Japan Airlines and oneworld global alliance face new futures

On the eve of Japan Airlines (JAL) filing for bankruptcy, many communities and stakeholders in Japan and across the world wait to find out their fate from the impact of this massive business failure. The shedding of jobs, routes, and subsidiaries together with the write off of debts and reduction of pension benefits will all form part of the solution to allow JAL to emerge a stronger and viable entity for the future. No particular aspect is more avidly being followed than who will be JAL’s future global alliance partner.

The fact that oneworld is not, according to recent news reports, emerging as the unquestioned partner of choice for JAL, raises just as many questions about oneworld as it does about JAL. How has oneworld allowed JAL to slip through its fingers and into the hands of Delta Airlines and Sky Team?

JAL’s history would naturally align the company with Delta Airlines whose heritage now includes that of Northwest Airlines who helped found JAL with its technical knowledge and assistance in 1953. Against the partnership, the combined size of both airlines North Pacific and Asia networks will raise antitrust issues in any potential approval by the US DOT. Yet at the same time, their overlapping networks support significant capacity cuts by JAL, which are required to bring it back into profitability, while at the same time maintain the airline’s network reach through the alliance. Offsetting this is the cost of changing alliance, which Delta Airlines is understood to have offered to underwrite, and the delay in realising benefits as the relationship is put in place.

Why then has oneworld through American Airlines failed to capitalise on the strength of its existing partnership with JAL. One reason is that JAL may be suffering from “the grass is always greener” syndrome. JAL entered the global alliance after a painful and slow negotiating process. JAL came late to the table in the formation of alliances, missing out on founder partner status, and having abandoned its multi bilateral strategy. Equally, British Airways and American Airlines have been holding back on realising the benefits of the alliance and not capturing the benefits of all the low lying fruit. Why is British Airways at this late stage offering additional European cities as code-share destinations to JAL to retain the airline in oneworld? Similarly, why is JAL not on the same technology platform as its oneworld partners realising synergies and cost savings. All possible code-share points should have been actioned long ago as a matter of course in managing the partnership.

Staying part of oneworld should have been the natural choice for JAL, with a deepening of the alliance, possibly through joint ventures, being the way out for JAL to recover from its troubles. Instead, JAL is looking like it is going to move from one alliance to another and still find itself a junior partner, even after taking on the task and costs of the system and product changes, together with employee training. oneworld as an alliance, is seeing itself by some measures, fall further behind its competitors, Star Alliance and Sky Team as its strategy to realise benefits on the North Pacific and North Atlantic continue not to materialise.

While confirmation is waited as to JAL’s outcome and future direction, everything is pointing to oneworld having to regroup and decide on a strategy for its own future and in particular American Airlines ability to remain a mainstream player on the North Pacific.

An airline is without question a people business. My thoughts are with everyone involved at this time, as the necessary and vital economic decisions are taken to ensure the chances of a strong JAL taking once more to the skies.

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