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Japanese airlines brace for further restructuring amid scarce aid

ANA suspends bonuses while JAL-backed LCC Jetstar plans to cut routes

All Nippon Airways has decided to suspend winter bonuses to its nearly 15,000 employees, while Jetstar Japan will suspend six loss-making routes for the period through March 2021.

TOKYO -- Pressures for public aid are mounting in the Japanese aviation market, with no rebound in sight for air travel, as full-service and budget airlines are preparing further cost-cutting measures that will hit their employees and routes.

Public funds and state-guaranteed loans will be vital if Japan's full-service carriers are to make it through to early next year, some industry experts say, noting that airlines in other Asian nations are restructuring with government help.

All Nippon Airways has decided to suspend winter bonuses for all of its nearly 15,000 employees -- the first time since 1962 when the company started to track records. ANA was founded in 1952.

"I feel very sorry, as the decision has a big impact on your life," parent company ANA Holdings CEO Shinya Katanozaka stressed in his statement to group employees. The winter bonuses, together with summer bonuses, account for 27% of annual income for workers at large Japanese companies with more than 5,000 employees, according to the National Tax Agency.

ANA also made a proposal to its labor union for voluntary retirement. Japan's largest carrier will add extra compensation to its existing voluntary retirement system, which it last did in 2013 for fewer than 50 employees.

Since March, ANA Holdings has been leveraging the government's employment adjustment subsidy to furlough 40,000 workers. It has also secured loans from banks and is now considering a public offering.

The government has not offered airline bailouts, except for loans through government-backed bank and the employment adjustment subsidy available for many industries. Elsewhere in Asia, public aid has been offered to airlines. Singapore Airlines said it would raise up to 15 billion Singapore dollars ($10.8 billion) from a state-run investment company, while Hong Kong's Cathay Pacific Airways also received a government aid package consisting of the issuance of preferred shares and bridge loans.

Unlike these countries and regions, Japan's domestic air market is seeing some light at the end of the tunnel. However, experts say further support from the government will be necessary for the survival of the Japanese industry.

"The outlook is very severe for ANA, and the need for public aid has become quite clear for this fiscal year [until March 2021]," said Hajime Tozaki, professor at Japan's J.F. Oberlin University.

Japan is gradually starting to open its borders, allowing business travel to and from South Korea and Singapore, and the 2020 Tokyo Olympics are scheduled to be held in July 2021. "The government should help until the situation gets better toward next summer," Tozaki added.

ANA's domestic flights are recovering to nearly 70% of its scheduled flights in November, boosted by slowdown of newly confirmed coronavirus infections and the government's domestic travel subsidy program Go To Travel campaign. However, close to 90% of ANA's international flights will still be out of service next month, illustrating its unclear rebound trajectory.

Japan Airlines, a rival of ANA, does not intend to cut jobs or even furlough its employees. President Yuji Akasaka said Wednesday at a media briefing that JAL will instead let about 1,000 cabin crew work in promoting domestic revitalization projects, while continuing to serve onboard aircraft.

The airline shed nearly 16,000 employees when it filed for bankruptcy in January 2010 with liabilities of around 2.3 trillion yen ($21.7 billion).

The situation is tougher for budget carriers, which normally require higher load factors than full-service carriers to remain profitable. Budget carrier Jetstar Japan, in which JAL has 50% stake, will suspend six loss-making routes for the period through March 2021. The carrier will also close its office at Kansai International Airport on Oct. 25, meaning a de facto withdrawal of three routes departing from the airport.

The airline, which has suspended all of its international flights as well as more than half of its domestic flights, is promoting voluntary early retirement and furloughs to its nearly 600 pilots and flight attendants.

Nagoya-based AirAsia Japan, another budget airline, a joint venture between Malaysia's AirAsia and Japanese partners, announced Monday it will close operations in December and cease all four domestic routes.

"We have concluded that it would be an extremely challenging feat for us to continue operating without any visibility and certainty of a post-pandemic recovery path," said Jun Aida, COO of AirAsia Japan, in a statement. Most employees will be let go on Nov. 4.

However, AirAsia Group's international services to Japan will not be affected, and will resume after travel restrictions are lifted, the company said.

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