NICHOLAS IONIDES TOKYO Kichisaburo Nomura's appointment as ANA president surprised many observers two years ago and the shocks have continued as he has reshaped Asia's largest passenger carrier.

It is probably an understatement to say that Kichisaburo Nomura has surprised observers since his appointment over two years ago as president and chief executive at All Nippon Airways (ANA).

Since then he has embarked upon a sweeping restructuring that encompasses aircraft order-deferrals, job cuts, salary reductions, a senior management reshuffle and, among other moves, brought ANA into the Star Alliance. Not bad for a photography and nature buff who raised few expectations when he assumed the top job at Asia's largest passenger airline.

The surprise is not a reflection of any lack of charisma or ability on the part of Nomura. His stiff demeanour hides a good-humoured disposition, say ANA employees. But his appointment back in mid 1997 was widely perceived as a compromise move to pacify a group of departing top executives. Some say Nomura has since endeavoured to prove himself primarily to show the sceptics wrong - others suggest that he has managed to cement his power base by reshaping the senior management team.

For his part, Nomura says he is making changes that are for the good of the company - and not just to match similar efforts announced by home-based rivals Japan Airlines (JAL) and Japan Air System (JAS). ANA returned to profitability in the first half of the current fiscal year ended September, 1999. Although this is partly attributed to accounting changes, the carrier's underlying operational performance is generally better.

Nomura, whose spacious office overlooks one of the world's busiest airfields, Tokyo's domestic Haneda Airport, says: "We're not really conscious of our competitors Japan Airlines and JAS in terms of our restructuring efforts. We feel that in view of the current aviation market and the business climate, this restructuring is something that we need to do. Regardless of what our competitors may be doing we felt this is something that we needed to ensure our existence."

ANA has struggled in recent years, however, to make much-needed changes in a conservative business environment where adjustment often comes slowly. Like JAL and JAS, ANA has been suffering from a depressed local and regional economy, rising costs, changes in accounting and financing standards at home, and a unique problem of drastic slot shortages at local airports - all as a government-ordered deregulation of the local industry has been taking place.

Personnel shake-up

Nomura's appointment in mid-1997 came, ironically, as a result of a major personnel shake-up that followed an initial attempt at a restructuring. Most top executives quit at the time as well as 10 of the carrier's 32 board directors - including honorary chairman Tokuji Wakasa and chairman Takaya Sugiura.

The management changes began after president Seiji Fukatsu was forced to resign. He was ousted after efforts to cut salaries and hive off non-core businesses put him on a collision course with the airline's powerful unions and some board members. Wakasa and Sugiura attempted to replace Fukatsu with an airline outsider in a move that was met with a mountain of public criticism, including from the Japanese Government.

ANA's board then named Kenzo Yoshikawa, the carrier's real-estate chief executive, as Fukatsu's replacement, but the decision was overturned after criticism grew. Nomura, at the time senior managing director and general manager for Eastern Japan, suddenly emerged as a candidate and was ultimately confirmed as Fukatsu's replacement in a move seen as one designed to pacify Wakasa and Sugiura and pave the way for their departures.

Implementing change

Few expected radical action after the dust settled, but nearly three years later Nomura begun to make the changes that his predecessor had failed to achieve. He says the reshaping is necessary and realistic.

"I believe the elements of the restructuring plan are feasible," says the 65-year-old career airline man, who joined ANA in 1959. "Under the current business environment, reform of our finances is a must and so we will be deferring our equipment purchasing plans to the year 2002. If we defer purchases it will mean our borrowings will be reduced, which also means that the interest-bearing liabilities will be reduced." On top of that, ANA will also reduce the numbers of people on the payroll and work on reforming the personnel-related systems of the company. "I believe that by engaging in all these efforts we will be able to realise a current profit by the year 2002," he says.

On paper, at least, Nomura's planned changes are certainly tough. The plan entails group-wide staff cuts (mostly through natural attrition and early retirement) of up to 2,800 - or 10% of the group's workforce - and a reduction in the size of the carrier's board, to 19 members from more than 30. A performance-linked pay system, including stock options, is also being considered for board members, in a departure from past practice where the board has not been sufficiently accountable.

