LIFE AFTER SQ006 - Orient Aviation

COUNTRY FOCUSBY TOM BALLANTYNEJAPANTackling the oddsRivals co-operate to overcome economic hardshipsLife has not been easy for Japan’s airlineindustry during the last decade. Twodownturns, one following the Gulf Warin the early 1990s, the other Asia’s most dramaticeconomic recession later in the decade,battered the nation’s confidence. Coupledwith high labour costs, volatile fuel pricesand an economy struggling to emerge fromstagnation, airline profits have been all butnon-existent.Coping with tough market conditions is achallenge at the best of times and, as the restof Asia knows all too well, that experience hasnot been confined to Japan in the nineties.But Japan Airlines, All Nippon Airwaysand Japan Air System have had their attemptsto restructure and rationalise made more difficultby other issues. These include breakingdown traditional employment practices, copingwith unprecedented levels of internationalcompetition, integrating domestic deregulationand managing demand on ever-presentslot constraints at the country’s primary airporthubs; facilities charging the world’s highestaeronautical fees.Now, just as traffic growth has broughtprofit back to the balance sheets, the indicatorssuggest more dark economic clouds aregathering over the Land of the Rising Sun.In February, a revision downwards ofJapan’s latest economic growth figures raisedthe spectre that the world’s second-largesteconomy is back in recession at a time whenglobal growth is faltering. Simultaneously, theU.S. economy is slowing, a fact, if it persists,that would impact severely on Japan.Such difficulties are nothing new toJapan’s airline majors. Their patient shareholdershave stoically accepted a lack ofreturns on investment for years. They must berelieved there is clear evidence carriers havemade significant progress in implementingrestructure and rationalisation, introducingnew efficiencies and innovative planning;all planned to dramatically change JapaneseCongestion at Tokyo’s airports a majorproblem for airlinesairline operations.Bitter rivals in the air have put theirdifferences aside to co-operate on the groundwith joint maintenance and informationtechnology ventures designed to save money.The carriers have even come together tomarket a united shuttle service on the mainlineTokyo-Osaka route in an attempt to competebetter with high speed train services.All the airlines welcomed the deregulationof the nineties that resulted in more competitivepricing, freedom to adjust networks andpermission to eliminate loss-making domesticservices on routes that were formerly forcedto operate for reasons of community service.Deregulation also allowed new entrantsto take to the air although slot restrictions atTokyo’s domestic Haneda Airport have madelife difficult for the newcomers to compete adequatelyagainst incumbents. There are signsat least one, Air Do, is struggling to survive.The big operators, despite their achievementsof the last five years still face mammothchallenges. Managements know they mustcontinue a relentless drive to force down costsand further improve productivity if they are toearn “true” profits.They know much of their future dependson Japan’s ability to resolve its airport problems,particularly at Tokyo and Osaka, whereenvironmental issues and years of bitter debatehave slowed the pace of expansion andfrustrated airline managements world-wide.As neighbouring South Korea prepares toopen its new multi-billion dollar hub at Inchonin April and with several other expensive newfacilities operating around Asia, Japan needsa new Tokyo airport or, at least, much greaterexpansion at the existing airports. The needis great and the need is urgent.The country’s airline and aviationauthorities must also find a solution to thelong-running dispute with the U.S. over airrights, essential in formulating policies whichwill accommodate the global industry’sinevitable march towards liberalisation andopen skies. Japanese economic health is oneof the key pistons in the engine driving Asia-Pacific aviation.The travel patterns of the country’s businessand leisure travellers impact significantlyon the bottom lines of airlines elsewhere.Whether or not its carriers succeed in theirongoing drive to cement real and consistentprofitability into operations in the face ofthe major challenges confronting them, andwhether the airports issue can be satisfactorilyresolved, will undoubtedly be criticalto the well being of the industry across theregion.IN THIS REPORTPage 34: JAL president Kaneko leadsdramatic turnaroundPage 37: All Nippon revises profitsupwardsPage 38: Airports under pressurePage 39: Call for reform for accidentand safety investigationsMarch 01 | Orient Aviation | 33