As I slog through about 2,000 e-mails from my furlough week, I finally came across an e-mail with a Q&A American Airlines CEO Gerard Arpey made at a conference in Dallas on October 29.
Arpey commented extensively about the Japan Airlines situation where the financially-troubled Japanese carrier is considering switching from American's oneworld alliance to SkyTeam with Delta.
"We obviously think that would be a very bad idea for Japan Airlines," Arpey said. "That certainly would be very bad for us, but we don't control their decision making process. We can just make the best case for them staying with American and staying in oneworld."
His full comments are posted in the extended blog entry.
From Q&A at AA’s annual Fall Leadership Conference, Oct. 29, 2009, in Dallas
The History: When approaching the worldwide marketplace, the first place AA looked for a partnership was Asia because we were very small at the time. There were only two airlines after the US occupied Japan after World War II: Pan Am, which was the network acquired by United, and Northwest. So we were small flying to Asia, and we looked for a partner. JAL was the partner of choice, and we mounted an effort to make JAL an American Airlines partner. That began in the mid-1990’s and after many, many discussions we eventually did land JAL as an partner-- first as a code-share partner, and after more discussions, we entered a reciprocal frequent flier partnership.
Joining oneworld:Fast forward to 2007, and we eventually convinced JAL to join oneworld. They’ve been a great partner. Today, we fly five trips a day to Narita, and if you look at the composition of our traffic on those five flights, the equivalent of two full airplanes now connects to JAL in Narita and goes beyond on their network. And since we’ve co-located, since we’ve code-shared, since we’ve linked up our frequent flier programs, we are taking a lot of business from somebody. Because the overall traffic levels are down pretty much around the world. But we’re doing better, and we’re doing that at the expense of either United or Delta-Northwest.
The DL threat:A confluence of factors has led us to this situation, where JAL is potentially thinking about a different partner. But the reality is Delta-Northwest is the one really thinking about converting JAL from being in oneworld and being our partner—and why?
Open Skies: Well, again, a confluence of factors. A big piece of that puzzle is the fact that the US and the Japanese government are negotiating an Open Skies Agreement, much like we’ve seen in the rest of the world, and those talks have picked up some steam this year in part because there’s a new government in Japan. That government ran on an Open Skies platform. So when they got elected, it turbocharged the discussions between the US and the Japanese about Open Skies. So that’s one important factor.
The Northwest effect:The second important factor is that Delta just acquired Northwest. There’s no secret that Northwest was for sale for many years—that wasn’t certainly the kind of scale we were looking for, and we looked very carefully at their presence in Narita. Delta decided to buy that company, and I suspect -- I don’t know -- but Narita must have been a big piece of that puzzle, of their calculus. I’m not sure they contemplated an Open Skies arrangement between the United States and Japan when they thought about buying a hub in Japan.
JAL’s economic challenges:With all of the economic trauma in the industry, JAL has been affected. So JAL, as you have read in the media, is under quite a bit of financial stress right now, and our friends in Atlanta are trying to capitalize on that by suggesting that JAL should change US partners, that JAL should change alliances and JAL should come with the Sky Team alliance-- and they’re willing to inject some money into the company to do that. We obviously think that would be a very bad idea for Japan Airlines. That certainly would be very bad for us, but we don’t control their decision making process. We can just make the best case for them staying with American, and staying in oneworld.
Facts favor AA:Many of the facts are on our side, because trying to change alliances in US partners in the middle of a lot of stress, would certainly create a lot of friction costs in terms of lost revenue and cost to change IT systems, etc. and it would certainly present a lot of regulatory risk, since Delta is very dominant through Northwest in Japan, and United is very dominant, and we’re not, in an Open Skies environment we could likely get immunity with JAL. United would likely get immunity with ANA. Delta already has a big hub at Narita. So, what you would end up with is a very competitive landscape if that were the outcome.
Anti-trust Immunity:If JAL were to change horses, we would certainly argue that they might not be allowed to even code-share, let alone have immunity with the dominant carrier in Narita. So, that’s a long way of explaining a very complex situation, and a very big threat and opportunity for us. So , as you might imagine, we have, in the middle of all of our other challenges; we have poured energy into this situation to make sure that all the facts are on the table, that both the JAL management team and this task force made up of five members understands the landscapes.
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