began flying internationally in 1986 and has been steadily adding new routes since then. ANA is hoping attain Asian mega-carrier status by picking up the international routes shed by JAL.
ANA is consider if launching two low-cost carriers: one for domestic flights and one for international flights. In 2007 announced plans to establish a low-cost carrier in Asia by 2010.
ANA Budget Airlines and Dreamliners
In September 2010, ANA announced plans to set up a budget air carrier using Kansai Airport in Osaka as a hub. The airline will offer fares as law as $50 between Osaka and Tokyo. It hopes to have flights available on the carrier in March 2012. The new airlines was named Peach Aviation. The planes wil be painted pink and fuchsia. Former Ryanair chairman Patrick Murphy was hired as an advisor. See Tourism
ANA was the first airline to receive the Boeing 787 Dreamliner---a dual-engine midsize airliner which boats high fuel efficiency. The first planes were scheduled to be delivered in May 2008 but the deliveries were delayed for a number or reasons and finally arrived in 2011. The planes have far fewer seats than jumbo jets but can fly as far using less fuel, allowing airlines to fly directly between major cities without relying on hubs and requiring passengers to change planes.
The Dreamliner made its first commerCial flight from Narita to Hong Kong in October 2011. Passengers paid as much as $34,000 to be on the inaugural flight. ANA unveiled a Dreamliner in France in June 2011. The first plane arrived in Japan for test flights in July. Scores of plane enthusiasts came out to watch it land at Haneda airport. The Dreamliner will first go into service on domestic routes between Tokyo and Hiroshima and Okayama in September 2011. It will be put into international service in March 2012 on routes between Japan and Europe or the east Coast of the United States.
ANA was the first company to make a major order of Dreamliners from Boeing. It ordered 50 of the planes in April 2004 (and five more later). As a “launching costumer” is was deeply involved in the project of creating the planes and is set to receive some of the first commercially-produced Dreamliners with features ANA ordered such as heated toilet seats. ANA also hopes to be the first Japanese airlines to use the Airbus A380 superjumbo jet, using them as early as 2012.
New ANA Boeing 787 Dreamliner
A strike by ANA pilots in March 2006 caused the cancellation of 115 domestic flights and stranded 7,600 passengers. It was the first time there was an airline strike in Japan since 1996.
A computer glitch in November 2004 caused the malfunction of a memory devise in machines connecting ANA airport computers to the main ANA computer in Tokyo and slow reaction to fix it, caused the ANA computer system to crash, causing the cancellation of 131 flights and affecting 70,000 passengers.
In September 2008, during a busy long weekend. an ANA computer glitch prevented people from checking in and delayed fights 3½ hours and inconvenienced 70,000 passengers. Fifty-three flights were cancelled. The glitch was caused an expired authentification system in the ANA’s administrative server.
In October 2007, an ANA jet landed on the wrong runway at Osaka’s Itami airport after confusing instructions from an air traffic controllers.
Image Sources: 1) Ray Kinnane 2) Doug Mann Photomann
Text Sources: New York Times, Washington Post, Los Angeles Times, Daily Yomiuri, Times of London, Japan National Tourist Organization (JNTO), National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.
© 2009 Jeffrey Hays
Last updated July 2012