Japan Airlines Company, Ltd.

1951–1965

Japan Airlines Company, Ltd. is the largest airline in both Japan and Asia. Japan Airlines (JAL) operates a worldwide system serving 75 cities in 29 countries. Its fleet of jets numbers 135, with the vast majority being Boeing models, including 79 747s and 21 767s. JAL carries approximately 35 million passengers each year, with about two-thirds using the company's domestic routes within Japan. In addition to its domestic and international passenger operations, JAL has a number of other wholly or partly owned operations, including: cargo transportation via air, aircraft maintenance and ground support services, in-flight catering services, computer reservation systems, travel services such as packaged tours, and the management of nearly 400 hotels worldwide. The company also holds a 25 percent stake in DHL International, a leading worldwide courier service.

Early History

In 1952 the governments of Japan and the United States signed a bilateral agreement which established normal air services between the two countries. During the postwar American occupation Northwest and Pan Am were the two principal air carriers serving Japan. The formation of a Japanese airline was not permitted until the occupation ended in 1951. At that time Japanese Air Lines was established and placed in charge of domestic flight services between a number of major Japanese cities. By 1952, however, it was in need of capital. The following year, the Japanese government purchased an entire stock issue which doubled the company's capital, but also gave the government a 50 percent interest in the airline, which was renamed Japan Air Lines Company, Ltd.

The airline suffered from a shortage of experienced pilots. Nearly all Japanese aviators were drafted into the air service during the war and very few survived. As a result, American, British, and other Commonwealth aviators were required to operate the company's fleet of aircraft (which consisted of Martin 202s leased from Northwest and, later, a number of DC-4s) until Japanese pilots could be trained and assimilated into the flight crews.

Japan Air Lines grew quickly under the leadership of Seijiro Yanagida. In early February 1954, JAL inaugurated its first international route, a semiweekly service which connected Tokyo, Honolulu, and San Francisco. Plans were made to extend JAL services to Hong Kong and Sao Paulo, Brazil, the center of a large Japanese community in South America. Also that year, JAL opened offices in Los Angeles, San Francisco, and Chicago. A route connecting Tokyo and London was established when the airline purchased several de Havilland Mark II Comet jetliners.

In its first year of operation JAL secured a significant share of the trans-Pacific market. The company lost money, however, despite a $3 million government subsidy. In its rush to acquire the latest aircraft, JAL purchased production orders for DC-6Bs from other airlines. This plan for securing early delivery of the airplanes obliged JAL to pay a compensatory premium. Another costly factor was the training program which placed an unusually high number of employees on the payroll. In addition, JAL's maintenance and repair work was being performed by United Airlines until Japanese personnel could be trained.

Japan Air Lines offered its first issue of public stock in May 1956. ¥500 million (US$1.38 million) was raised to finance the purchase of several new DC-8 passenger jets from the Douglas Aircraft Company. The company made a number of subsequent public offerings and had increased its share capital to ¥5.3 billion (US$14.7 million) in 1960. That figure was increased to ¥11.7 billion (US$32.5 million) in 1962 and ¥18.2 billion (US$50.5 million) in 1965. The increased capital at JAL's disposal enabled it to implement a rapid expansion program.

In 1958 JAL extended its Bangkok service to Singapore, marking a significant return to southeast Asia for Japanese interests. The Japanese occupation of Malaya (peninsular Malaysia) and the East Indies during World War II has remained a politically sensitive issue for southeast Asian governments. The return of the Japanese flag to Singapore on commercial terms began a normalization process between Japan and southeast Asia.

Japan Air Lines created a subsidiary in 1957 called the Airport Ground Service Co., Ltd., which provided a variety of maintenance services to JAL and other airlines serving Japan. The company's personnel training programs were completed that same year, and for the first time JAL was operating regular flights with all-Japanese crews. Two years later a JAL crew training center was opened at Tokyo's Haneda Airport.

1960s and 1970s: Growth and Diversification

The company lost money, however, despite a $3 million government subsidy.

1960–1974

The company began a Tokyo to Paris service in conjunction with Air France in 1960. This route was unique because it was one of the first regular services to fly over the North Pole. Air France provided the Boeing 707 jetliners which were required for the long stretch over the Arctic.

