Japan Airlines is sharpening its act for the new century.

Kevin O'Toole/TOKYO

JAPAN AIRLINES (JAL) has no intention of seeing out the millennium quietly. Under its latest five-year plan, the group aims to emerge in the year 2000 having captured one-third of Japan's sizeable domestic market, maintained its lead in international traffic and done so while witnessing a return to healthy profits.

For good measure, the group is also steeling itself to fight its corner in what is rapidly heading towards a bruising battle with the USA over rewriting the US-Japan air bilateral.

So why this burst of energy from Japan's sleeping giant? In part, the answer lies with opportunities for expansion coming up at Tokyo's two main airports, extensions of, which are likely to be completed around the year 2000.

Firstly, JAL is hoping to use the windfall of new runway capacity at Haneda, the country's dominant domestic hub, to aid its ambitions in Japan's relatively slow-growing, but lucrative, internal market.

Secondly, there is the prospect of growth at Narita, Tokyo's heavily congested international gateway, if and when plans are approved to complete a new runway there. JAL is determined not to squander this rare chance to grow at its main international hub and equally adamant that the opportunity should not go to the US carriers which have come to treat the airport as their own.

The reason why JAL, has a fair chance of succeeding in seeing through these plans, stems from the great revision of Japanese aviation policy, in 1985. In a rather abrupt piece of policy-making, the transport ministry suddenly revealed that it planned to throw international and domestic markets open to new competition.

Until then, JAL had been free to rule the country's international routes, while All Nippon Airways (ANA) and, to a lesser extent, Japan Air System (JAS), had dominated domestic services.

ANA has since forged on to the international stage, although JAS has struggled, and JAL has been slowly increasing its presence in the domestic passenger market. So far, JAL's market-share gains have been fairly humble, rising from just under one-quarter to around 27%.

Even with its new competition, ANA still holds just over half of the entire market, and JAL wants to seize the opportunity to make it a more equal contest.


To grow in the Japanese home market essentially means growing at Haneda. With nearly 46 million passengers a year, the airport accounts for around 60% of all domestic traffic. Expansion at the busy hub has not been easy. On current standings, ANA holds a commanding 49% of available slots, while JAL and JAS share the remainder.

With the planned new runway programmes, JAL gets its chance to grow. Early in 1997, the new parallel runway is to open, taking the total of slots up from 210,000 to 230,000 a year. A further expansion is due for completion, by the end of the decade, as a new cross runway opens, taking the total up to 255,000. In crude terms, that will open up room for another 25 services a day in 1997 and a further 35 by the year 2000.

JAL's argument, already put to the transport ministry, is that it and JAS should win the bulk of the new capacity at the expense of ANA to balance out the market. If it succeeds, JAL aims to have around 30% of the airport's overall slot allocation and as much as one-third of the country's domestic market.

The first applications are pending and JAL seems quietly confident, given the transport ministry's new-found policy of opening the market. "Under present policy, it's important to increase competition among carriers. The present share of slots is quite unbalanced," says Hideyuki Kanenari, the director of corporate planning, who helped oversee the carrier's five-year plan.

JAL has good reasons to want a greater share of the domestic market. Although growth has been sluggish at best, a victim of Japan's wavering economy, the market is relatively reliable and, better still, it is priced in yen, affording JAL some protection from the vagaries of international currency fluctuations.

Although the crippling effect of plummeting dollar-exchange rates has eased a little recently, with the dollar once more back above the '100 mark, JAL is keen for the stability which domestic traffic can bring. Around 80% of the group's costs are still in yen despite moves to lessen the impact, says Kanenari.

He sees domestic passenger volumes averaging growth of 4-6% over the next five years, with JAL keeping pace through a 5% annual capacity increase.

With a careful eye on cost, the aim is to achieve this growth by raising frequencies, through a mix of improved aircraft utilisation and efficiency, rather than any dramatic expansion in the domestic fleet.

JAL certainly needs to improve its frequencies from Haneda. While ANA generally has between four and six daily flights from Tokyo to Japan's main cities, JAL averages no more than a couple. At the same time, it needs to improve load factors, which have been running at an unimpressive 60% on domestic services.

Smaller, more efficient, aircraft are soon to arrive in the form of the Boeing 777-200. The first of ten aircraft on order will be used on services from Haneda in April. Another five 777-300s will start flying in 1998, eventually re-placing huge and thirsty Boeing 747SRs. As a sign of the times, the airline, which previously operated nothing smaller than a Boeing 767, is flying two 737-400s on routes from Osaka, with another two due by early 1997.

