American and Delta Fight Strategic Battle Over Japan Air Lines

Japan Air Lines (JAL) is an airline in trouble. It’s losing money faster than a rookie NFL player who just got his first payday, and it needs help. Now, Delta and American apparently have decided to battle over the airline because of its strategic importance.

You oneworld loyalists out there know that Japan Air Lines is a valuable partner over the North Pacific. Southeast Asia is well-covered by Cathay Pacific, but JAL provides an important link in the north between American, Delta, Air France Pursue JALthe US and Japan, and possibly more importantly, China. JAL holds a ton of slots at Tokyo’s Narita and Haneda airports, and those are scarce at desirable flight times. JAL is a natural fit for the alliance.

So when reports started surfacing last week that Delta was looking at pouring money into the bottomless sinkhole that is JAL, a lot of people were scratching their heads. I didn’t – this makes a lot of sense.

Remember, Delta inherited its Tokyo hub from Northwest, and it actually has a decent intra-Asian operation from Tokyo – a legacy from the end of World War II. As they say, to the winner go the spoils. There’s even a subfleet of narrowbodies based in Tokyo to fly some these routes.

My guess is that these routes absolutely suck wind right now. If Delta is really losing a ton of money as I suspect, they could eliminate all those routes and either use the slots to fly to the US or transfer them to JAL. The additional connectivity in Tokyo that they could gain from this link-up would add a bunch more traffic to feed all that US-Tokyo flying Delta does now. (You people in Portland could breathe a sigh of relief, because this could probably help that flight come off the edge of the cliff.)

This move could make a big, immediate difference on the bottom line. If Delta can pour some money in but get it back out very quickly in the form of improved profits, then it’s a no-brainer. Everyone in SkyTeam wins . . . except for Korean. Poor Korean would be demoted to second place in the North Pacific, and it would likely very seriously look at defecting to oneworld where it could take JAL’s place as top dog in the region (or only dog, as the case may be).

Of course, if JAL leaves, oneworld loses, so American has now come back with its plan to invest in JAL. American is pitching it as a strengthening of its partnership that has been in place for years. The airline would set up a joint venture similar to what we’ve seen over the Atlantic with the likes of United and Lufthansa, KLM and Northwest, etc. In other words, they’d split the revenues on flights between the US and Japan.

All this info is coming from magical “sources” and nothing has been confirmed, so we don’t really know any details about what’s being proposed here. There are also rumors that Air France/KLM is in the running, and that would be good news for Delta. Air France and JAL have actually had a legacy codeshare and frequent flier partnership that crosses alliance boundaries. It has strengthened in recent years, so this would add some more credibility to the Delta bid.

This is all pretty interesting to watch. It’s clear that JAL needs some cash, so it’s in a good place to pick the suitor that’s offering the best deal. It’s nice to be wanted.


14 Responses to American and Delta Fight Strategic Battle Over Japan Air Lines

  1. Doug Swalen says:

    I wonder if Continental’s immediate departure from SkyTeam is partly prodding Delta into action? Continetnal Micronesia has a stranglehold on the mid pacific space but Guam is a bit more open with JAL and Northwest there. JAL also has charter flights to Palau. With Continental going to Star Alliance, so does “Air Mike” apparently, which creates a SkyTeam void of sorts in the region, Northwest’s presence nonwithstanding. If JAL joins SkyTeam, SkyTeam solidifies its presence in the region.

  2. Doug Swalen says:

    JAL joining SkyTeam also creates a more solid presence in the lucrative Hawaii market.

  3. Interesting. I wonder does Japan have airline ownership laws like the US? Perhaps Delta could buy it outright in conjunction with AF/KLM.

  4. David SFeastbay says:

    DL (not counting NW) and AA over the pacific has always been a joke compared to UA and NW. NW using a NRT hub was to me second place compared to UA’s many nonstop flights to other Asia cities.

    So a DL/JL or more solid AA/JL link would help either one. People forget to look at a globe to see you have to pass Japan to get to Korea or Hong Kong so even using KE/CX adds time and in some cases higher fares if traveling to Japan. JAL’s many nonstops to the USA would help DL and free up planes to travel nonstop to other Asia cities from the U.S. using real DL planes. This would help in gaining an upper hand against UA in the nonstop USA-Asia market.

    JL just needs to evaluate not only which feeds over the pacific would be better DL or AA, but which would be better once in Europe BA or KL/AF.

