JAL may axe 50 routes (over three years); domestic demand and load factors falling

JAL’s “Flight Frequency Plan of Second Half FY2009” issued August 7…and Revisions 1-3 “progressing with restructuring efforts by reviewing its overall network coverage” issued in the few weeks up to September 28.

Curious but true: JAL and its subsidiaries claim to operate 250 passenger routes (including 140 domestically in Japan) across 220 airports in 35 countries using a fleet of over 270 aircraft. However, according to anna.aero’s analysis of OAG schedule data for September the airline currently operates just 109 domestic routes and operates non-stop from Japan to just 21 countries.

Clearly something is amiss and indeed JAL is much in the news at present as its financial woes present the newly elected government with a major conundrum. Despite having received a government bailout as recently as June the airline is asking for further assistance, having been unprofitable in four of the last six years, and heading for a major loss this year as well.

Chart: JAL traffic 2002-2008 - Annual passengers (millions)
Source: JAL

Passenger numbers have been falling in recent years from over 60 million in the 2002 financial year to just under 53 million in the latest. Both international and domestic traffic have been declining although the low international figure for 2003 was due to SARS. This financial year (April 2009 to March 2010) has seen a significant year-on-year drop in demand in May and June which was influenced by health concerns regarding swine flu.

Domestic demand falls faster than capacity cuts

JAL and ANA account for well over 90% of the domestic market, where Japan’s legendary Shinkansen ‘bullet’ trains provide fierce competition on several routes. Annual average load factors on these routes are not that impressive. For the last seven years JAL’s average annual domestic load factor has been between 63% and 66%. In the first seven months of 2009 domestic load factors for both ANA and JAL appear to be around four percentage points lower than in 2008. Although JAL has cut domestic capacity (ASKs) by 2.9% in the first five months of the latest financial year, demand (RPKs) has fallen by 10.8%. JAL’s highest frequency routes are from Tokyo Haneda to Fukuoka (130 weekly departures), Sapporo/Chitose (126) and Osaka Itami (105).

China: top country market; load factors still poor

JAL and ANA only account for around 35% of international capacity from Japan’s airports. JAL and its subsidiary JALways operate 68 international routes from four Japanese airports. From Tokyo Narita 39 destinations are served, 18 from Osaka Kansai, eight from Nagoya and three from Tokyo Haneda.

Chart: JAL’s international markets FY 2008 - Annual passengers by region (millions)  Load factor in brackets
Source: JAL

In the last financial year JAL handled some 11.7 million passengers on international routes at an average load factor of just 65.6%. Flights to and from China had, on average, more empty seats than filled ones. While capacity was down less than 4% demand fell by over 20% resulting in average load factors falling from 52.5% in FY2007 to just 43.2% in FY 2008. According to OAG data China is still JAL’s single biggest country market accounting for around 18% of current international non-stop capacity, just ahead of the USA and Korea.

50 routes to be axed over three years?

Media reports from Japan suggest that JAL has outlined plans to axe 50 routes over a period of three years. This consists of 21 international and 29 domestic routes. Tokyo Narita would lose nine international routes (including Amsterdam and Rome), Osaka Kansai nine (including London) and Nagoya three (including Paris). However, how many of these routes do actually get dropped remains to be seen as there are likely to be many objections from affected parties.

The airline’s own press releases have confirmed that from the start of the winter season (25 October 2009) daily flights from Nagoya (Chubu) to Paris and Seoul (Incheon) will cease, as will Osaka (Kansai) to Seoul (Incheon) services. However, Osaka (Kansai) to Seoul (Gimpo) flights will increase from one to two per day. Osaka (Kansai) services to Dalian in China will also end at the end of October.

On a more positive note JAL has announced that it will start a new daily domestic service from Okinawa to Tokyo Narita starting 5 January. From 1 November it will also increase from two to three flights per day its feeder services from Nagoya (Chubu) and Fukuoka to Tokyo Narita.


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