Japan Airlines – just not a 21st century restructuring
“Sadly Japan Airline's new ‘Revival Plan’ has fallen at the first hurdle, in the critical area of staff reductions, where the plan is strong on adjectives and thin on progress”, according to the Executive Chairman of the Centre for Asia Pacific Aviation, Peter Harbison.
A predictably difficult series of negotiations with unions and staff has produced only modest results. A ‘bold review of work process’ will seek 10% staff productivity increases, a reduction of staff numbers by 8% spread over more than two years, along with an accelerated retirement programme and salary cuts designed to reduce average salary levels and "other large scale personnel cost reduction measures’.
“This should be just enough to upset staff without producing adequate cost savings”, stated Mr Harbison.
The modesty of the cost cuts has imposed a need to shift the revenue strategy towards a reliance on higher yields (eg with the introduction of first class domestically and premium economy internationally) – if you can't cut costs, improve yields. This has some attractions, but it leaves JAL highly exposed to lower cost competitors and to economic downturn. International operations will be progressively passed to the lower cost subsidiaries, JALways and JAL Express, as the average gauge of the mainline carrier is reduced in line with the higher yield target.
Interestingly though, there is no mention of the anticipated role of the much-heralded oneworld alliance links in the new plan.
“Unfortunately for JAL, the past year and current outlook have not been as bad as they could have been,” stated Mr Harbison. The great emphasis placed on the negative impact of high fuel prices has helped disguise the underlying high cost problem.
Mr Harbison noted that “a really bad year would have given management the impetus to make the sort of cost cuts which other airlines have made in preparing for competition in the 21st century”. The slightest downwards bump now is going to put JAL's costs firmly back in the firing line.
According to the Centre’s Executive Chairman, “the Revival Plan is not a restructuring, despite the best efforts of management. It is a relatively small cost reduction and a relatively marginal reshaping of the operating strategy. It does appear that many in senior management now recognise the severity of the situation. But inertia in the system is overpowering logic”.
“Time is fast running out for JAL,” concluded Mr Harbison.
About Centre for Asia Pacific Aviation
Centre for Asia Pacific Aviation ( www.centreforaviation.com ) is a specialist consultancy group focused on the aviation industry in the Asia Pacific region. It provides advisory and information services to airlines, airports, governments, regulatory agencies and suppliers. The Centre's headquarters is in Sydney, Australia, with regional offices in Singapore, New Delhi, Geneva and Manchester and representatives in Auckland, Bangkok, Beijing, Dhaka, Hong Kong, Shanghai and Tokyo.
February 7, 2007
Posted in: Airlines & Railways