  5. Zack Rules, Albany, NY says:

    “[intra-Asian] routes absolutely suck wind right now”
    I politely disagree. I don’t think Delta’s losing tons of money on a majority of it’s intra-Asian routes. They’ve downsized some flights but I think if they were really losing a lot of money, you would see a lot more 757’s, 767’s and 777’s operating there rather than A330-200’s, A330-300’s and 747-400’s.

    I’ve read that they would like Haneda access which I find interesting. Whether they would split their Narita hub between the two airports (terrible move and I doubt they would do that) or move all of their flights to Haneda, I don’t know. The legal framework for that is very murky but it should be cleared up with the advent of an Open Skies agreement.

    Ultimately, I think this situation has some similarities with Delta and Pan Am in the early 90’s. My guess is Delta’s going to attempt to get a full codeshare and maybe a JV, more slots at either Narita (more likely) or Haneda and would maybe help them restructure more, drawing on their own experiences. I don’t think they’ll give up intra-Asia flying because of Japan Airlines’ instabilities. Also, the Tokyo hub was a major reason for buying Northwest.

    I don’t really see what American Airlines brings to Japan Airlines other than a JV. I don’t see where AA gets the cash to invest in such a risky proposition with further compromising their own liquidity issues.

    Anyhow, great post and keep it!

  6. 1) What would the DOT have to say about the largest US carrier teaming up with the dominant Japanese airline?

    2) Transferring valuable assets (slots) back to Japan short of the pending bi-lateral would also not necessasrily be looked upon favorably by the US or those airlines wanting access to Japan even in this economy.

    d) AA brings little to the overseas flying which is what JL might be interested in in terms of protecting their own traffic. AA can pay to keep them afloat, they’ll “strengthen” the alliance and still keep the lion’s share of the Transpac market.

    e) Anti-trust? To Japan? I laugh.

  7. Stephen says:

    I know this is (barring the Alitalia talk) a more US-central blog, but that we’re on that topic of Asia…any chance we could get your insight into Air China upping its stake to 30% of Cathay? That’s not exactly an insignificant amount….Air China long-term would like to own the airline (Swire’s resistance notwithstanding), and I really have no idea what that would mean for *A and OW consequences in the region. Also has to have some impact on alliance calculus with JAL and Skyteam or OW, especially if CX could get ex-China rights. Dragonair (wholly owned by CX) just got started ex-Guangzhou service. This is significant to HK residents because Guangzhou is a whopping 70 miles away from HK….which on the surface doesn’t seem to make sense. But it’s probably a way to utilize under-utilized aircraft and feed HKG-North America destinations not served by Guangzhou currently (the services are well-timed for outbound and inbound connections), and longer-run still interesting given that it might (eventually?) pave the way for CX/KA to run ex-China flights without a HK stopover. Which could eventually mean that JAL would be less significant to OW, if CX/KA could go say PEK/PVG – Korea/Japan/etc.

  8. CF says:

    Doug Swalen wrote:

    I wonder if Continental’s immediate departure from SkyTeam is partly prodding Delta into action?

    I doubt it. I bet Delta is jumping into action because of the Northwest acquisition. Either they found a route system in Tokyo that was bleeding or they don’t quite know how to run it. Either way, they want Tokyo strength on top of the existing Northwest strength they have there. At least, that’s my guess.

    Nicholas Barnard wrote:

    Interesting. I wonder does Japan have airline ownership laws like the US? Perhaps Delta could buy it outright in conjunction with AF/KLM.

    It looks like it’s a bit more liberal but not that liberal. If this post is to be trusted, foreign airlines can own up to one third of JAL.

    Zack Rules, Albany, NY wrote:

    “[intra-Asian] routes absolutely suck wind right now”
    I politely disagree. I don’t think Delta’s losing tons of money on a majority of it’s intra-Asian routes. They’ve downsized some flights but I think if they were really losing a lot of money, you would see a lot more 757’s, 767’s and 777’s operating there rather than A330-200’s, A330-300’s and 747-400’s.

    For intra-Asia flying, this is what is currently in the schedule from Tokyo:

    Guam – 7 weekly 757, 5 weekly 767
    Ho Chi Minh City – 7 weekly 757
    Hong Kong – 7 weekly A330
    Taipei – 7 weekly 757

    So it is mostly downgauged to 757s.

    Also, the Tokyo hub was a major reason for buying Northwest.

    I don’t think they care about the intra-Asian stuff but rather the ability to greatly increase their Asian presence. This would help them strengthen the Tokyo operation through partnering.

    The Traveling Optimist wrote:

    1) What would the DOT have to say about the largest US carrier teaming up with the dominant Japanese airline?

