Sayonara

News sources all over the world covered Japan Airlines declaring bankruptcy, but the more interesting part of the story may lie in the aftermath as two competing companies vie for its coveted routes to Asia. This piece also appeared in the Spring 2010 issue.

By Andrea Wangsanata

Japan Airlines’ (JAL) recent decision to retain its partnership with American Airlines and the Oneworld Alliance ended a long and arduous struggle between Delta Air Lines and American Airlines over the Japanese carrier.

After JAL declared bankruptcy on January 19 of this year, the battle between Delta and American began over who would claim JAL’s four coveted flight routes to Haneda Airport located in Tokyo, Japan.

Not only is Haneda Airport the fourth-busiest airport in terms of passengers handled, but the Japanese government has closed U.S. flights to Haneda since 1978 — making this opportunity of significant importance — according to The Dallas Morning News.

Despite its financial woes, JAL remains Asia’s largest carrier by revenue, offering an extensive route network through other parts of Asia.  Delta and American had both offered hundreds of millions of dollars in support to the Japanese carrier.  The stakes were highest for American, which funnels many of its passengers headed for other parts of Asia onto connecting JAL flights at the Japanese carrier’s hub at Narita Airport in Tokyo, according to an article in the Financial Times.

JAL’s decision to stick with American was a choice that was opposed by many in Japan’s transport ministry and even some JAL executives.  According to the Financial Times article, pairing with Delta would have allowed JAL to cut costs further, for example, by eliminating overlapping routes or selling off valuable airport berths in Japan.  However, many worried that JAL would be reduced to merely a supporting role when paired with the dominating U.S. brand.

Since its merger with Northwest, Delta already accounts for over 30 percent of U.S. air travel to Tokyo.  Delta has its own hub in Tokyo Narita serving 23 cities non-stop, including 14 Asian and Pacific cities.  JAL would seemingly play a small role in Delta’s business plan.

In contrast, by sticking with American Airlines, JAL will remain in its dominant position on trans-Pacific routes from Japan/Korea within Oneworld, according to an article by Global Travel Industry News.  The article describes American Airlines as “historically weak in Asia” with only Cathay Pacific as a major partner in the region and no partners in Southeast Asia whatsoever.  Furthermore, the article mentions that American offers only five daily flights to Tokyo from Chicago, Dallas, Los Angeles and New York JFK.  To China, the airline flies only between Chicago and Shanghai and won’t launch a new daily flight from Chicago to Beijing until April.  By sticking with Oneworld, JAL will probably further strengthen Delta’s position in Asia, according to the Global Travel Industry News.

In the meantime, JAL will be put under a recovery plan that, according to the Japanese government, will include suspension of about 15,600 employees.  JAL was declared in suspension of payments before the court of Tokyo to benefit from the protection of the law of bankruptcies.  And with $25 billion in debts, the largest bankruptcy by a non-financial firm in Japan’s history, it’s clear JAL is going to need a lot of luck before this issue settles down completely.

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