JAL, American enter venture
Bankrupt Japan Airlines decided in early February to tighten ties with American Airlines and enter a joint business venture on routes between the United States and Japan.
The carriers are members of the oneworld alliance that allows code-sharing and joint marketing, but they now intend to seek antitrust immunity from competition authorities to merge their transpacific operations to resemble a unified airline.
The financially troubled Japanese carrier and the Fort Worth, Texas-based airline intend to integrate their respective networks, flight schedules and carry each other's passengers and freight, in an effort to cut costs and improve service. But first they must get approval from the Ministry of Land Infrastructure, Transport and Tourism in Japan and the U.S. Department of Transportation.
A joint venture allows the carriers to share costs and revenues on certain flights no matter who owns or operates the aircraft. It differs from a code-sharing arrangement in which one airline bears the costs but may share a portion of revenue with the partner that booked the customer.
The Japanese carrier, as expected, stuck with American after also being courted by Delta Airlines. The U.S. carriers wanted access to JAL's extensive and lucrative Asian markets. American and other oneworld alliance partners have offered $1.1 billion in cash and equity to help keep JAL afloat.
Max Sukkhasantikul, commercial aviation analyst at Frost & Sullivan, said JAL annually risked relinquishing up to $600 million in streamlined functions during the next five years by departing the oneworld alliance.
American Airlines officials and some analysts said a Delta-JAL linkup would have a 62 percent share of the U.S.-Japan market and scare regulators interested in ensuring consumer protection. Delta and others say the impact on market share would have been less (about 43 percent) with a smaller JAL in the works.
Although long term it would have made more commercial sense to ally with Delta Airlines due to the wider network collaboration and larger SkyTeam Alliance, there is a possibility of not obtaining antitrust approval for the partnership ' a risk JAL cannot afford to take, Sukkhasantikul said.
Delta has a joint venture with Air France-KLM on the Atlantic and wanted to complement that with a Pacific partnership. A JAL-Delta partnership would have been difficult to get through the regulatory process as a similar approval was already provided for the transatlantic market with Air France-KLM, Sukkhasantikul said.
Furthermore, Delta is already seeking a similar partnership with Virgin Blue's V Australia on the U.S.-Australia market. The approval for the partnership with American Airlines is more likely to gain the antitrust immunity as it creates a more level competitive environment.
Frost & Sullivan expects the British Airways, American Airlines and Iberia joint venture on transatlantic travel to be approved this year.
JAL will remain a key player in the Asia Pacific market, Sukkhasantikul said, and could get a boost from Australian carrier Qantas, which has offered to assist JAL set up a low-cost airline subsidiary in the Japanese market.
American stood to lose more than Delta by not consummating the deal, according to the Centre for Asia Pacific Aviation. Delta already has a significant presence at Narita Airport after having recently merged with Northwest Airlines. It is expected to continue strengthening its alliance partnerships in other Asian markets with SkyTeam members Korean Air and China Southern Airlines.
The aviation think tank predicted the JAL-American venture would win DOT approval.
The deal was enabled by the conclusion of a historic U.S.-Japan open skies agreement on Dec. 14 that deregulated international routes between the two countries. Under the treaty, airlines from both countries would be allowed to select routes and destinations based on demand for both passenger and cargo service, without limitations on the number of U.S. or Japanese carriers or number of flights they can operate between the two countries. It also removes restrictions on capacity and pricing.
The open skies pact itself was a beneficiary of the financial condition of JAL and All Nippon Airways, carriers the Japanese government previously was more interested in protecting from competition. The lifting of restrictions also means new carriers could enter the market in the future.
The new regulatory rules won't go into effect until sometime next fall, at the earliest, according to the U.S. State Department.
Star Alliance members United Airlines, All Nippon Airways and Continental Airlines have also announced their intention to form a separate joint venture.
Meanwhile, JAL continues the restructuring under Japanese government oversight that will make it a smaller airline. It's unlikely that JAL would have sought out the pairing with American if it was in better financial shape.
'If we don't survive the first two years, there will be no future for JAL after the third year of restructuring,' the Associated Press quoted Daiji Nagai, senior vice president of corporate planning, as saying. 'We decided that we can minimize risk by staying with American.'
UPS to furlough pilots
UPS recently announced plans to furlough 300 pilots, or 11 percent of its 2,800-member force, to bring costs more in line with demand.
The package and freight delivery company said it is still working with the Independent Pilots Association to identify cost-cutting measures that could forestall or mitigate the action before it takes effect in May with the first tranche of 170 pilots.
UPS and the union last June averted any unpaid leaves of absence when pilots agreed on a voluntary program of measures to get through the year such as short and long-term leaves of absence, military leaves, job sharing, reduced in-flight pay guarantees, early retirement, and sick bank contributions. The measures were intended to save the company about $90 million of the three-year target of $131 million in operational cost cuts. UPS agreed at the time not to furlough any pilots through April 1, while the union looked for additional savings.
'Even though the economy has begun to turn around, UPS anticipates a very gradual recovery and a continued need for belt-tightening,' UPS Airlines President Bob Lekites said.
UPS has taken several steps during the past two years to eliminate $1.4 billion in costs during turbulent economic times. The company in January said it would eliminate 1,800 management and administrative positions to streamline its domestic U.S. small package business.