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Business

JAL once again spreading its wings after long rehabilitation

Airline mindful of past lessons as it launches new Narita-Melbourne route

Japan Airlines' inaugural flight from Narita to Melbourne receives a water salute before takeoff Sept. 1.

TOKYO -- Japan Airlines on Friday became the first Japanese carrier to operate direct flights between Narita International Airport and Melbourne, as the company starts to make bolder business decisions seven years after its bankruptcy.

"We hope to capture both business- and tourism-related demand," JAL President Yoshiharu Ueki said at Narita, a gateway to the Tokyo metropolitan area. The inaugural flight, which was greeted by an arch of water from fire trucks before takeoff, had 99% of its seats filled. The airline will operate one round trip to Melbourne each day.

The Australian city draws many tourists for its proximity to a number national parks, and also attracts many business travelers, mainly in the resource sector. Leading Australian airline Qantas has even taken over Narita-Melbourne flights initially launched in 2014 by its low-cost subsidiary, Jetstar Group, in order to directly operate the promising route.

"Passenger load factor," a measure of seat occupancy, "will certainly reach about 80%," Ueki said of JAL's new route.

The Japanese flag carrier filed for bankruptcy in 2010, and has since been rehabilitated with government assistance. The company has managed to significantly improve its earnings structure over this period, and its operating profit margin is now solidly in the double digits.

A new beginning

In April, the Ministry of Land, Infrastructure, Transport and Tourism lifted restrictions on JAL regarding new investment and routes. In addition to the Narita-Melbourne route, the airline is now planning new flights between Narita and Kona, Hawaii, and between Tokyo's Haneda Airport and London. JAL aims to service more routes that cater mainly to business travelers, and regain its status as a leader in tourism-driven travel.

But "we have limited resources, and we can't push our crew too hard," Ueki said. JAL is only planning to add five new aircraft to its fleet between next March and fiscal 2020, bringing its total to 231. Compatriot ANA Holdings, on the other hand, is planning a roughly 30-unit increase to a total of 300 by the end of that fiscal year.

Profitability was a key concern throughout JAL's rehabilitation. In order to use its workforce and equipment as efficiently as possible, it is still committed to the concept as it eyes new routes. The carrier scrapped 65 routes, or 30% of the total, in the eight years through last March. It also plans next March to cancel flights between Narita and South Korea's Incheon International Airport, where it has been losing money even when fully booked amid competition from budget carriers.

JAL's bankruptcy was caused by its seemingly limitless campaign to expand, rooted partly in the company's cozy relationship with the government and bureaucracy. The carrier was urged to run flights to each new remote, pork barrel-funded airport at home, regardless of actual demand. Even abroad, JAL developed close ties to local politicians and governments. At one point, it proclaimed itself more of a foreign ministry than the actual foreign ministry. So far, there are no signs that the revamped JAL is returning to its old ways, but that is a possibility as it starts launching new routes again.

Rivals are anticipating greater competition from JAL. ANA is actively making new investments to solidify its position as the leading Japanese carrier, such as by buying a stake in Vietnam Airlines and building a new training center for employees. If low-cost carriers also get involved, customers could benefit from lower overall fares and better service. Ueki faces his next test as he moves JAL forward from its rehabilitation phase to sustainable growth.

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