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Editorial: Japan's airlines need to prepare for long-term weak demand amid pandemic

As people refrain from travel due to the coronavirus crisis, airlines are flying headlong into difficulties like never before.

    ANA Holdings Inc. expects a record net loss of 510 billion yen (about $4.9 billion) for the business year ending March 2021. Japan Airlines Co. (JAL) may also face a deficit reaching 270 billion yen (roughly $2.6 billion).

    Travel industry organizations expect that it will take around four years for international flight demand to recover. There are also concerns that if more people work remotely and business trips decline, demand from businesspeople may not recover to the level seen before the pandemic. Airlines need to steadily push for a review of their management structure in preparation for long-term stagnation.

    Airlines have a high ratio of fixed expenses including labor costs, and aviation firms are promoting cost-cutting measures. ANA Holdings is apparently making efforts to avoid layoffs by dispatching workers to other companies and cutting the annual income of its group company All Nippon Airways Co. employees by 30%.

    ANA Holdings and JAL are both aiming to acquire new customers by establishing low-cost carrier subsidiaries, but that does not change the corporate character of the firms, which are left in a weak position when facing a sharp drop in demand.

    To improve their position, airlines need to find paths in non-aviation businesses to hedge the risk. There are also movements to launch businesses using customer data including the purchase history of members who use mileage services.

    Airlines are getting deeper in debt as they try to survive the crisis, and their financial deterioration is inevitable. If these companies refrain from making new investments due to financial difficulties, they will lose the ability to compete and it will take even longer for their profitability to recover.

    It is said that the scaling back of loss-making routes will be considered in the future. However, the Japanese government is taking measures such as reducing landing fees, granting moratoriums for corporate tax, and providing low-interest loans to maintain flight networks. The reviewing of routes has a large impact on regions, and a careful response is essential.

    If the performance of airlines deteriorates even further, increasing capital by utilizing public funds will likely surface as an option. German airline Lufthansa has received government funding and avoided going bankrupt. ANA and JAL, however, have maintained a cautious stance about such a move, as they are concerned they could become involved in government-led reconstruction of the industry, and be forced to maintain unprofitable routes.

    It is a difficult task to balance the maintenance of transport infrastructure that supports people's livelihoods and profitability. Airlines should look into ways to survive the impact of the COVID-19 crisis and focus on what kind of value they can provide to customers.

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