TOKYO/JAKARTA -- Japan Airlines and Garuda Indonesia, which is currently partnered with JAL rival All Nippon Airways, are poised to enter into a code-sharing arrangement that could lead to a joint venture, according to sources.
JAL and Garuda are working on the details and are set to finalize the agreement in September, before starting code-share flights between Japan and Indonesia in October.
Initially, flights connecting the countries would share JAL, ANA and Garuda codes. Later on, Garuda is expected to annul its comprehensive partnership deal with ANA, which it signed in 2013.
JAL and Garuda are also thinking about taking the partnership beyond just code-sharing and creating a joint venture, which would allow them to closely coordinate flight schedules, sales and other operations.
Numerous Japanese companies have operations in Indonesia, and the route is in high demand. But JAL only operates two flights a day from Narita Airport, near Tokyo, to Jakarta. And the carrier does not fly from Tokyo's Haneda Airport, which is close to the city center and is thus popular with business travelers.
The agreement with Garuda promises to help JAL capture demand it has so far missed. Garuda flies once a day between Jakarta and Haneda, and once between Narita and Denpasar in Bali. It suspended flights to Kansai Airport, near Osaka, in July.
The tie-up could also help JAL land new departure and arrival slots scheduled to become available at Haneda in 2020.
The flag carrier, which went bankrupt in 2010 and received an injection of public funds for restructuring, was restricted from making new investments and opening additional routes until spring 2017. New airport slots were preferentially awarded to ANA during this time.
New slots are assigned through negotiations between Japan and the destination country. Partnering with an airline from a country with increasing traffic -- Indonesian visitors to Japan rose 30% on the year in 2017, to 350,000 -- could give JAL an edge in the race for Haneda slots.
The code-share pact is likely to extend to domestic flights in both countries, as well as Japan-U.S. routes. Both companies are looking to capture demand for travel between the world's biggest economy and Southeast Asia.
For Garuda, JAL's offer to share codes on U.S. routes is thought to be one reason it is ready to switch allegiances. ANA flies to the U.S. but does not have a code-share deal for those routes with Garuda.
The Indonesian carrier currently has two routes to the mainland U.S., to Los Angeles, through a code-share with Delta Air Lines via Haneda, and to San Francisco with China Airlines via Taiwan Taoyuan International. Teaming up with JAL would enable the carrier to expand its network in the country.
Garuda has long aspired to boost its presence in the U.S. Previous CEO Arif Wibowo, in his drive to make Garuda a "truly global airline," pushed to operate a U.S. route alone via Narita. Current chief executive Pahala Mansury inherited the plan, but the company was forced to postpone it late last year, partly because the Japanese government refused to grant the airline approval to carry passengers between Narita and the U.S. Garuda was also suffering from poor financial results and sought to cut costs.
Mansury's reforms are beginning to pay off: The company posted a net loss of $114 million for the first half of this year, a vast improvement over the $283.8 million net loss for the same period last year despite rising fuel costs and a falling currency. The deal with JAL should help Garuda boost revenue while also holding down expansion costs.