Later that year JAL entered the jet age when it received its first DC-8 commercial jetliner. Less than a month later the jet was put into service on the Tokyo to San Francisco route. By the end of the year JAL DC-8s were flying to Los Angeles, Seattle, and Hong Kong. The company ended its arrangement with Air France and inaugurated its own DC-8 service from Tokyo to London and Paris via Anchorage on June 6, 1961.

The next jetliner to enter service with JAL was the Convair 880 which was used primarily on domestic and southeast Asian routes. After appropriate arrangements were concluded with various governments, JAL established a 'Silk Road' service between Europe and Japan via Hong Kong, Bangkok, Calcutta, Karachi, Kuwait, Cairo, Rome, and Frankfurt. The route was inaugurated in October 1963 with the new Convair jets.

The Boeing Company sold its first airliner, a 727, to JAL in 1965. This purchase marked the beginning of a close relationship between the airline and Boeing. Over the years JAL would become Boeing's best foreign customer. In addition, that same year JAL adopted the tsuru (which means crane) as its official symbol. The crane is a symbol of good luck in Japan and is regarded as an appropriate motif for the Japanese airline.

Shortly after setting up a new computerized reservations system called JALCOM early in 1967, Japan Air Lines completed a route network that stretched around the world. The trans-Pacific service to San Francisco was linked to New York and London, where it connected with the 'Silk Road' back to Japan. It was an honor for an airline to boast around-the-world service. Few were able to maintain them for more than just a few months. JAL's worldwide service, however, lasted for six years.

A dispute over the Soviet occupation of several Japanese islands prevented a full normalization of relations between those two countries following World War II. Once again, Japan Air Lines helped to promote a normalization of relations between Japan and a foreign country. In 1967 JAL inaugurated a service in conjunction with the Soviet airline Aeroflot which linked Moscow and Tokyo. The Soviets provided the aircraft (a Tupelov 114) and flight crew, but the cabin attendants were a combination of JAL and Aeroflot personnel.

JAL created a subsidiary called Southwest Airlines on June 22, 1967. The new airline operated domestic services between Japanese cities and vacation spots in the Ryukyu Islands in southern Japan (it was later renamed Japan Trans Ocean Air Co., Ltd.). JAL's tourist business continued to grow as the country became more affluent. In 1969 the company founded another subsidiary called JAL Creative Tours, whose purpose was to market travel packages and excursions. Around this same time, JAL began developing its chain of Nikko International Hotels.

On July 22, 1970, Boeing delivered the first of several 747s to JAL. Three months later the aircraft was introduced on the Tokyo-Los Angeles route. In addition to jumbo jets, JAL had three Concorde and five Boeing supersonic transports (SSTs) on order. These jetliners were later canceled when the price of a Concorde increased and the Boeing project was abandoned.

Shizuma Matsuo, who succeeded Seijiro Yanagida as president of the airline in 1961, was promoted to the position of chairman in 1971. Another company officer, Shizuo Asada, took Matsuo's place. During this period of time questions were raised about JAL's management. A series of major accidents throughout 1972 culminated with the crash of a JAL DC-8 after takeoff from Moscow's Sheremetyevo Airport. These accidents were blamed on the pilots' lack of experience. Commercial pilots in western nations usually come from the military where they gained thousands of hours of flight experience. Japan, however, had only a small 'self-defense force' whose pilots were forbidden from taking higher-paying jobs in civilian aviation. As a result, less experienced JAL pilots (it was reported) tended to lack certain instinctual skills during crisis situations. The airline investigated this problem, but in the meantime the loss of its DC-8 created an equipment shortage which forced JAL to cancel the London-U.S. portion of its around-the-world service. Consequently, the company took a number of steps to ensure that accidents of this kind would not occur in the future.

On April 21, 1974, as part of a wider government campaign to normalize relations with the People's Republic of China, Japan Air Lines suspended its service to Taipei, Taiwan. Six months later JAL opened air service between Osaka and Shanghai in the People's Republic of China. The following year JAL created a separate subsidiary called Japan Asia Airways Co., Ltd., which resumed the air service to Taiwan.

