Paul Lewis/TOKYO
JAPAN AIR SYSTEM (JAS) celebrated its 25th anniversary in April but, outside its home base, the airline continues to be relatively unknown. In spite of its overseas obscurity, JAS boasts annual traffic statistics and a fleet of aircraft, which are the envy of many better-known flag carriers. With the company's finances now back in the black, Japan's third-largest airline is beginning to focus on raising its international profile.
JAS marked its 1996 jubilee by stemming the flow of red ink and turning in a net profit of ´71 million ($636,000) for the year ending 31 March. Small as this profit is, it represents a significant improvement for an airline which clocked up an accumulated loss of ´19 billion over the three previous years.
Financial analysts caution, however, that JAS is not yet quite out of the woods. The airline only just managed to scrape into profitability on the back of non-operating income from the sale of six redundant aircraft. Its operating loss of ´336 million, nonetheless, represents an improvement on 1994's deficit of ´478 million.
COST-CUTTING
"This fiscal year, we're aiming to break even on both operating costs and revenue", declares JAS director and vice president Toshiji Mugikura. The airline is hoping that a projected 7.8% increase in passenger traffic will boost operating revenue to more than ´317 billion and produce a net profit of ´200 million for fiscal year 1996.
The problems, which have beset JAS over the last three years, mirror those, which have plagued the country's two larger national carriers, Japan Airlines (JAL) and All Nippon Airways (ANA). Its performance has been undermined by a combination of crippling high overheads, growing international competition and deteriorating yields.
In response, says Mugikura, "-we've tried to reduce costs, especially personnel costs, by hiring in contract stewardesses and not recruiting any new employees, to cover natural wastage from our 5,600-strong workforce. We've asked other companies to take over some of our businesses, such as that of check-in, which is now 100% contracted out."
Other cost-saving measures included a cutback in 1995 in JAS' limited scheduled international network, to just 20 weekly flights to two destinations, Guangzhou in southern China and the South Korean capital of Seoul. Its twice-weekly service from Tokyo to Honolulu and four flights a week to Singapore proved too limited to be cost-effective in the face of cut throat foreign competition.
The move, in turn, freed up aircraft and crews for JAS to strengthen its domestic operations, particularly from Osaka's new Kansai International Airport and between local cities. JAS now operates 98 domestic routes, including eight services launched since June, connecting Sapporo with Fukuoka, Hiroshima, Izumo, Sendai and Tokushima and linking Sendai to Kushiro, Matsumoto and Memanbetsu.
Despite having carried nearly 17 million passengers in 1995, and recording a 7.5% growth in traffic, load factors have dropped for a sixth year and the figure is now hovering at just over 60%. "Our main task is to improve our yields but, because of the presence of three carriers in Japan, this is not an ideal situation", according to Mugikura.
DOMESTIC CHANGES
The Government has introduced a series of measures intended to relax the country's over-protected domestic air-transport system and to increase competition among Japan's three principal players. In April, it lowered the ceiling for double- and triple-tracking routes (those with two or more airlines operating on a simple route), followed in June by the introduction of the zone fare-system, allowing carriers to lower or raise the price of a ticket by up to 25% within a pre-set band.
The Japanese transport ministry has halved the minimum traffic level required for multiple tracking. For double tracking, the annual threshold has been cut, from 400,000 to 200,000 passengers, while triple tracking has similarly been reduced, from 700,000 to 350,000.
For JAS, which maintains 66 monopoly services and competes on another 30 dual-operator routes, the full impact of the change has yet to be felt. With no new slots presently available for services to and from Japan's main domestic hub, Haneda Airport in Tokyo, JAS has not been able, to take advantage of the new rules to open additional routes.
JAS and JAL both stake claims to being Japan's second largest domestic carrier after ANA, each enjoying a 21-22% market share. "We're aiming for at least 30%, but this is not easy because of limited slots at Tokyo and Fukuoka. We can increase our local flights, but this is not good financially. The most important thing is to see how we can increase our flights from Haneda," says Mugikura.
With this in mind, JAS is eagerly awaiting the opening of a second reconstructed runway at Haneda in April 1997. Competition for the additional 54 daily slots, which will be made available, is fierce, with the Government having decreed that ten slots will be reserved for new and smaller carriers, with JAL laying claim to the remainder.
