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JAL set to boost international ops after smooth turnaround

Japanese carrier must negotiate crowded skies over Asia

JAL President Yoshiharu Ueki, center, at a news conference Friday.

TOKYO -- Finally free of bailout-era restrictions, Japan Airlines is pumped up to cultivate the market for international flights again, aiming to add new routes and increase passenger-mile capacity for such service more than 20% by fiscal 2020.

Raring to go

"The biggest growth in demand will be for connecting flights between Southeast Asia and North America," President Yoshiharu Ueki told a news conference Friday as he outlined the growth strategy in a medium-term plan through March 2021.

"We will expand our network while maintaining balance," Ueki said.

JAL went bankrupt in 2010 and rebuilt itself with taxpayer support that entailed restrictions on investments and new routes. The end of the restrictions in late March prompted the airline to seek out new growth paths.

The operating margin target of 10% or higher, set in the five-year plan that began in fiscal 2012, has been achieved. Retained earnings reached nearly 650 billion yen ($5.83 billion) for fiscal 2016 -- roughly double the figure at competitor ANA Holdings.

JAL plans to use its ample cash on hand to improve seating and airport lounges as well as strengthen partnerships with other companies.

International flights will be a key focus. JAL seeks to increase passenger-carrying capacity -- measured in available seat kilometers -- by 23% for international service and 5% for domestic service by fiscal 2020.

To meet the 23% benchmark, it will serve more cities and increase flight frequency while keeping its fleet roughly the same size. JAL aims to increase sales by 16% from fiscal 2016 to 1.5 trillion yen in fiscal 2020, with operating profit rising 6% to 180 billion yen.

While you were out

Yet it faces tough competition from ANA, as well as emerging budget carriers. While JAL was hamstrung by the restrictions, ANA added new routes between 2014 and 2017 to connect Narita Airport near Tokyo with the American city of Houston, Brussels and Mexico City. Even for Hawaii routes, where JAL holds high market share, ANA is moving to introduce ultralarge Airbus aircraft in the spring of 2019.

And in the growing market of Asia, major Chinese airlines have a solid grip locally, and many budget airlines have emerged. Low-cost carriers accounted for 19.8% of all international flights arriving in Japan in the summer of 2016, according to the Ministry of Land, Infrastructure, Transport and Tourism.

JAL is losing market share to South Korean budget carriers for service connecting their two countries, for instance.

Also looming over JAL are the ANA group's own low-cost carriers. ANA's revised medium-term strategy announced Friday puts a focus on budget carrier operations in addition to improving crew training.

ANA increased its stake in budget airline Peach Aviation and turned it into a subsidiary this month. The group is thinking about expanding low-cost-carrier operations -- including wholly owned unit Vanilla Air -- to medium-haul international service in addition to short-haul flights.

JAL could bolster operations beyond airlines to diversify sources of earnings. But Tadao Nishio, a managing executive officer, did not have much to say beyond a comment that "we hope to find new possibilities in the services segment by capitalizing on the strengths cultivated in the airline business, like on-time operation."

The company is being careful because such noncore operations as hotels eroded its financial health in the past. Lean operations -- the fruit of its restructuring labors -- are JAL's fundamental strength today. Directing and timing investments in search of new growth paths, while maximizing staff and asset utilization, will prove no easy task.

(Nikkei)

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