For managers, pay cuts have already been implemented or are being put in place. They include a 25% salary cut for Nomura and for senior executive vice-presidents, a 20% reduction for senior vice-presidents or managing directors, and a 15% decrease for senior directors. Managers' allowances are also being lowered, including those for ground staff and flightcrew. Senior managers will face a salary cut, too, while bonuses will be reduced.

The carrier is at the same time revamping its domestic and international route network to focus on more profitable services, while a low-cost subsidiary carrier is to be set up and fewer new aircraft will be added than had previously been planned.

Another key aspect of the restructuring has been ANA's expansion of its international partnerships. In October 1998 and after more than a year of speculation, the carrier announced that it would join the Star Alliance, which it formally did on 31 October, 1999. Although there was internal opposition, Nomura says the commitment was necessary because ANA needs to expand internationally. He says the carrier expects cost reductions and revenue gains in the years ahead, although it is being conservative in its forecasts because "we don't want to be excessive in our estimates and find out later on that we betrayed ourselves".

"We have only started our membership of the Star Alliance and so we have to see what sort of results come out. But obviously we joined the Star Alliance because we felt it would be beneficial. Now, if you look at Lufthansa and some of the other members of the Star Alliance, we understand their operating profits improved by 20-40%," Nomura says.

ANA is planning on making similar gains. Nomura sees a contribution by the Star Alliance of about ´10 billion [$100 million], with current annual revenues from international services at ´200 billion - a 5% revenue boost.

"We also expect cost savings from joint use of lounges, from joint purchase of equipment, and so on. If you look at the US market, for example, there is a fly American, buy American policy, which constrains certain passengers. With codesharing, these American-travelling consumers will be able to use ANA/United Airlines codeshare flights."

ANA is being cautious about forecasts concerning gains from Star as its position is unique. Unlike several fellow Star members from countries where deregulation has largely taken place, Japan's market is opening up and its effects are only now being felt by its airlines.

Deregulation officially began in 1986, when ANA began operating international routes in competition with JAL and when ANA lost its dominant hold on domestic routes. But little occurred thereafter until the mid-1990s, when stringent regulations on fare discounting were relaxed.

This led to the launch in 1998 of the first two newly owned airlines in more than 30 years, Skymark Airlines and Hokkaido International Airlines, which functions as Air Do. Both operate leased Boeing 767s on domestic trunk routes and, despite the fact that each runs just a handful of daily frequencies, they have hurt the majors: starting early in 1999 a price war stimulated demand on key routes but had a negative effect on yields.

Nomura says that despite the difficulties faced by all Japanese carriers last year, he sees deregulation as a positive step for the industry and one which is forcing much-needed change.

"Business corporations all have to live within the business climate that surrounds them. And the market principle is built on survival of the fittest. So as deregulation proceeds, we in managing our business have to try and adapt ourselves to the climate," says Nomura.

"In fact, because of this deregulation we were able to enter the international market in 1986. So we welcome deregulation as something that has given stimulus to the aviation market and has enabled us, ANA, to embark on new routes as well. In the domestic market, while we have seen two new entrants and there have been some isolated problems because of their entry, I view this deregulation and the new entrants favourably. Deregulation means that the travelling consumer, the passenger, will choose, and therefore it is essential that we strive to become the one that will be chosen."

Domestic deregulation continues

Deregulation efforts continue this year, and by the start of April all restrictions on local supply and price controls are to be removed, which will no doubt stimulate demand and boost competition. As a result, more new carriers are preparing for the launch of services over the next couple of years. These include Skynet Asia, which will operate Boeing 737s from Fukuoka, as well as Fair, which will operate the first regional jets in Japan from its base at Sendai.