The introduction of zone fares has had a much more immediate effect on the domestic-airline scene. With airlines able to adjust prices by up to 25% either side of the ministries benchmark figure air fares, have both gone up and come down. The response has been mixed, with carriers reluctantly being forced to cut fares on popular trunk services and businessmen complaining that a lack of competition on many other routes has resulted in higher prices.
Mugikura estimates that the number of routes on which fares have been raised roughly equals those that have been cut. He suggests, however, that this has been offset by the large number of discounts now being offered. The more popular schemes include a 45% fare discount on two-month advance bookings, a 40% price reduction on flights leaving before 07.00 or 15% for those arriving after 09.30, 15% off coupon tickets and a cut of 10% for one-day round trips.
Over the last two years, JAS has been forced to curtail its scheduled international operations to cut costs and divert resources to developing new domestic services. Having established JAS as the biggest domestic operator at Kansai and spurred on by its improving fortunes, the airline's senior planners are now once again beginning to refocus their attention overseas.
"We are aiming to operate to Asia and the Pacific Rim and hope to serve Singapore again, as well as Bangkok and Hong Kong, and are also looking at the possibility of more flights to China from 1997," reveals Mugikura.
The airline has been flying from Kansai to Guangzhou since October 1995 and is keen to extend this to include other popular tourist points in China, such as Guilin, Kunming and Hainan, subject to bilateral negotiations being concluded.
Any extra Chinese destinations are likely to be served by JAS' planned subsidiary charter operation. The new company, which has yet to be named, is scheduled to begin services in April 1997, equipped initially with two aircraft seconded from JAS, an Airbus Industrie A300-600 and McDonnell Douglas (MDC) DC-10-30.
Mugikura explains: "We've had a large number of requests from local airports in Japan to operate charter flights to Asia, Australia and the US West Coast, so we are going to establish a new charter company to compete on the basis of a low-cost structure."
The charter carrier will operate from some of the 40 existing home airports already served by JAS, including Aomori, Hiroshima, Okayama, Sendai and Takamatsu. Its planned charter destinations consist of Denpasar, on the Indonesian island of Bali; and Hawaii, Macau, Sydney and Vancouver, as well as inland China.
FLEET MODERNISATION
In spite of its recent financial woes, JAS has continued to modernise its fleet, which today totals 79 jet-powered aircraft. The downturn required some adjustments in capital expenditure, however, including scrapping a planned purchase of nine Boeing 747-400s, leaving the carrier to continue relying on two DC-10-30s for international flights.
The airline reached agreement in 1993 with Boeing to take seven 777-200s instead. The first Pratt & Whitney PW4074-powered aircraft is scheduled for delivery in December, and the last one in May 1999. The aircraft will be configured for high-density domestic operations, seating up to 418 passengers.
JAS' other major new fleet addition is the 166-seat MDC MD-90-30. It originally ordered ten of the twin-engined aircraft, but recently increased the number to 17. The first four have already entered service and the remainder will follow at intervals up to February 1999. The first seven aircraft are each being adorned in a different "rainbow-with-wings" colour scheme, designed by Japanese Samurai film director Akira Kurosawa.
The MD-90 was seen as the next logical step for an airline, which has employed the DC-9 family as its basic workhorse to carry some 100 million passengers over the past 23 years. Its original fleet of DC-9-41s is fast disappearing from service, with only five now left. The newer, 163-seat, MDC MD-81 and 134-seat MD-87 derivatives are still very much in evidence, numbering 34 aircraft in total.
JAS made its mark in 1979 by becoming the first Japanese carrier to order an aircraft from Airbus. The airline's fleet has since grown to 17 A300-600Rs and a similar number of earlier-build A300B2/B4s. With its oldest A300 now over 15 years old, the B2/B4 versions will need to be replaced in the near future, says Mugikura.
Another old type finally phased out of service in April was the indigenously produced NAMC YS-11 turboprop. JAS has handed down 12 of the aircraft to its Kagoshima-based regional subsidiary, Japan Air Commuter. Six more YS-11s are being operated by start-up domestic carrier Air Philippines, in which JAS holds 10%.
JAS has achieved much since 1993, not least in getting the airline's finances back on a level footing and boosting domestic passenger traffic to a point where its record is now on a par with that of JAL. The next challenge is to make the rainbow logo a more recognisable airline trademark outside Japan.
Source: Flight International
