Strategic Analysis of Japan Airlines JAL

TASK A Question 1

1.1 Internal Analysis - Strategic Capabilities

1.1.1 Competences

The top priorities of JAL are according to Wang (2007) “being a global player bridging the world with safety, security and quality”. So, the compe­tences roots in its quality products and services which reflects in the com­fort seating and in-flight services. JAL has well-coordinated networks ac­cording to the international infrastructure, which means that JAL is the main competitor on flight routes in Asia-Pacific and also involved on inter­national routes. Competences are also its technical prowess with its well- trained flight crew and flight cabins and its safely operate system which it is require by customers (JAL airlines, 2009). Moreover the new highly- efficient aircraft helps JAL to “[reduce] its fuel consumption and keep the fuel costs low by suspending under-performing routes and downsizing them” (Japan Airlines, 2009).

However, JAL’s major competitor ANA SKY has profited of JAL’s financial problems and has still the total fleet converted into efficient aircrafts and therefore it becomes number one in the domestic market in Japan. Fur­thermore JAL has not really a core competence compared with its com­petitors, because they offer also high quality service.

1.1.2 Resources

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All analysed figures were compared with ANA SKY. Long before the eco­nomic crisis JAL airlines has already in 2007 losses of 65,6 % by the profit compared with 2006. In 2009 JAL has losses of 473.5 % compared with 2008 (figure 1). Therefore the net profit per passenger decreases as well (figure 2). Increasing fuel prices, the epidemic SARS and the 9/11 assas­sination and then 2009 the economic slowdown due the subprime loan crisis occasioned costs which JAL cannot resist, because of recurring se­cure problems and high debts (Japan Airlines Cooperation, 2010).

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figure 1: sources: ANA, 2008 and 2009, JAL airlines 2008 and 2009\ net profit in thousands of US $

figure 2: sources: ANA, 2008 and 2009, JAL airlines 2008 and 2009\ net profit per passenger in %

JAL’s equity ratio shows a substandard percentage. In 2009 it lies on 6.9 %; ANA SKY in contrast has an equity ratio of 18.3 %. So, JAL has again and again the problem that it can be easily beleaguered. Reasons for these debts were e.g. the power struggles of the internal management, wasteful costs for hotels and other expenses which are not idle with the core business (Japan Airlines, 2009).

Therefore, the airline got billions in tax money by the previous ‘Liberal Democratic Party’ and was forced to fly to many provincial airports despite low passengers and high charges (Financial Times Deutschland, 2010). So, JAL has a large number of employees. JAL has between 57 and 70 % more employees as ANA SKY and therefore much higher overheads. Surely JAL has 401 flight routes and ANA SKY only 162, but most of JAL’s flight routes are unprofitable which only incurred costs.

As you can see in figure 4 ANA has always better revenue of the passen­ger load-factor as JAL which shows that JAL act always unprofitable, be­cause in this case it fly without a fully stretched machine.

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figure 4: sources: ANA, 2008 and 2009, JAL airlines 2008 and 2009: revenue passenger load-factor in %

One more figure is important - the operating income margin (figure 5). ANA has always better numbers. It makes indeed lower turnover, but it has lower overheads and therefore ANA is much more profitable.

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figure 5: sources: ANA, 2008 and 2009, JAL airlines 2008 and 2009: operating income margin in %

1.2 External Analysis

To begin with the analysed industry has to be defined. “The airlines indus­try comprises passenger air transportation; both scheduled and chartered, but excludes airfreight transportation” (Datamonitor, 2009a).

1.2.1 PESTEL-Analvsis (macro-environment)

The increasing airlines’ support by the government helps the airline indus­try to protect their international business. Moreover the so-called open sky agreement makes it possible to establish a merger in the airline industry (Soble, 2010).

According to Yamakawa, Ahmed and Kelston (2009) the so-called BRIC- countries that are Brazil, Russia, India and especially China, and other Asian countries are characterised by fast-growing economies. This might afford a huge chance for the airline industry, because they offer extremely attractive markets to strengthening the ability to secure market shares.

The changing in the global age structure has been influenced by two trends: the declining birth rates and the increasing life expectancy. For the airline industry this an advantage, because the purchasing power of the generation 50+ is increasing. Therefore the target group for the airline in­dustry increase, because they indulge a bit more for travelling by air with good und good and adequate service (OP-online, 2009).