But while operational restrictions are officially being relaxed at a progressive pace, deregulation will continue to proceed slowly in Japan for one key reason: airport slot constraints. Japan suffers from that problem like no other country. Tokyo's domestic airport Haneda is the busiest in Asia, handling more than 50 million passengers annually and it manages to do so despite stringent restrictions on movements in place because of noise concerns.

On the international front, Tokyo's Narita Airport - around 2h by car from the city centre - is also at capacity and has, since its opening in the late 1970s, operated with just one runway. Three runways were initially planned for Narita, which despite having been operational for more than 20 years is still considered "not completed".

That will change slightly in May 2002, when a second runway is due to open, but it will be just 2,180m (7,150ft) long because local farmers have refused to sell their land due to the way the government drove their neighbours out when airport planning began in the 1960s. The government says the second runway will be able to accommodate 767-sized aircraft on regional routes, but critics argue that it will have little impact on congestion, given its short length.

For years, Japan's "big three" airlines have worked cautiously behind the scenes pushing their government to add capacity at Tokyo's two busy airports - and build a new airport for the city. Now, however, with the government still moving slowly, airline executives are starting to speak more boldly about the extremely sensitive subjecty. Nomura is one of them, and he is publicly calling for a decision soon on a third airport for the Japanese capital while at the same time seeking expansion of the other two airports.

"There is no doubt that Japan, being the second-largest economy in the world in terms of gross domestic product, is the very core of Asian economies today," Nomura says.

Asian competition

"Airports connect this country with the outside world, and there are various circumstances that need to be taken into consideration in the case of this country. But the fact is that major airports are appearing in our vicinity - Changi in Singapore, Chek Lap Kok in Hong Kong, Pudong in Shanghai and Inchon in South Korea - and if Japan goes on without having a major hub, that will be a major disadvantage for this country. So I believe Narita will have to be completed as soon as possible, and I believe the government will have to look seriously into this question of the third airport [as well as] the possibility of Haneda's expansion."

Nomura accepts, however, that an easing of airport congestion is years away, so his more pressing problem is how ANA should proceed in the immediate term. He is looking for ways to make the carrier more international. ANA's traditional strength has lain with its 50% share of Japan's massive domestic market. But over the past decade ANA has been venturing overseas more aggressively.

"We have to grow ourselves. Japan is the second largest economy in the world and I am sure that our exchanges with the world will increase. We will ride on that wave and grow our international services," he says.

"Also, on the international side, we shall further localise our sales structure - in other words have more local people in those sales organisations. On top of that we will introduce more e-commerce and information technology. Now that we are a member of the Star Alliance, we'll have to work on these projects with the other member carriers so that our revenues will grow. Japan is situated between North America and South East Asia, and as a member of the Star Alliance I believe there are many things that we can do to take advantage of that geographical position and increase our revenues."

Nomura says Star membership will help ANA improve management and marketing practices, as the multinational nature of the group will make its executives more open-minded and less resistant to change.

No matter how unrealistic some may consider it to be, Nomura says his goal is to build ANA's brand "so that it will be comparable in the world to Coca Cola, or Sony". That is an ambitious goal for a man who had apparently appeared from nowhere. Nomura has already exceeded expectations.


The rise of a president

Kichisaburo Nomura was appointed president and chief executive of All Nippon Airways in the middle of 1997.

Born 1934, in Oita City in Kyushu, the southernmost of Japan's main islands.

Graduated in 1959 from the Faculty of Law at Waseda University in Tokyo and joined ANA.

Nomura spent the first 15 years of his career at the General Affairs Division of ANA, handling investor relations, insurance and legal matters. By 1970, he had joined the ANA management team, moving in 1973 to the maintenance department.

In 1976, Nomura moved back to head office to join the personnel department as deputy director. Five years later, he became a director and in 1983 joined ANA's board as senior director in charge of personnel issues. During his time as a board member, Nomura has been responsible for marketing and sales, associated business development and corporate planning. Directly before being appointed president and chief executive, he was senior managing director and general manager Eastern Japan.

Nomura's interests include wine, photography and nature.

Source: Airline Business