ANA Holdings Inc., which owns All Nippon Airways Co., has announced it will post the worst loss in the company's history.
With no sign of travel recovering due to the effects of the novel coronavirus, the company is embarking on structural reforms that look to a post-pandemic future, rather than mere restructuring.
This could be a critical juncture for ANA, which had been aggressively expanding its routes.
-- Cutting fixed costs
"We will proceed with reforms with unwavering determination. Yet we will also protect 46,000 jobs," ANA Holdings President Shinya Katanozaka said at a press conference Tuesday.
Airlines spend about half their sales revenue from air transport businesses on fixed costs, meaning they are burdened with costs even when they do not fly.
While about 30% of ANA's fixed costs are for personnel, the company needs to retain employees for when the pandemic ends.
Therefore, instead of offering broad early retirement packages as is often done in business crises, the company is seeking to temporarily reduce costs, such as by slashing annual salaries and dispatching workers to other companies.
Employees will be sent to Nojima Co. and Seijo Ishii Co., and requests have been sent to Toyota Motor Corp. and other companies, according to sources.
The company is also considering the future by reducing the number of aircraft. Keeping many planes that cannot fly will only increase deficits, so the company has announced it will get rid of 35 aircraft in fiscal 2020. As excessive cuts could cause the company to miss out on revenue opportunities, ANA decided that getting rid of about 10% of its roughly 300 aircraft was the best option for now.
-- New environment
In recent years, ANA has aggressively expanded its routes, such as by getting preferential treatment from the central government for international flight slots at Haneda Airport. It also won a long-coveted contract to maintain government aircraft.
However, the coronavirus changed everything. Business demand for international flights with high profit margins is not expected to recover fully. With this and other factors, the outlook is bleak.
Immediately after declaring bankruptcy in 2010, rival Japan Airlines Co. reduced its routes by about 30% and laid off about 16,000 workers. Financial institutions helped improved its management structure by writing off debts of over 500 billion yen.
In contrast, ANA's aggressive management strategy has given it about four times as much interest-bearing debt as JAL as of the end of March 2020. With a heavier interest burden, the company has become more susceptible to changes in the environment.
The coronavirus pandemic has further increased its interest-bearing debt load, which reached about 1.3 trillion yen at the end of September.
Katanozaka expressed regret over the route expansions, saying, "It was the right strategy, but the impact of [the pandemic] was much greater than expected."
-- Corralling customers
The company is also trying to lay the groundwork for a comeback.
One way is through starting a new brand of international flights by fiscal 2022. It also wants to launch medium-range routes to areas such as Southeast Asia and Australia where Japan's low-cost carriers do not have much of a presence.
It is also strengthening ties with its subsidiary LCC Peach Aviation Ltd., such as by integrating the airline into the ANA miles program, which it hopes will bring in customers.
The company is also focusing on non-aviation businesses, seeking to diversify revenue sources and stop being overly reliant on air transport.
It is expanding its "platform businesses" that use customer data. The company plans to develop a "super app" for smartphones that will bring together products such as travel planning, online shopping, insurance, transport arrangements and payments.
Katanozaka has said he will "dramatically change the business model," indicating the company is seeking a new form of growth.
Photo: Few passengers are seen in the All Nippon Airways departure lobby at Haneda Airport on Tuesday afternoon.
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