Merging JAL and ANA Would Be a Big Mistake

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  • Here is an interesting piece of news: Heizo Takenaka, one of the experts of the Growth Strategy Council, has stated that All Nippon Airways (ANA) and Japan Airlines (JAL) would need capital injection in the future, mentioning that JAL and ANA should work together and integrate.

    by Martin Danker

    While this remains the sole opinion of a Japanese bureaucrat, both ANA Holding’s and JAL’s stocks went up after the statements. However, Takenaka’s drastic proposal would end up having disastrous consequences in the aviation industry both in Japan and Asia.

    ANA and JAL are two airlines that offer great products and services, and this is not solely because of both company’s values. Competition is a very important factor since it forces companies to continue innovating and upping their game. When companies don’t face healthy competition, they are free to do as they please, resulting in a worse experience for customers. As such, just because they are ANA and JAL, it does not guarantee that the surviving airline after the merger would continue to care for consumers’ interests.

    Besides the possibility of the quality of products and services provided going down after a merger, there is also the risk of prices skyrocketing. ANA and JAL are already expensive airlines, and both have LCCs under their umbrella (Peach for ANA and ZIPAIR Tokyo for JAL). However, without ANA and JAL competing against each other, having a single national airline would mean that prices could go up simply because consumers don’t have other options. This is not a novel discovery since it’s something that happens continuously.

    Putting it simply, competition is always important and monopolies are bad for consumers.

    Because of this, it is very surprising that Takenaka has made such comments even if consolidating both airlines seems like a good decision right now. His idea to merge ANA and JAL falls into a myopic vision of what Japan and its citizens need in the future, particularly with Japan hoping to attract more tourists once the pandemic is over.

    What’s more, Takenaka’s comments come out after seeing Korean airline Asiana being acquired by Korean Air. However, the Korean aviation market is not the same as the Japanese one, not to mention that Asiana had been struggling for years, while ANA and JAL had been both profitable prior to the pandemic.

    In fact, ANA and JAL are doing everything they can to survive, from downsizing and restructuring their companies. With the right support, both airlines would be able to emerge victorious from the pandemic.

    Another factor that Takenaka is ignoring is that ANA’s and JAL’s domestic performance in 2019 was very strong, and all analyses have suggested that domestic travel will recover faster than international travel. Airlines that solely rely on international routes are the ones at bigger risk of collapsing, while those with domestic markets are far more likely to endure. Since both ANA and JAL have an extensive presence in Japan, a country that needs domestic flights due to its size, the need to merge or split them into an international airline and a domestic one decreases.
    After domestic travel, regional travel is expected to be the next one to recover. As such, ANA is even forming a new LCC that is similar to JAL’s ZIPAIR Tokyo to fill that demand and offer a product that is more affordable to their customers. Such planning has shown that ANA and JAL are both thoroughly planning for the future as they continue with their restructuring efforts.

    The idea to merge JAL and ANA is also not new. Back in 2009 when JAL filed for bankruptcy, it was suggested that JAL and ANA could merge. However, this was an option that never materialized as ANA was in a financially healthy situation. Sadly, the problem this time is that both airlines are suffering, though neither of them are at fault for their financial losses. The fact that both airlines need help could be the excuse the government needs to push for a merger even if it ends up hurting consumers.

    The existence of ANA and JAL is important for its over 126 million citizens and for the future role of the nation and its aviation industry. If a capital injection is imminent, the Japanese government should be doing everything it can to support both airlines, not encouraging its two successful airlines to merge.