TOKYO/SAPPORO/MIYAZAKI, Japan -- Two of Japan's regional airlines, Airdo and Solaseed Air, announced Monday that they will merge in 2022, a move that could portend more consolidation among airlines in the wake of the COVID-19 pandemic.
The merger aims to lower the two airlines' operating costs through standardization and more efficient use of resources, such as personnel and facilities. The carriers will set up a joint holding company in the fall of next year.
The two airlines will decide the investment ratio of each party, the name of the new company and its executives later. They also announced on Monday the issuance of preferred shares through a third-party allotment to the Development Bank of Japan, the largest shareholder in the two companies. ANA Holdings is also a major shareholder in the two airlines.
Hokkaido-based Airdo operates a popular route between Tokyo's Haneda Airport and Shin-Chitose Airport near Sapporo, the main gateway to Japan's northernmost main island. Solaseed Air, headquartered in Miyazaki, on the southern island of Kyushu, has routes connecting the island and Haneda. The two airlines have no overlapping routes in priority areas.
"Each of us is making self-help efforts, but there are limits," Susumu Kusano, president of Airdo told reporters at a news conference on Monday. Kosuke Takahashi, president of Solaseed Air, echoed Kusano, saying, "We cannot survive unless we strengthen cooperation through a holding company." Regarding the cost-reduction effect of the merger, Takahashi said the new company aims to cut "3 billion to 5 billion yen per year [of spending] within four to five years" by sharing facilities and reducing costs thought joint procurement of parts.
The consolidation is a response to the heavy blow dealt to the two airlines by the pandemic. On Monday, Airdo posted a net loss of 12.1 billion yen ($110 million) for fiscal 2020 ended March this year. Solaseed Air also said on Monday that it had a net loss of 7.6 billion yen last fiscal year.
Like many airlines around the world, the industry in Asia has been hammered by the collapse of travel demand due to the coronavirus. In Japan, ANA Holdings and Japan Airlines are strengthening their capital bases through share offerings.
Last year, Korean Air Lines announced a $1.62 billion takeover of fellow South Korean carrier Asiana Airlines in a government-backed deal. In Southeast Asia, while Thai Airways International plans to go through rehabilitation after a bankruptcy filing last year, Malaysian airline AirAsia hopes to ensure liquidity by raising $82 million from TPG Capital and others.
"Naturally, [airline mergers] will continue" said Hajime Tozaki, a professor at Japan's J.F. Oberlin University and an aviation industry expert, told Nikkei Asia. This is because, contrary to initial predictions, recovery from the pandemic in Asia is likely to be delayed by the COVID variant first discovered in India, other mutations of the virus and delays in the rollout of vaccinations in the region, Tozaki said.
"Earlier, domestic flights showed some signs of recovery, compared with international travel in Asia. However, the rebound has grown uncertain with the resurgence of infections and the emergence of new variants," said Nobuko Kobayashi, a partner with EY Strategy and Consulting.
"Even before the coronavirus pandemic, there were signs of consolidation of airlines due to oversupply. COVID-19 will accelerate reorganization," Tozaki said, adding the consolidation may involve larger airlines, in addition to low-cost carriers.