Summary
Despite struggling to get its house in order, news that Japan Airlines has a host of potential suitors queuing up means that the various oneworld alliance partners may have to move quickly to avoid ceding market share in Japan.
Analysis
Having presented to the Japanese Government an action-plan to turn around its fortunes, Japan Airlines has quickly become talk of the town. With talks between the USA and Japan on a new Open Skies deal poised to be determined by the end of the year, the impetus to secure additional slots is the catalyst behind the spate of comments/suggestions that Japan Airlines may sell a stake to any one of a number of airlines.
Its key domestic rival, All Nippon Airways (ANA) is already hoping the US-Japan Open Skies deal will finally seal anti-trust immunity to deepen its relations with other Star Alliance members, but overtures from Air France-KLM and Delta Airlines will more than likely force the hands of both American Airlines and British Airways (or other oneworld partners) to seek an equity stake in Japan Airlines very quickly.
The real key to this is competition at Haneda Airport (HND), just minutes away from downtown Tokyo – in contrast to the hour-plus drive from Narita Airport (NRT) on the city limits.
After the Northwest Airlines buy, Delta Airlines has got a pretty snug holding at NRT and wants to expand on that by making in-roads at HND. Yield erosion on Asia-Pacific traffic has seen plummeting demand at oneworld partners Cathay Pacific and British Airways.
Despite the latter’s ongoing merger talks with another oneworld partner, Iberia, British Airways will likely spearhead a move to build on its relationship with Japan Airlines and its foothold in Tokyo.
To that end, American Airlines as well as Cathay Pacific could formulate a pooling of equity to purchase stake in Japan Airlines and thwart rival offerings – as with the situation and London Heathrow, if the US-Japan Open Skies treaty is enacted, then the challenge becomes harder for the likes of Delta Airlines to battle against ANA and Japan Airlines and their respective Star and oneworld alliances.
The regulatory concern may play on the minds of those in the US scheduled to rule on the British Airways/American Airlines anti-trust case next month, but the simple matter here is that despite moving first, Delta Airlines may end up outmanoeuvred by its weaker rivals.
The benefits to the oneworld partners of buying into Japan Airlines is a far more compelling business proposition that combats losses and increases efficiencies – leaving Delta Airlines looking for smaller partnerships with the likes of Skymark Airlines, for example.
The argument that Delta could operate Japan Airlines’ domestic routes thanks to its bigger slot pool at NRT is certainly one possibility if the two get it together, but divestiture of those same slots to American Airlines and British Airways is far more likely to appeal to the regulators on both sides of the Pacific Ocean.
That said, if there’s one thing Japan Airlines can be certain of during its transitional phase towards the path of profitability – it’s that it will get the financial impetus to emerge as much more able business to benefit in the future – particularly under the US-Japan Open Skies deal.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
