JAL Picks American, but Delta's Hardly a Loser in This Tussle

Posted by: Justin Bachman on February 09, 2010

The decision by Japan Airlines to retain its membership in oneworld is a stark reminder that no matter how much airlines contend such alliances are for customer service, they truly are about carrier finances. Contrary to numerous headlines populating the Internet, JAL hardly “rejected” or “spurned” the Delta-led SkyTeam. In fact, some of the comments I have read in stories today from a JAL vice president make it seem that Delta (DAL) was the airline’s obvious choice save for the inability to restructure in bankruptcy and swap alliances simultaneously. Continental (CAL) switched recently, and was candid about the expense and work involved in moving from one alliance to another. It’s not a task for the financially pinched or faint of heart, to be sure, even if the revenue opportunities exist.

For business travelers, the JAL decision keeps the status quo, with more flight choices and fares that are more likely to remain stable than if U.S.-Japan traffic had become split between SkyTeam and Star Alliance.

For Delta, the wooing of a potential new partner paid some concrete dividends. Above all, the talks opened a business relationship for Delta with a carrier whose business allegiance is clearly in play – if just not right now – and likely gave JAL executives a blueprint for how they can more fully reorganize their airline down the road, in terms of building a smaller but financially lucrative network. (UPDATE, 11:37 am: American considers JAL's participation in oneworld "a long-term play" and its decision an affirmation of the group's potential for the airline, American spokesman Charley Wilson said in an interview.)

Additionally, the whole matter was a distraction for oneworld anchors American and British Airways, which desperately needed to keep JAL’s Asian hub in the fold. Management time was spent shuttling to and from Tokyo, and some percentage of sales may even have migrated amid the uncertainty of JAL’s restructuring and alliance intentions. Indeed, United (UAUA) executives were blunt in saying they will exploit any sales edge JAL’s bankruptcy might give the Star Alliance.

It is true that Delta would have faced a monumental struggle in selling U.S. regulators on a deal with JAL, given that a combined Delta-Northwest-JAL would control nearly two thirds of the market on flights between Japan and the U.S. And no one would have contested that situation more than a jilted American-BA-Qantas trio. Gerard Arpey, the CEO of American parent AMR Corp. (AMR) had threatened to vigorously oppose any antitrust immunity if JAL had joined Delta in SkyTeam and scoffed at notions that such a concentrated market share could pass regulatory muster. “I would be astonished if such a partnership could come together and pass any form of antitrust scrutiny,” Arpey said on AMR’s Jan. 20 conference call. “It would make a mockery of Open Skies. It would make a farce of the whole process. It would be a joke.”

American and JAL plan to seek antitrust immunity so they can launch a joint venture on U.S.-Japan flights, just as rival All Nippon Airways is seeking with its Star Alliance partner, United. Delta, with its purchase of Northwest, is the third major player in the market and will fight for new landing slots at Haneda Airport, closer to central Tokyo. (UPDATE, 12:50 pm: Delta spokeswoman Betsy Talton says the airline is interested in Haneda service and considering its options.)

When JAL is fixed, or fixed much more than now, it will begin to consider the next phase of its business plan. Its new chairman and CEO, Kazuo Inamori, the billionaire founder of Kyocera, is an airline industry newbie who styles himself as a bit of a management guru. He was chosen to overhaul the airline because he is such an outsider with a successful track record. I think it’s notable that JAL – awash in red ink – decided not to sell a stake of the company, even with American and Delta offering huge sums. Its independence is a future asset. That’s why Delta will be around in coming years, ready to talk whenever Inamori or his successor wants to ponder new strategies.