1977–1986

Japan Air Lines continued to add Boeing 747s to its growing airliner fleet. In 1977, however, a number of Japanese politicians were implicated in a scandal which involved illegal payments from the sale of Boeing airplanes. An investigation by the Japanese government led to the resignations of several Japanese officials before any formal charges of wrongdoing could be initiated. Boeing's chief competitor, McDonnell Douglas, had not sold a new airplane to JAL in over ten years. That company's latest entry in the commercial jetliner market was the wide body DC-10. The DC-10 was smaller than Boeing's 747, but it was also more suitable for a number of JAL's routes. Soon thereafter, the airline purchased a number of DC-10s and introduced them on routes previously served by DC-8s, which were converted for freight service.

Boeing, however, was still JAL's number one aircraft supplier. JAL had a special need for aircraft capable of carrying very large numbers of passengers and only Boeing manufactured an airliner as large as the 747. In 1980 JAL accepted delivery of its first 747SR, a special 747 capable of carrying 550 passengers. It was used mainly for domestic flights between Tokyo and Okinawa.

Japan Air Lines was recognized for its numerous successes when it was chosen '1980 Airline of the Year' by the editors of Air Transport World. While JAL had made its mark in the air, it was also very active on the ground. Tokyo's Narita Airport was built to accommodate Tokyo's growing air traffic and relieve the pressure of air traffic at the older Haneda Airport. The problem with Narita, however, was that it was located 66 kilometers from downtown Tokyo. JAL officials had long expressed an interest in developing a high-speed train that would cover the distance in 20 minutes. After many years of experimentation, JAL introduced the HSST (high speed surface transport), built in conjunction with Sumitomo Electric Industries and Tokyo Car Manufacturing Company. The HSST (also known as a 'maglev' vehicle because of the way it works) does not touch the rails it rides over. The train is magnetically suspended approximately one centimeter above the rails. Since it never touches the rails, there is no friction and, as a result, the train can travel at greater speeds. On February 14, 1978, the HSST achieved its intended operating speed of 300 kilometers per hour. It was demonstrated on a special 400 meter track at the Tsukuba Exposition in 1985 with the hope that it might attract buyers searching for a high-speed public transportation system.

1980s: Deregulation and Privatization

Shisuo Asada announced his retirement as president of JAL in 1981. He was succeeded by Yasumoto Tagaki. Under Tagaki, Japan Air Lines entered a new phase in the world airline market. Deregulation in the United States inspired increased airline competition in foreign markets. By 1983 a committee recommended that JAL should be operated more like a commercial operation, and perhaps even privatized.

In 1985 the Japanese government authorized JAL's domestic rival, All Nippon Airways, to fly international routes and operate cargo services in competition with JAL. In return, JAL was given the authority to fly more domestic routes in competition with All Nippon, which had a monopoly on many Japanese routes. It was also suggested that Toa Domestic Airways (later known as Japan Air System Co. Ltd.) and a number of other foreign airlines be given greater freedom to operate in Japan.

During this period JAL suffered from a number of brief but highly publicized strikes. Perhaps the biggest blow to the company's credibility came in February 1982, when the pilot of a JAL jet (who was later diagnosed as a schizophrenic) crashed his airplane into Tokyo Bay, killing 24 passengers. Many air travelers subsequently avoided JAL, severely depressing the company's earnings.

On August 12, 1985, JAL flight 123 from Tokyo to Osaka took off with 524 passengers. Shortly after takeoff, while the cabin was pressurizing, the rear bulkhead ruptured and severely damaged the 747's tail fin. The airplane had no maneuverability but stayed aloft for 30 minutes before crashing into a mountainside, killing all but four passengers. This was the most serious single-airplane accident in aviation history, and it kept thousands of customers away from JAL. Yasumoto Tagaki assumed full responsibility for the tragedy and offered his resignation to Prime Minister Yasuhiro Nakasone, who publicly berated Tagaki for lax discipline. Japan Air Lines held memorial services and offered to pay all educational costs of any children who lost parents in the crash. Later, Tagaki personally went to visit the surviving members of the crash victims, offering one last apology before his resignation took effect.

Susumu Yamaji was appointed JAL's president in December 1985 and Junji Itoh was named the airline's chairman in June 1986. Itoh became the first chairman of JAL with a background in marketing. Under Itoh's leadership JAL was restructured and organized under three main operating divisions: international passenger service, domestic passenger service, and cargo (including mail) service. Itoh also made progress with the company's strained state of labor relations.

