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Japan Airlines to rev up LCC network amid COVID difficulties

The company's president counts on a recovery in Asian tourism demand

Japan Airlines do not expect a full recovery in the number of business travelers, even in the post-coronavirus period. (Photo by Takaki Kashiwabara)

TOKYO -- Japan Airlines is scrambling to turn around its air transportation operations hit hard by the novel coronavirus pandemic.

The major Japanese airline is promoting the structural reform of its full service carrier business as it cannot expect a full recovery in the number of business travelers, even in the post-coronavirus period.

Meanwhile, JAL is staying ahead of the curve. It is taking measures to cash in on the expectedrecovery in tourism demand in the post-coronavirus period, including additional investments in affiliated low-cost carriers.

JAL President Yuji Akasaka spoke about the company's business strategy in an interview with Nikkei.

Akasaka painted a downbeat picture of the FSC business outlook. Noting that the main customers of the FSC business had so far been business travelers, he said that demand from such customers would "certainly decline" following the scourge of COVID-19.

"As more and more things can be done remotely, this understanding is shared by customers from any companies we have talked with," he said. "Since [FSC] demand declines, we need to scale back supply."

JAL President Yuji Akasaka indicated his intention to avoid cutting routes in an interview with Nikkei. (Photo by Azusa Kawakami)

JAL is already proceeding with the early retirement of large aircraft such as the Boeing 777. Akasaka indicated a policy of further cutting operating costs in the future by replacing large aircraft with fuel-efficient aircraft such as the A350, Airbus' mid-sized plane.

Meanwhile, JAL is clearly going on the offensive in the LCC business. The carrier plans to make Spring Airlines Japan, a Japanese subsidiary of major Chinese LCC Spring Airlines, a consolidated subsidiary by the end of June. Spring Airlines Japan is based in Narita, in Chiba prefecture.

Akasaka said, "Although a recovery in demand [for air travel] depends on [COVID-19] vaccinations, tourism demand, especially in Asia, will recover earlier than business demand."

Including Spring Airlines Japan, which mainly flies between Japan and China, JAL has three group LCCs, including ZIPAIR Tokyo, a wholly owned subsidiary, and Jetstar Japan, a joint venture with Australia's Qantas Group. The two LCCs are also based in Narita.

Akasaka expressed his willingness to strengthen the LCC business. "We want to complete an LCC network centering on Narita International Airport. The fact that we have takeoff and landing slots to spare in Narita due to the coronavirus outbreak provides us with a great opportunity," he said.

JAL has decided to suspend two international routes in the FSC business -- the Narita to Busan route in South Korea and Narita to Kaohsiung in Taiwan -- as their profitability has declined in the face of stiffer competition from Asian LCCs.

But Akasaka said, "We want to be able to maintain our network. While reducing less profitable routes, we want to do business in a mutually complementary manner for us and our partners, including by proceeding with joint operation and code-sharing with other companies," he said.

While JAL's predicament continues due to the raging COVID-19 pandemic, it is becoming increasingly important for the airline to cope with tougher environmental regulations around the world.

Akasaka specifically pointed out that industry-wide collaboration is needed in areas such as procuring sustainable aviation fuel. As there was no SAF manufacturer in Japan, collaboration was crucial to keep pace with the current global decarbonization trend, he said.

"Cooperation with other companies will become crucial to procure cheap SAF in a stable manner," he said.

JAL posted a consolidated net loss of 286.6 billion yen (about $2.6 billion) in its financial year ended in March 2021. It was the airline's first annual loss since it relisted on the Tokyo Stock Exchange in 2012.

JAL is now seeking to achieve pre-COVID-19 profit levels in its financial year ending in March 2024. The carrier's ability to make investments with an eye on demand in the post-coronavirus period, while managing its current plight, will be put to the test.

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