A version of this article appears in the August 11/18 double issue of Aviation Week & Space Technology.
The cancellation of Skymark Airlines’orders provides a timely reminder that while carriers must adapt in the face of changing business environments, they should be careful not to overreach.
Facing new competitive pressures in the Japanese domestic market, Skymark had hoped the six A380s would allow it to expand into international long-haul service with a premium offering. But doing so with a fleet of A380s would have been jumping in at the deep end, and it became increasingly apparent that it was not a feasible plan.
It was Airbus that finally pulled the plug on the A380 orders due to concerns about the airline’s ability to pay. The first of the A380s was being prepared for delivery when the orders were canceled (see photo). The two parties had been trying to negotiate changes to the order, but could not find enough common ground. While the details of these talks are not clear, Skymark will not be taking the aircraft and will have to absorb some costs related to the cancellation.
Entering these markets was always going to be challenging, given that there is heavy competition on major international routes into Japan. In key U.S. and European markets, the two dominant Japanese carriers operate in partnership with overseas alliance partners.
There was much skepticism within the industry that Skymark would carry out its plans for international A380 service. The attitude of some rival executives to the potential competition was essentially “we’ll believe it when we see it.”
Skymark claims Airbus tried to force it to link with another international carrier to make the A380 operations viable. Skymark says such a move would be unthinkable, and that it places a high value on its independence. Airbus sources deny the manufacturer tried to force such a move.
The competitive situation in the Japanese domestic market is also daunting. Skymark was launched as a lower-cost alternative to the Japanese majors in 1998, and this eventually gave it a successful niche. But the emergence of three “true” low-cost carriers in 2012 undercut Skymark and effectively pushed it into an in-between category. The startups are growing and will soon be joined by more new entrants.
Other challenges on the domestic front include the expansion of the Shinkansen high-speed train network, and population decline. These factors have promptedand to focus most of their growth on international markets, and Skymark also was looking offshore for new opportunities.
The attempted international foray has not been Skymark’s only reaction to changing market dynamics, however. The carrier has moved to compete more strongly for domestic business traffic, signing leases for 10 Airbusconfigured with all-premium seating. The first two entered service in June. By all accounts this project is succeeding, as Skymark reports strong load factors.