TRANSPORTATION REPORTER
Japan Airlines Corp.'s filing for bankruptcy protection underscores how legacy carriers are struggling to survive a global slide in business traffic.
JAL said yesterday that it will be restructuring under the Japanese Corporate Reorganization Act, potentially slashing 15,700 jobs over the next three years, or one-third of its work force, while chopping at least 30 routes and grounding dozens of planes.
"The financial crisis that occurred in the fall of 2008 pushed the world economy into an unprecedented global recession," JAL said in a statement on its website, adding that the debt-laden carrier "suffered a significant decline in sales due mainly to a decline in demand for international passenger service for business users." A sharp drop in cargo shipments also crimped operations.
Worth more than $6-billion in market capitalization last March, JAL said its filing in Tokyo District Court will lead to its stock being delisted next month.
Jacques Kavafian, an airline industry consultant, said he expects JAL's Vancouver-Tokyo route will be maintained, but with the Tokyo-based carrier retrenching elsewhere, it will be good news for Air Canada's new Calgary-Tokyo service, which is set to begin in late March.
Air Canada avoided bankruptcy protection last summer, after it lined up $1-billion in financing and secured pension and labour deals.
Legacy carriers - large, decades-old companies that once ruled the skies - have been hurt by their reliance on business class passengers. In the first 11 months of 2009, premium traffic fell 17.1 per cent globally, compared with the same period in 2008, according to the International Air Transport Association. Year-over-year, November premium traffic slipped 6.7 per cent, a slight improvement over the October drop of 9.3 per cent. The slowdown in international leisure traffic has also eroded airlines' finances.
The number of Japanese visitors entering Canada in the first 10 months of 2009 tumbled 31 per cent to 174,068, Statscan said.
Even if business and leisure traffic manage to recover by the end of this year, the airline industry could face higher oil prices as the economy strengthens, Mr. Kavafian cautioned.
He added that JAL is headed toward abandoning its membership in the Oneworld alliance of carriers, which includes American Airlines Inc. of Fort Worth, Tex.
Mr. Kavafian predicted that JAL will opt instead for a partnership with Atlanta-based Delta Air Lines Inc. and the SkyTeam alliance.
Montreal-based Air Canada is part of the Star Alliance, whose members include All Nippon Airways Co. Ltd. of Tokyo. Air Canada offers a variety of routes to Japan, either on its own airplanes or through its membership in the Star Alliance.
JAL's restructuring plan includes shifting away from older, larger planes such as the Boeing 747, and embracing smaller, fuel-efficient aircraft like the Boeing 787 Dreamliner. JAL said it will embark on a sweeping corporate review, tackling everything from its pension deficit to cutting more than 13 per cent of its 229 routes.
If JAL does carry out its strategy to shrink its network, the reduced seat capacity will be a welcome relief to other carriers, but there will still be fierce competition for customers, Mr. Kavafian said.
"JAL gives you a good flying experience, but it's a high-cost airline that has trouble balancing its seat capacity with demand," he said. "It spread itself way too thin."
While JAL emphasized yesterday that its frequent flier program will be protected, the carrier apologized to its "shareholders, financial creditors, customers and suppliers" for disruptions related to corporate restructuring.
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JAL AT A GLANCE
Japan Airlines Corp., founded in 1951 and formerly state-owned, expanded quickly in the decades after the Second World War and was privatized in 1987. It recently served 220 airports in 35 countries.
Losses and debt
JAL lost ¥131.2-billion ($1.4-billion U.S.) in the six months through September. Its debt is now $25.6-billion
Employees
Company aims to cut nearly 15,700 positions, or one-third of current staff, by March, 2013.
Equipment
JAL will retire all 37 of its Boeing 747 jumbo aircraft and 16 MD-90s, to be replaced by 50 small and regional jets.
Stock
JAL shares were worth $6-billion last March. Finishing flat yesterday at ¥5 (about 5 cents) each, JAL stock now has a market capitalization of about ¥13.7-billion ($150-million) - the price of one Boeing 787 Dreamliner jet. JAL shares will be removed from the Tokyo Stock Exchange on Feb. 20, wiping out investors.
Associated Press
Brent Jang