With domestic fares also being deregulated in June (and JAL hints that it has applied to start offering some attractive prices), the competition with ANA should be interesting.


JAL's second, and arguably more important task, is to stand its ground on international routes, and here the pending expansion at Narita is likely to be the key. It is true that Osaka's new offshore airport at Kansai opened only a year ago, but that is already close to capacity, and a second runway there has been delayed for at least ten years.

The proposal at Narita is for a new runway which would take capacity at the airport up from 130,000 slots a year to 220,000. Nothing is yet certain about its progress. Ever since the airport's inception in the 1960s, when protests by farmers and student radicals erupted into pitched battles with the authorities, Narita has been a touchy subject in Japan.

Talk of a time-scale for the new runway is greeted with a shrug by most within Japanese aviation, but preparation is nevertheless taking place. "Nobody knows what the time-scale will be, but we're making ourselves ready for the prospect of a second runway," says Kanenari.

In fact, much of the groundwork is already done both physically and politically. Public hearings have been held, and the transport ministry is understood to be in closed-door discussions with the local objectors. A general consensus appears to be that the runway will be in service around the end of the decade.

Once the go-ahead is given, the remaining building work should take no more than a couple of years. That would give JAL time to confirm its fleet plans. The carrier still has 18 747-400s on order, with delivery dates yet to be decided.

JAL is determined to see that the opportunity of new Narita slots is not squandered. "If we miss this opportunity, there won't be another new airport for a very long time," says Chikara Sugimoto, JAL's assistant vice-president in the airline's international-affairs department.

A look at the existing slot allocation explains the concern. Since starting international services almost exactly a decade ago, ANA has taken 8% of the slots. At the same, JAL's share of capacity has slipped, from over one-third, to around 27%.

The remainder is taken up, by some, 40 foreign carriers with US airlines alone, taking close to one-third of slots. The issue is a sore point with JAL, which argues that there can be few other hubs of Narita's scale where foreign airlines outrank the resident carriers.

Much of the resentment centres on the "gross inequalities" contained in the US-Japan bilateral, which was signed in 1952, a time when Japan was at a disadvantage.

Under that treaty, there are three incumbent carriers - Northwest, United and JAL. These two US carriers, not only have a healthy share, of Japan's international airport capacity, together taking around 20% of Narita and positions at Kansai, but also some extensive beyond-rights. These, say JAL, account for some 1.8 million passengers a year. Worse still (for JAL), the airline believes that a large chunk of beyond-right passengers on routes such as United's busy services to Seoul in South Korea are Japanese.

JAL argues that it has a right only between Los Angeles and Sao Paulo, Brazil, accounting for fewer than 4,000 travelers a year. Other rights have not been forthcoming - JAL is forced to operate to Mexico via Canada.

The first shots have already been fired in this battle, with Japan claiming that the USA is abusing its beyond-rights. It complains that no more than half of passengers should be picked up fresh in Japan and has, therefore, refused to grant any new rights.

ANA also has reason to want the bilateral changed. It flies under a memorandum of understanding, rather than as a fully fledged incumbent, and wants the two-tier system ended. Other US carriers, led by American Airlines, have common cause as non-incumbents, and are lobbying hard for a new open-skies bilateral.

JAL has different ideas. "We're in favour of liberalisation, but equal opportunities would have to be put in place first," says Sugimoto. The cargo bilateral now being renegotiated between the two countries has already exposed this basic philosophical difference, and the passenger talks are likely to be no different when they come. The fact that they will come seems inevitable, given the pressure building up on both sides of the Atlantic.

For its part, JAL would no doubt like to secure a new deal before the Narita expansion takes place and there is a rush to grab the newly available capacity.

JAL is pushing for one-third of the new slots, which would at least keep its market share at its own hub. The argument being put to the transport ministry is that this should be used as a chance to impose a more even balance at the airport. The broad aim is to see Japanese airlines, including ANA, win half the new slots. Sugimoto adds that carriers from Asia and elsewhere should also be given some priority in entering or expanding at the airport, presumably ahead of the big US carriers.

Another strand of JAL's five-year plan is to "make more use" of international alliances. The carrier has yet to say what this may include, but the possibilities are intriguing.

Sugimoto says, that the carrier is talking to other carriers in Asia about code sharing. The flourishing co-operation with Thai Airways could be a blueprint. In Europe, JAL has ties with Air France, but he hints that this is not the extent of JAL's interest.

Most intriguing of all are the options in the USA. A deal on cargo is already in place with American Airlines, and expanding that to cover passenger services would be interesting. Whatever happens, the next five years will certainly be worth watching.

Source: Flight International