Japan Air Lines Has Look of Old GM
ATLANTA ( TheStreet) -- Japan Air Lines doesn't look like a trophy that the world's two biggest airlines would battle over.
JAL resembles General Motors before the automaker restructured. It is a bloated, financially troubled company with an aging business model, too many employers and entrenched unions. And it appears that the federal government will have to force cuts that management seems reluctant to make.
A difference from the GM scenario, however, is that JAL holds a dominant position at Tokyo Narita, one of the world's most important airports. That's something both American and Delta prize.American CEO Gerard Arpey laid out his company's case on a recent conference call, emphasizing that American and JAL have a long, successful relationship -- they have been partners for 10 years -- and that, because Delta already operates its own Narita hub, it might view JAL as a junior partner. "We have a deep, longstanding partnership with JAL today, producing hundreds of millions of dollars in value, and we are confident that continuing and expanding that relationship along with other Oneworld members will by a very wide margin represent the best path forward for JAL," Arpey said. Arpey did not mention Delta by name, but he did say: "We assume, of course, and we have every indication that JAL wants to remain a global airline and not be relegated to becoming a feeder carrier." Delta has declined to comment on its pursuit of JAL, an effort that became public through a leak to Japanese media, presumably by government officials. Reports indicate that while JAL wants to maintain its 10-year partnership with American, the Japanese government may prefer an alliance with Delta, which could offer more opportunities to gather passengers, both in the U.S. and in Europe, and to reduce duplicative JAL flying. American is part of the Oneworld alliance, while Delta is part of Skyteam. Currently, Delta has 10 U.S. gateways, as opposed to five for American and JAL, who code-share. Delta has the most trans-Pacific traffic of any airline, not surprisingly, since Northwest operated a Narita hub and had frequent service from the U.S. However, the two airlines' top five Japan gateways are comparable: Delta has New York, Los Angeles, San Francisco, Atlanta and Detroit, while American/JAL has New York, Los Angeles, San Francisco, Dallas, and Chicago. Overall, Delta serves 249 U.S. destinations, compared with 154 for American. Of course, the most efficient way to serve trans-Pacific routes would combine a code share, enabling carriers to write tickets on one another's flights, with antitrust immunity, enabling carriers to discuss joint pricing and scheduling. It may be that regulators would consider a tie-up between Delta and JAL to be anti-competitive. But Delta could argue that its 44% of the Narita-U.S. market is less than American and partner British Airways' 58% share of the London Heathrow-U.S. market. This assumes that American finally gets the trans-Atlantic antitrust immunity that its competitors already have. In Europe, Delta and Skyteam have two of the four major hubs in Frankfurt and Amsterdam, while American and Oneworld have Heathrow, the preferred airport for London. American's European partners include Iberia, which has a hub in Madrid. On Thursday, Oneworld unveiled a marketing campaign, aimed at attracting passengers in Italy and also displaying the alliance's presence in Italy. Oneworld noted it serves 15 Italian airports with more than 1,100 weekly flights. Eight Oneworld members -- American, British Airways, Cathay Pacific, Finnair, Iberia, JAL, Malév Hungarian and Royal Jordanian -- all offer service to either Milan or Rome, the alliance said. -- Written by Ted Reed in Charlotte, N.C. .
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