The overall access to the internet is constantly growing. According to Locke (2009) the young and influential ‘info-consumer’ is interested in internet communication. Social networks make it easier to keep in touch around the world. This can provide an excellent platform in which airlines can connect with potential consumers whereas gaining insight into their likes and dislikes. For airlines social networking might realise powerful re­sults.

1.2.2 Porter’s 5-Forces Analysis (micro-environment)

The airline industry is characterized by strong supplier power, because of the duopoly of the aircraft manufacturer Boeing and Airbus. As yet, no available substitute for jet fuel has been developed the airline industry is also depended on the fluctuation of the fuel prices. New entrants are still allured to the industry, but the large capital outlay required can deter. In many cases the industry is depended on consumer taste and needs e.g. Japanese are high-quality sensitive (Datamonitor, 2009b). Moreover many consumers are now aware of the environmental impact of air travel and turn back to eco-friendly vehicles, therefore substitutes like high speed trains are a good alternative at least at domestic flights and therefore a high threat. Moreover high fixed costs, such as salaries and maintenance, have increase rivalry. In recent years the increasing low-cost airlines have strengthened additionally rivalry, because many consumers seek out cheap deals and leading to intense price competition between airlines. Overall it can be said, that there is a strong rivalry degree in this area (Datamonitor, 2009a).

1.3 Conclusion

JAL airlines is a high-quality sensitive, but low budget, indebted company on a increasing and booming market. E.g. in Asia-Pacific the forecast mar­ket value in 2013 amounts to $153.3 billion with an increase of 51.6% since 2008 (Datamonitor, 2009a).

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Question 2 - SWOT Analysis and Kev Issues of JAL

2.3 Kev Strategic Issues

The author has identified as the three major key issues the increasing competition of the low-cost airlines, the high debts of JAL and the fluctua­tion of the fuel prices.

2.3.1 How can JAL reduce the intense competition?

Here raises the question if JAL can continue with the premium-strategy. In the airline industry an intense competition prevails especially through the low-cost airlines. However, these airlines are used by many passengers, because many are also financially battered. The low-cost airlines acquire a vogue above all in the domestic area, because in this area the passengers are willing to relinquish on food or something to drink. Nevertheless Japa­nese are very much quality-orientated, so JAL’s image could suffer from limited in terms of quality of service with regards to safety, punctuality, comfort in cabins and the standard of in-flight service, if JAL change its strategy from premium to low-cost. With the premium strategy JAL could differentiate its brand image from that of low cost carriers. Furthermore through the well-coordinated relationship with networks JAL can find out consumer taste, needs, likes or dislikes and therefore it can achieve con­sumer loyalty in order to stay number one in Asia-Pacific airline industry.

2.3.2 How can JAL decrease the high debts?

In order to be more profitable, JAL has to reduce many costs. The high expenses of JAL are a major issue, because therefore JAL is highly in­debted. As mentioned above it gave problems in the internal management and JAL spent more money as it has available. First of all the unprofitable flight routes has to be cut. By cutting these routes, JAL save employees, and therefore salaries, and jet fuel which also reduce costs. At the domes­tic flights JAL can copy the model of the low-cost airlines, so it can offer lower food or the passenger has to pay for.

Moreover JAL has to change its complete fleet in order to be competitive with ANA. Naturally this is also an investigation, but this will pay off in the future, if the fuel costs drastic degrease and the machines always use to capacity. Furthermore JAL has to improve its equity ratio in order to be not vulnerable if there is again a crisis.

2.3.1 How can JAL deal with the increasing fuel prices?

One major problem of JAL is the increasing jet fuel price. It has hit airline industry stocks and dimmed their financial outlooks. As, there is no substi­tute for jet fuel developed, JAL is strong depend on these suppliers. Through so many routes which JAL has to accomplish, the planes use up much fuel that incurred costs. Therefore Boeing developed efficient air­crafts. Whereas JAL has a part of the new fleet it used since 2009 these aircrafts. Therefore JAL can dodge a little bit the pressure of the jet fuel suppliers. Moreover the overall trend is generally going to build consolida­tions. Reasons for that are that the airlines had to raise the kerosene tax of the passengers. So, if it increases any more this tax, the consumers search for cheaper alternatives for travelling. So, the airlines have to con­solidate for holding down the costs for the passengers and for themselves.

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