Note: This is also posted on my blog at the Seattle-PI
In an attempt to lure Japan Airlines (JAL) away from the OneWorld alliance, Delta Air Lines and their SkyTeam Alliance partners are offering Japan Airlines (JAL) $1 billion to join SkyTeam. Japan Airlines, currently struggling in the economic climate, offers a broad network of destinations in Japan and China, the key motive for both SkyTeam and OneWorld to fight for JAL.
Delta’s offer includes a $500 million capital investment, $300 million in short-term revenue guarantees, and $200 million in asset-backed financing for Japan Airlines. However, American Airlines claims JAL will lose up to $500 million of revenue within then next two years if the carrier switches to the SkyTeam Alliance.
JAL’s Massive Debt
As the carrier dubbed “too big to fail” by the Asia times, JAL’s situation is similar to General Motors of the U.S., JAL is among pressure to turn things around. The airline is a national symbol that has fallen due to both economic hardships and leadership missteps. The Japanese government has worked hard to help salvage the airline – they gave out approximately 100 billion yen last June, just one of many government-backed loans the airline has received in the past few years.
During the first half of this fiscal year, JAL lost $1.5 billion, and remains under the weight of more than $11 billion in net debt. With those numbers in mind, $1 billion is a substantial amount of cash for JAL – but will they take it?
OneWorld’s Thoughts on a JAL-Delta link
American Airlines’s president, chairman, and chief executive, Gerard Arpey, has quite a lot to say on SkyTeam’s bid for JAL. “JAL is a highly valued member of OneWorld. The alliance and its other member airlines have deep and long-standing partnerships with JAL that produces hundreds of million of dollars of value for JAL, and we are committed to maintaining and strengthening that partnerships.”
American and OneWorld would lose quite a bit of market share in Asia if they lost JAL. The Japanese market is crucial to all alliances, as it’s a large market. The Star Alliance already maintains All Nippon Airways (ANA) as a full member. Delta’s Northwest Airlines owns a hub in Tokyo-Narita, a primary hub for JAL.
American has said they, and private-equity partner TPG, are willing to inject an undisclosed amount of money into JAL. If only we knew how much…
“War of Words”
On the “what-if” scenario, Mr. Arpey said, “if JAL were to change horses, we would certainly argue that they might not be allowed to even code-share, let alone have immunity with the dominant carrier in Narita.”
Soon after, Virgin Atlantic issued a press release:
“Virgin Atlantic absolutely agrees with American Airlines that a high level of market concentration should be an insurmountable hurdle to obtain antitrust immunity for a possible alliance such as BA/AA. Mr. Arpey has clearly highlighted why dominant groups like AA and BA shouldn’t be given regulatory clearance. We have asked the DoT to further investigate his views as American cannot have it both ways.”
This “War of Words,” as Boarding Area blogger Dan Webb calls it, had American issue a statement soon after, saying:
“Virgin’s comments are long on accusations and rhetoric and short on the facts. American is opposed to a Delta-Japan Airlines (JAL) tie-up for the same reason we are confident our transatlantic immunity application will be approved: to preserve and enhance competition.”
As Dan points out, it’s interested what statistics both Virgin and American Airlines use to argue their points. Virgin claims:
“The Delta-JAL joint venture would result in a total capacity share on U.S.-Narita routes of 54%, significantly smaller than the 64% share that BA/AA would hold on U.S.-Heathrow routes.”
American says:
“SkyTeam with a Delta-JAL combination would account for nearly 60 percent of U.S.-Tokyo passengers, as opposed to OneWorld’s approximate 44 percent share of U.S.-London passengers.”
Delta’s Thoughts
Delta Air Lines chief executive, Richard Anderson, said SkyTeam would be willing to invest more than its proposed $1 billion into JAL. “When you get that value, it can be financeable. You create a lot more value, and together parties can figure out how to monetize that value,” said Mr. Anderson.
According to Delta, neither Delta or SkyTeam partners are interested in a board seat at JAL. “We don’t need to manage anybody,” said Mr. Anderson. The carrier also said they’re unlikely to link-up with a private equity group to help win-over JAL. “We’re focused on a SkyTeam strategic investment.”
Conclusion
JAL’s financial woes are a serious problem, and SkyTeam’s $1 billion bid looks quite tempting. Meanwhile, American is fighting hard to keep JAL in OneWorld, since the Japanese plays a major role in OneWorld’s Asian region routes. It will be interesting to watch and follow what JAL’s management decides to do.
Posted in Airlines
Tagged American Airlines, Delta Air Lines, JAL, Japan Airlines, Virgin Atlantic
Earlier today, Air Canada unveiled plans to implement in-flight internet service. The carrier said they’ve begun testing the technology on flights from Los Angeles to both Toronto and Montreal. Although they’re a bit behind U.S. carriers with in-flight internet, Air Canada will be the first Canadian airline to offer the service.
Air Canada said they will continue testing until January 29th, and will analyze results / customer feedback prior to launching the service on other routes. Since setting up the service can be costly, it is important for Air Canada to gauge the demand for the service. Currently, the carrier has yet to receive approval to develop the ground infrastructure to support the service.
The internet will be provided by Aircell, using their Gogo in-flight internet service. Gogo is just about everywhere, and a majority of the U.S. carriers providing in-flight internet use Gogo. An alternative, Row44, secured a solid contract with Southwest Airlines, and the airline plans to start equipping its fleet (540+ aircraft) Q1 2010. I wonder if Southwest’s codeshare partner, Canada’s WestJet, will integrate Row44 in-flight broadband.
Passengers can use the service on laptops for $9.95 per flight or Personal Electronic Device (PDAs, SmartPhones, etc) for $7.95 per flight.
Just when you thought 555 passengers was a lot to fit in a commercial airliner, try 840. Air Austral, the flag carrier of Reunion in the southern Indian Ocean, purchased two all-economy versions of the aircraft – the first all economy version Airbus has sold. Is it safe, and how will it affect ticket prices?
Airbus’s chief operating officer, John Leahy, says the plane still will have wider seats, wider aisles, and more space for each passenger compared to Airbus’s competitors. Fare price wise, this ultra-high capacity aircraft is expected to cut the price of travel.
Gerard Etheve, Air Austral’s president, said the carrier sees their future in providing low-cost mass transit options from the French-owned island to mainland France. Airbus says this aircraft could potentially be the most fuel-efficient and environmentally friendly aircraft flying today.
This high density configuration is certified by the civil aviation authorities, after Airbus was able to successfully administer a fire test, in which 873 people were safely evacuated from the aircraft in under 80 seconds – yet, isn’t it a whole lot easier to evacuate a plane when it’s planned?
I’m curious as to how well this mass-transit idea will work. Even with three air bridges docked to the aircraft, how quick is it to enplane / deplane an aircraft with a configuration like this?
