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Home > Travel Agents > JAL Submits Rehabilitation Plan – Cutting Work Force by 16,000. Subsidiaries in Leisure Travel Segment Remain Surviving as Considered “Strategically Important”

JAL Submits Rehabilitation Plan – Cutting Work Force by 16,000. Subsidiaries in Leisure Travel Segment Remain Surviving as Considered “Strategically Important”

September 6th, 2010
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Japan Airlines, JALJapan Airlines Corporation. (JALS), Japan Airlines International Co., Ltd (JALI) and JAL Capital Co., Ltd (JLC) submitted the rehabilitation plan on August 31 to the Tokyo District Court. The rehabilitation plan includes the business plan implementing Japan Airlines’ effective fleet plan and its complete withdrawal from the money-losing routes. At the press briefing held later on the same day, Kazuo Inamori, Chairman of Japan Airlines Corporation said, “We regret that we, Japan Airlines have caused enormous concerns to the shareholders and financial institutions.” “Today is the start of Japan Airlines’ restructuring,” continued Chairman Inamori, citing, “We must strive to work hard with untiring efforts according to the business plan and we must even post better results than we are targeting.” He also emphasized, “Japan Airlines must struggle to proceed with the proposed rehabilitation plan so that it should never end up as ‘a pie in the sky’.”

JAL Chairman & CEO at press conferenceThe business plan formulated includes the complete pullout from the unprofitable routes, changes of the cost structures, concentration of the managerial resources on the air transportation business, personnel downsizing, increase of the route profitability, organizational reform and capability to deal with event risks such as the financial crisis and the outbreak of the H1N1 new influenza seen during the past year. Japan Airlines endeavors to realize early rehabilitation of business by aiming for an operating profit as early as in 2010, which is the initial year of the airline’s rehabilitation plan, and by eliminating its excessive liabilities. 

Fleet, Route and Alliance

In terms of aircraft fleet, Japan Airlines will retire 103 aircraft in total including Boeing B747-400 with the exception of smaller aircraft flown on the regional routes. Aircraft models will be also reduced to four instead of seven models which are currently in operations. On the other hand, smaller aircraft such as Boeing B737-800 and Embraer E170, and Boeing B787, the airline’s future strategic aircraft for the international routes, will be proactively introduced. Owing to the ongoing reduction of aircraft fleet, Japan Airlines will have fewer aircraft at its disposal for charter flight operations. However, the airline anticipates continuing to operate charter flights also in the future to maximize its flight operations with efficient aircraft rotations.

With regards to the route planning, Japan Airlines will make no changes to its original plan. According to the plan, at the end of the fiscal year 2012, there will be 65 international routes (75 routes, as of the end of FY2009) and 109 domestic routes (148 routes as of the end of FY2009) to be operated by the airline. The domestic routes will see more frequencies with smaller aircraft based on the premise of ensuring the profitability while maintaining a certain level of the route network. The international routes will focus on the major destinations in Europe and the United States, and also on the Asia routes with foreseeable traffic growth to accommodate customers’ needs. It will also help establish the airline’s strategic positioning within the alliances. As for the resort routes, JAL will specialize in Honolulu and Guam routes which enjoy the high route profitability and robust traffic demand. Meanwhile, the airline’s withdrawal from the unprofitable routes has already been addressed and there will be no additional flights to be suspended or reduced for the winter schedule during the fiscal year 2010. In terms of alliance, Japan Airlines will take full advantage of its partner airlines’ assets that include the customers, managerial know-how, facilities and IT systems. Also, the airline, having applied for the antitrust immunity (ATI) with American Airlines, anticipates starting to prepare for the joint business. Japan Airlines endeavors to acquire American Airlines’ know-how and, at the same time, it aims to enhance bi-lateral partnerships with other airlines.

Organizational Reform, Personnel Downsizing, LCC

As for the organizational structures, assuming to receive the confirmation of the proposed rehabilitation plan from the Tokyo District Court on November 30, three companies will merge on December 1 this year, with Japan Airlines International (JALI) as the surviving entity. JALI will receive an injection of 350 billion yen from the Enterprise Turnaround Initiative Corporation of Japan (ETIC) and will issue shares to ETIC. Japan Airlines International will absorb and merge JALways (JO) and JAL LIVRE, a subsidiary for handling the accounting operations for the JAL Group, and will change its trade name to “Japan Airlines Co., Ltd” later on April 1, 2011. While Japan Airlines concentrates its managerial resources on its air transport segment through the business reorganization including sale of the subsidiaries, the airline will nevertheless retain JALPAK and JAL Tours as they are considered to be “strategically necessary.”

Asked to comment on creating an LCC, Masaru Onishi, President of Japan Airlines explained, “First we must focus primarily on adhering to the proposed rehabilitation plan in a drive to become the airline with growing customer-friendliness and high value of services.” He added, however, that Japan Airlines will look at creating a Japanese low cost carrier, citing that the airline should also study how to address the ever-changing airline industry as the JAL Group

At the same time, Japan Airlines will create new departments that will be responsible for the respective route profitability, thereby identifying the profit and loss and clarifying where in the Group the responsibility lies in respect of the results. Reduction of the operational costs at airports, real estate-related fees, work force, review of wage and benefit programs will all have to be addressed. The number of the JAL Group employees will be reduced from 48,714 as of the end of the fiscal year 2009 to approximately 32,600 at the end of the fiscal year 2010. In the meantime, roughly 8,000 employees are ready to leave the JAL Group, taking an early retirement or as the result of sale of the subsidiaries. The work force will be further slashed by another 8,000 through an early retirement and yearly natural attrition.

Financial Goal, Relisting

The proposed rehabilitation plan calls for Japan Airline to post the operating revenues of 1,325.0 billion yen and an operating profit of 64.1 billion yen during fiscal year 2010, the initial year for the rehabilitation, during which its excessive liabilities will be eliminated. At present, the airline is said to show a recovery exceeding the estimated figures and, the last year of the rehabilitation, which is the fiscal year 2012, is to achieve operating revenues of 1,273.3 billion yen and a operating profit of 117.5 billion yen, although the aggregate number of international and domestic passengers is estimated at 39,940,000 in the fiscal year 2012 compared to 47,900,000 carried during the fiscal year 2009. Japan Airlines will see to it that the operating expenses expected in fiscal year 2012, thanks to the cost reductions including personnel cost, will be reduced to 1,155.8 billion yen from 1,628.6 billion yen in the fiscal year 2009.

The Enterprise Turnaround Initiative Corporation of Japan (ETIC) will have to recover an investment cost of 350 billion yen from Japan Airlines during three years of the support period. Commenting on the injected 350 billion yen, Hideo Seto, Chairman of ETIC Committee members at the Enterprise Turnaround Initiative Corporation of Japan explained that ETIC is considering relisting the airline’s shares as one of the measures to reclaim the investment from Japan Airlines. Should the relisting be decided, Seto said, necessary preparations will have to be addressed to some extent by March 2012. Should relisting not be feasible, however, the shares would have to be underwritten by someone else. Under the circumstances, Seto concluded that it is a top priority for ETIC to rebuild Japan Airlines over the next three years as the airline in which everyone wishes to invest.

Source: Travel Vision

Travel Vision Inc. provides information on the travel industry in Japan via "Daily Travel Vision", a Japanese-language e-mail newsletter, and the "Travel Vision" website. There are nearly 110,000 people working in the Japanese travel industry, and Travel Vision is proud to be bringing travel news to more than 30,000 people through Daily Travel Vision.

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