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Airlines are facing difficult business conditions as the novel coronavirus pandemic and its fallout drag on. It is hoped that the realignment of carriers will help companies enhance their efficiency and steadily improve their management, in preparation for a recovery in demand.
Hokkaido’s Airdo, based in Sapporo, and Solaseed Air, headquartered in Miyazaki City in Kyushu, have agreed to integrate their management. The two airlines said they will establish a joint holding company as early as October 2022 as their parent company.
This is the first case in which domestic carriers will be reorganized amid the pandemic.
Airlines are suffering from a sharp drop in passenger numbers as people refrain from going out, and restrictions have been in place on overseas travel. Smaller companies have been hit in particular, with AirAsia Japan, a low-cost carrier, going bankrupt last autumn.
As Airdo and Solaseed Air also posted record losses for the business year ending in March 2021, the carriers concluded that surviving on their own would be difficult. It is reasonable for the airlines to seek a way to survive through integration with another company.
It is said that airlines have a higher proportion of fixed costs, such as labor, maintenance and parking, that are incurred even when they do not operate aircraft. Therefore, it is easier for carriers to fall into the red when they face a decline in revenues.
Airdo and Solaseed Air aim to reduce costs by consolidating their aircraft maintenance centers and sharing office work for personnel affairs and accounting, among other measures. The carriers said they will retain their respective brands and maintain their current flight networks.
Both Airdo and Solaseed Air accept investment from ANA Holdings Inc., the parent of All Nippon Airways. The domestic airline industry has LCCs and other airlines based in regional areas, many of which are under the wing of major operators. If this difficult time lasts even longer, additional reorganization could become an option for some of the smaller carriers.
The nation’s flagship airlines are also facing serious deterioration in their performance. ANA Holdings and Japan Airlines both saw their consolidated sales nosedive more than 60% for the business year ending in March 2021 from the previous year. As a result, ANA Holdings posted a deficit of more than ¥400 billion, while JAL’s loss exceeded ¥280 billion.
The ability of people to travel freely is an underlying condition for business activities, and major airlines are part of the important infrastructure that supports this principle.
The two giants have secured cash reserves through capital increases and borrowing money, while also taking thorough cost-cutting steps. At the same time, they are maintaining employment through various measures, such as furloughs that take advantage of employment adjustment subsidies, in addition to relocating workers to companies outside their own groups.
ANA Holdings and JAL should do everything possible to maintain their resources to normalize operations until the pandemic can be brought under control via an increasing number of people getting vaccinated.
There are many examples overseas in which governments have helped their countries’ flagship carriers by nationalizing them or injecting capital.
The Japanese government has implemented measures for carriers, such as reducing airport usage fees and aviation fuel taxes. The government should continue to provide these kinds of support.
— The original Japanese article appeared in The Yomiuri Shimbun on June 3, 2021.
