JAL overcomes post-bankruptcy challenges as rebound gathers momentum
What a difference a year has made for . Last March, it faced a bleak outlook as the country's devastating earthquake and tsunami caused a demand slump just as the airline was emerging from bankruptcy protection. Twelve months later, JAL is set to beat its profit goal by a wide margin and has boosted its orders to grow its international network.
The airline set ambitious targets even during the painful restructuring process that followed one of the largest corporate failures in Japanese history. In its recovery plan, JAL established a goal of earning an operating profit of ¥75.7 billion yen ($946.2 million) for its fiscal year ending March 31, 2012.
The post-earthquake demand slide in 2011 made this target look daunting. But President Masaru Onishi was quick to stress that the profit estimate was still “very attainable.”
Bookings were down by more than 20% in March, compared to previous estimates. However, combined demand strengthened significantly through 2011, recovering to pre-earthquake forecast levels by August. International travel was slower to recover than domestic.
It soon became apparent that Onishi's prediction was conservative. In November the carrier almost doubled its operating profit estimate to ¥140 billion. And earlier this month it boosted its guidance again to ¥180 billion.
JAL was helped significantly by financial injections from the government-backed Enterprise Turnaround Initiative Corp. ETIC is expected to sell its ownership stake in JAL this year, with JAL relisting on the stock exchange.
A strong signal of confidence was the carrier's Feb. 15 announcement that it has purchased more 787s. JAL had resisted the temptation to cut its 787 orders through its restructuring and then the 2011 slump.
The latest deal sees JAL raise its 787 order to 45, up from the previous total of 35. It has ordered 10 of the -9 version, and also converted 10 of its existing 787-8 orders to -9s. So the total is now split between 25 -8s and 20 -9s.
JAL will be the second customer—behind its rival(ANA)—to receive the 787. However, the exact arrival date remains elusive thanks to a series of production delays.
Last month the carrier was expecting its first 787-8 to be delivered by the end of February. Now this target has slipped again to late March (pictured above is JAL's first 787 after leaving thepaint hangar). The -9s, meanwhile, are scheduled to enter service from the airline's 2015 fiscal year.
The arrival of the 787s will allow JAL to open up new international routes. The first of these will be Tokyo-Boston, which is set to launch on April 22. JAL recently announced that a new route to San Diego using 787s will be added in December, and another to Helsinki will begin in March 2013.
JAL is so far remaining firm on the launch date of the Tokyo-Boston flight. It had planned to begin introducing its 787s on existing flights to New Delhi, Moscow and Beijing from late March, but the latest delays mean these plans will have to be pushed back. Later this year the 787 will also be phased in on existing routes to Bangkok and Singapore.
Both the expanded 787 order and the additional routes are part of a new five-year plan, aimed at achieving an operating margin of at least 10%, and including further unit-cost cuts and ¥478 billion in capital expenditure.
Like many other legacy international carriers, JAL is basing a large part of its long-haul plans on closer links with its alliance partners. For example, the new Helsinki flights will improve the carrier's connections to fellow Oneworld member Finnair's European network.
JAL is also continuing to expand its transpacific joint business agreement (JBA) with, and earlier this month the carrier announced a long-awaited JBA with International Airlines Group, the parent of and . The airlines are seeking approval from their respective regulators, and hope to launch the partnership in late October.
In the meantime, JAL has also been focusing on its home front. It is setting up a low-cost carrier in a joint venture with Australia's Jetstar group, one of three new Japan-based LCCs expected to emerge this year.
It appeared that Jetstar Japan would be launching after the two LCC joint ventures—Peach andJapan—being established by ANA. However, Jetstar Japan recently accelerated its schedule by five months and is now set to launch in July, after Peach but before AirAsia Japan.
When the first anniversary of the earthquake arrives on March 11, JAL will join the rest of the nation in mourning the tragedy. But the carrier can also look forward to a more promising future thanks to long-term improvements it has made to all facets of its organization.