    It shouldn’t be a problem. I bet we’ll see the American/BA deal approved and this shouldn’t be as contentious as that would be.

    2) Transferring valuable assets (slots) back to Japan short of the pending bi-lateral would also not necessasrily be looked upon favorably by the US or those airlines wanting access to Japan even in this economy.

    The US doesn’t have a say in this. Delta can’t give those slots to another US carrier. IIRC, slots aren’t transferable, but Japan has allowed it to happen if the slots go to Japanese carriers.

  9. CF says:

    Stephen wrote:

    I know this is (barring the Alitalia talk) a more US-central blog, but that we’re on that topic of Asia…any chance we could get your
    insight into Air China upping its stake to 30% of Cathay?

    Stephen – Though it may be US-centric by nature, I always like talking about things that happen around the world as well. The Air China move is a really interesting one, but I don’t quite know enough about the politics over there to know what to make of it.

    Air China long-term would like to own the airline (Swire’s resistance notwithstanding), and I really have no idea what that would mean for *A and OW consequences in the region.

    It seems to me that with Air China (Star) and Cathay (oneworld) growing closer, they will eventually have to make a choice. Cathay is the stronger brand and is also more important to oneworld than Air China is to Star. So they might want to shift over to oneworld. If that happens, I would think China Eastern would then run away from its relationships with oneworld partners and go to Star. They just bought Star Alliance partner Shanghai Airlines, so it would be a somewhat natural fit.

  10. David SFeastbay says:

    CF wrote:

    Doug Swalen wrote:
    For intra-Asia flying, this is what is currently in the schedule from Tokyo:
    Guam – 7 weekly 757, 5 weekly 767
    Ho Chi Minh City – 7 weekly 757
    Hong Kong – 7 weekly A330
    Taipei – 7 weekly 757
    So it is mostly downgauged to 757s.

    Didn’t you leave off a few other NRT-Asia markets?
    Manila – 7x 744
    Singapore – 7x 332
    Bangkok – 7x 757
    Osaka(KIX) – 7x 757
    Seoul(ICN) – 7x 757
    Busan/Pusan – 7x 757
    Beijing – 7x 332
    Shanghai – 7x 332
    Saipan – 14x 757
    And within Japan they do at least NRT-KIX 7x 757 and NRT-NGO 7x 757

    I follow a NW pilots blog who flys 757’s and enjoy his little 13day trips around NRT-Asia on 757’s. Nice commute to work, east coast USA to NRT as a non-working crew member. And I thought 2+ hours from Orange County to work in downtown Los Angeles took forever……lol

  11. CF says:

    David SFeastbay wrote:

    Doug Swalen wrote:
    Didn’t you leave off a few other NRT-Asia markets?

    I should have known that simply looking at Delta’s timetable wasn’t good enough. I mean, why would Delta bother listing all Northwest flights?!? (Sorry, that bugs me.) Delta has been trying to kill the Northwest brand as quickly as possible, but I see I still need to download a Northwest timetable to see all their flights. I knew it seemed small, but I just assumed that’s where it was.

    Thank you.

  12. Junici says:

    Clearly, everyone on here has forgotten or is unaware that it is NW that is running “New” Delta, so I hardly think they are having “trouble” running the oldest operation in the Japan US market. (they INVENTED it)

    A MERGER means the new entity becomes a new company not an old one with the same management in place.

    NW (now using the Delta name because of financial reasons) is the pro in Asia, JAL knows that (having had it’s operation set up by NW in the 1950’s).

    My money is on a JAL-DL hook-up. (that NW name carries a helluva lot of weight in Asia)

  13. Pingback: Mutantfrog Travelogue » Blog Archive » Showdown at Narita: JAL vs. Ugly Americans vs. the DPJ

  14. LeoTheTiger says:

    If Asia, and particularly Tokyo (the WORLD’S richest city) “sucks wind” right now, doesn’t say much about the train wreck in Europe now does it.

    JAL chose AA out of immediate survival. Their preference long term was Delta.

    The DL/NW Tokyo HUB is invaluable. It allows it to do two things. Pick up local business traffic from the world’s 2ed largest economy, and launch non-stops from the US.

    Two paths to profit instead of one…No other US airline (including UAL) can touch that jewel. That’s like saying “overfly LHR, vs. doing both”

    Delta is hyper competitor Northwest in sheeps clothing.

    JAL will be lucky to survive facing the bare teeth of DL/NW AND UAL/Star.

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