Premium – Japan Airlines Fleet Review

Japan Air Lines, as it was first known at its start in 1951, was a state-owned airline. It remained this way until in 1987 when it was privatized. As happened in the US, this period was the start of deregulation. JAL, as the airline is typically known, had to compete with domestic airlines like All Nippon (ANA) which had a developed network. JAL has been through some changes since, merging with Japan Air System in 2001. By 2009 the JAL cost structure could not withstand the competition and the airline went bankrupt. This led to highly disruptive action, laying off a third of its workforce, cutting the fleet and writing off debt. The bankruptcy was the largest in Japan's history when it took place. JAL emerged from bankruptcy in 2011 and was relisted a year later. How did the airline's fleet change going through these tumultuous time? The first chart illustrates how the changes the fleet went through must have been highly disruptive to the company's operations. The merger with JAS grew the fleet but also added a domestic network that had to be "plugged" into the existing fleet which was internationally focused. The merger obviously did not lead to a sufficient cut in staff and the new company was too bloated. As the chart shows the fleet shrank in line with staff. As this was occurring, Japan was seeing much more aggressive competition entering the market from the US by way of United Airlines. Moreover, Northwest Airlines merged with Delta Air Lines, adding another aggressive competitor. At the same ANA was growing and taking traffic from JAL. In the following charts, we illustrate how complex the fleet became. This complexity added to MRO costs. Note the airline had acquired a fleet of A300s it used for domestic service. This was a fine aircraft and of the right size to serve these routes. Adding another wrinkle to the domestic service, Japan Railways was growing its high-speed service in competition. International traffic in Tokyo used Narita, an airport located well outside the city. But domestic service used Haneda, much closer into the city. Connecting traffic thus had a problem. ANA has long held the best Haneda slots and was in no way going to assist JAL to acquire any slots. The next chart shows the fleet indigestion process moving through the current period. Between 2000 and 2005 JAL was using and a handful of 747SRs for domestic service. In 2000, 55% of the fleet was 747s. The change was fast after that, but not fast enough to avoid the bankruptcy. In 2003 50% of the fleet was in 747s. From 2004 this dropped to 30% and by 2010 it was down to 7%. JAL was too inflexible to handle the changes the market brought to bear. JAL was unique in that every 747 had its own dedicated team of mechanics. If a 747 had a technical problem, that team would be flown out to fix it if necessary. Nobody else could touch the aircraft. The chart above shows how the fleet changes imposed by the bankruptcy led to a switch from 747s to 777s. JAL was a Douglas, then McDonnell Douglas fan. Its first jet was a DC-8. When the first MD-11 was delivered to JAL, the OEM was thrilled to be told by JAL that this was by far the best-built aircraft that had ever been delivered to the airline up to that time. After the Boeing merger with McDonnell Douglas, that loyalty moved to Boeing. The fleet remained disrupted through 2012. After this, it started to grow again. Notice how even though the A300 was short-lived at the airline, the 767 had a long life at JAL. The 767-300ER particularly has seen success. This suggests the airline's fleet managers saw the necessity of the MoM. JAL's network across Asia could benefit from the combination of range and payload. In 2000 the average age of the JAL 767 fleet was about 26 years. At the end of 2016, the 767 fleet average age was about 13 years! This was in the face of a growing 787 fleet. Next, we look at the seat segments of the fleet. The left-hand chart shows a pattern we expect based on the previous charts. The right-hand chart illustrates better how the changes impacted. The entire focus of the fleet had to switch from 747-thinking to a combination of three segments; the 737NG at the bottom, the MoM and then the 777s. The useful range of the 737NG allows it to be used on regional flights across the Sea of Japan as well as within domestic routes. For the middle of the market, the 767 has proven itself exceptionally useful. Where the 767 does not have the range, JAL has deployed the 787-8. This allowed for the low-risk opening of new direct markets like San Diego and Boston, in the USA. As we can see the 200-250 seat segment is now the dominant segment for the airline. A far cry from being a 747-dominant fleet. What does the future look like for JAL's fleet? The following table lists the current fleet as well as orders and options. The big surprise here is the re-emergence of Airbus. The A350 fits the JAL need of being a long-range aircraft with seating under 400. The commitment for 31 firm aircraft is significant and clearly suggests the 777's use is dwindling at JAL. The seven 777-300ER options may not be taken up and converted to 787-9s. The 787 also offers JAL what it seems to like; a light aircraft with a long range capability. Although JAL and ANA were early buyers of the 787, JAL may switch its -8 options to the more capable -9. The airline may even convert its 737NGs to MAX because the latter offers improved range. JAL has undergone a transformation from an old school long haul airline into one with a more flexible and useful fleet. Judging by the selection of the A350, the process is ongoing.

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