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Friday, June 19, 2009

Drastic changes coming to JAL

Japan Airlines has released a press release today regarding its medium term corporate plan. It outlines the direction JAL is going and provides some forecast of what is going to happen later this year. According to the press release, we will see "drastic reformation to its business model and processes".

The new business model has to be one that can stay profitable and allow the Group to be resilient against the volatility of current operating conditions. The key considerations for the reform are as follows.

a. The financial crisis dramatically altered both international and domestic economies, and correspondingly, demand for air transport faltered to an all-time low. The new business model will not excessively depend on the recovery in traffic demand under such uncertain circumstances.

b. The airline industry is susceptible to the risks presented by sudden unforeseen crises such as the recent pandemic. The new business model must have a solid foundation upon which the Group can depend on to withstand the impact of such sporadic threats to the business.

Since the fundamental goal is to develop a business plan which does not completely rely on the economy recovery, JAL has to implement some cost reduction across the board within JAL. Below are the highlights.

Fleet
- Progressively downsize and renew aircraft used in international and domestic routes.
- More emphasis on high yield routes.
- Drastic cost cuts will be pursued fervently (exact words from the press release).

Domestic Passenger
- 7 additional routes will be suspended.
- 1 route will see frequency reduction.
- Fleet size will be reduced by 9 aircraft by the end of fiscal year 2009.
- Operate more regional jets.
- Re-evaluate subsidiary airlines' management structure.
- Suspension of more under-performing routes is possible.

International Passenger
- 1 route will be suspended.
- 2 routes will see frequency reduction.
- Possible suspension of more under-performing routes.

Cargo
- Establish more strategic partnerships.

Cost Reduction
- Continue cost saving measures started in FY2008 (10 billion yen estimated saving).
- Adjustments to the pension scheme (88 billion yen saving).
- Offer special early retirement scheme.
- Examine processes in each department to find further cost saving measures.

Looks like JAL will be cutting cost everywhere. Not sure how this will affect the service level. It worries me a bit when they say "drastic cost cuts will be pursued fervently". Some FTers have reported decrease in service quality on ANA's flight already. Let's hope JAL will try its best to maintain the current level of service but I am afraid some downgrade is inevitable. More importantly, don't forget about SAFTY!!! SAFETY should always be the #1 goal and we all know what happened last time when JAL tried to improve its balance sheet and forgot about the importance of safety.

Source: JAL Press Release

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