Will low-cost carriers once again feel the wind beneath their wings, or is further turbulence ahead?
Cabin crew, who now only work on one or two flights a month because of the coronavirus pandemic, are undergoing daily training in a Japan Airlines facility near Haneda Airport in Tokyo. In mid-June, an experienced cabin crew member, who was teaching in a room resembling the first-class section of an international flight, looked toward the camera on a laptop and demonstrated how to take care of a passenger's coat and pour a glass of wine.
"How should we describe the wine list?" asked one of the 16 young cabin attendants taking part in the videoconference.
These attendants joined the airline three or four years ago and completed their necessary training six months prior, but most have yet to actually work on a flight.
Before the coronavirus outbreak, airlines had basically followed a business model in which they tried to recover the costs spent on economy class and generated profits from seats in business class or above.
There are concerns this operating model could become unsustainable if business trips decline as videoconferences begin to replace them. JAL expects some companies will keep refraining from conducting business trips, and that demand for seats on domestic flights at the end of this fiscal year will be around 90% of what it was before the coronavirus outbreak.
JAL is shifting toward a more balanced business structure that is less dependent on business travelers, attracts more tourists and makes the best use of low-cost carriers under its umbrella.
--Cheap flights
A trademark of budget airlines is they attract passengers by selling cheap tickets. They operate frequent short-distance flights of a few hours to ensure their planes have short turnaround times and spend more time in the air. These airlines keep costs down by charging for in-flight meals and other options.
Full-service carriers such as JAL and All Nippon Airways (ANA) might be equated to a high-class restaurant that provides great customer service. Low-cost carriers are more like a fast-food restaurant that has cheap meals and high customer turnover.
As liberalization of the aviation industry spread in Europe and the United States in the 1970s and '80s, the common thought that "air travel is expensive" was overturned.
However, the signature advantages of low-cost carriers were facing headwinds amid the spread of coronavirus.
Because of cheap airfare, budget airlines need to carry more passengers to break even. According to one aviation analyst, full-service carriers must fill about 60% to 70% of their seats to make a profit, but low-cost carriers "need to fill about 80%."
Furthermore, these airlines use smaller, lighter planes to save on fuel costs. The seats are often arranged to be closer together so the plane can carry more passengers. The Airbus A320 is usually configured to seat about 150 passengers for full-service carriers but can be rearranged to hold 180 seats for a low-cost carrier. The space between seats on a full-service carrier is 79 centimeters, but on a low-cost carrier, the space between seats is 71 centimeters. The lack of space may be a cause for concern for those worrying about being close to others during the pandemic and may make travelers reluctant to fly on budget airlines.
--No passengers on flights
On June 3, Zipair Tokyo, a budget airline under JAL's wing, took off on its maiden flight from Narita Airport to Bangkok. However, no passengers were on board; the plane was carrying 13 tons of cargo such as machine parts and detergent. Zipair initially planned to launch its first international passenger flight in May but this plan was canceled because of the coronavirus, and the airline decided to operate cargo-only flights for the time being.
However, the sales for these flights are barely enough to cover the operating costs. Zipair is weathering this difficult situation by trimming expenses wherever possible. Pilots are shuttled to the plane in the company's own vehicles, rather than on a chartered bus, which saves 70,000 yen per day, and Zipair employees, not outside contractors, clean the company's offices.
"It's been tough, but we are set up in a way that we can get through this by becoming like a seashell," Zipair President Shingo Nishida said.
Sitting between the full-service and low-cost carriers is Skymark Airlines. After going bankrupt in 2015, Skymark's performance has steadily improved, but it recorded its first loss in four years in the business period ending in March 2020. In April, Skymark decided to withdraw its application to be relisted on the Tokyo Stock Exchange.
Peach Aviation, a budget airline in which ANA holds a 77.9% stake, also recorded a net loss.
--Tough decisions on support
Many of the nonmajor airlines, such as the low-cost carriers, have been ushered into either the JAL or ANA group. This is to ensure the landing and departure slots for desirable routes at airports such as Haneda, where the slots have been allocated to each airline. Airlines within each group work closely on reservation systems and code-sharing.
ANA has reeled in a range of new airline companies that have entered the market since the latter half of the 1990s. ANA has a stake of at least 10% in Star Flyer, Airdo and Solaseed Air. ANA even holds a 16.5% stake in Skymark, which championed itself as the "third pillar" of Japan's domestic airline industry.
JAL has two low-cost carriers under its umbrella: A 50% stake in Jetstar Japan, and Zipair, which is a wholly owned subsidiary.
How do the two major players react when airlines within their orbit start to struggle?
One analyst predicted they will provide "direct financial support and other assistance" to airlines in which they hold a stake of 50% or more. However, the situation would change when the airlines in which ANA has a stake of less than 20% were to require help. If any additional investment lifted ANA's stake to above 20%, the government would consider the smaller airline to be an affiliated company, and each airline could be stripped of their landing and departure slots for domestic flights at Haneda Airport. Each airline has 20 or more such slots.
Airlines do not want to lose moneymaking routes that are in high demand but refusing to offer support is not an option. An option "will likely be indirect assistance, such as finding companies that invest in them," an airline industry source said, and many other observers share this view.
JAL and ANA will likely need to make some tough decisions to ensure they do not lose their position in the market.
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