The most obvious feature of chairman Itoh's leadership was the company's emphasis on marketing. Under the previous management the loyalty of Japanese customers was largely taken for granted. In a more deregulated market, however, JAL was forced to fight for its share of the market. The American airline companies were expected to compete intensely in Japan. JAL prepared for their arrival by securing agreements with Delta Air Lines and Western Airlines which linked JAL to an extensive American flight network.

1985–1999

By 1987 the Japanese government's ownership of Japan Air Lines had been reduced to 34.5 percent. In late 1987 the government sold its stake to the public, completing JAL's privatization and giving it more decision-making freedom. In 1989 the company shortened its name to Japan Airlines Company, Ltd. and adopted a new craneless logo.

1990s: Hitting Turbulence

JAL-headed by chairman Susumu Yamaji starting in June 1991--began to founder not long after it was fully privatized. The company was expanding its fleet tremendously in the early 1990s, at the same time that the Gulf War, economic recessions in the United States and the United Kingdom, and the beginning of a prolonged downturn in the Japanese economy were all making for difficult operating conditions. Perhaps most importantly, the Japanese economic troubles led many of the country's companies to cut back dramatically on highly profitable business and first class fares. For the fiscal 1992 year, JAL company posted its first loss since 1985, a loss of US$100.2 million; the company stayed in the red through fiscal 1998. Compounding the company's troubles was its inability to expand its domestic operation because the major airports in Japan were all operating at capacity. The Japanese airport crisis was relieved only in 1994, when the Kansai International opened in Osaka. While the new airport&mdash well as expansions at others in Japan&mdash′ovided JAL with new opportunities, the new capacity also brought increased competition from foreign airlines offering lower-cost fares.

One of the company's responses to its crisis was to launch a lower-cost international charter subsidiary called Japan Air Charter in 1992. Among the cost-saving measures employed at the charter was the employment of Thai stewardesses who were paid less than a quarter of the salary paid to Japanese. Another cost-cutting move came in 1993 when JAL and All Nippon Airways reached a cooperation agreement in the area of aircraft maintenance. JAL was also attempting to reduce its bloated staff through attrition. For fiscal 1993, JAL posted a net loss of ¥54.9 billion (US$416.8 million) on revenues of ¥1.28 trillion (US$11.18 billion); the company stopped paying dividends that year.

Alliances emerged as a key strategy for airlines struggling to survive in the hypercompetitive environment of the 1990s, and Japan Airlines joined in, entering into a marketing alliance with American Airlines in 1995. Overall, JAL continued to struggle in the mid-to-late 1990s, despite its cost-cutting measures which included a 4,000-person reduction in the workforce from 1993 to 1998. In March 1998 the company announced that it would use shareholder equity to write off ¥154.6 billion (US$1.2 billion), ¥57.6 billion (US$447 million) of which was used to dispose of accumulated debt and the remaining ¥97 billion (US$753 million) to restructure its hotel and resort operations. JAL had spent heavily in the late 1980s buying property and building hotels in Hawaii and elsewhere but had been hurt by slumping property values and hotel business in the 1990s. For the year ending in March 1998 JAL posted a record loss of ¥94.2 billion (US$476.7 million). The company's dismal state of affairs led Yamaji and company president Akira Kondo to resign their posts; taking over as president was 40-year veteran Isao Kaneko, but no chairman was immediately named.

One challenge immediately faced by the new president was the signing in early 1998 of a new bilateral U.S.-Japan aviation treaty, which appeared certain to bring still more competition to JAL from several American carriers. Kaneko continued his predecessors' drive to cut costs, reducing the payroll by an additional 1,500 employees during fiscal 1999. He also led a restructuring of subsidiary and affiliate operations. In July 1998 JAL Express Co., Ltd., a new low-cost domestic airline subsidiary, began scheduled service. The following year, Japan Air Charter was transformed into a scheduled carrier and renamed JALways Co., Ltd. JALways took over JAL routes to and from tourist destinations in southeast Asia, Oceania, and other locations in the Pacific. JAL also began reorganizing its cargo operation as an internal 'virtual company' with greater autonomy. The company was actively seeking out alliances and established code-sharing agreements with several airlines--including American Airlines, British Airways, and Qantas Airways--in 1999. JAL also sold off some of its largest hotels, as part of an effort to eliminate unprofitable businesses. In March 1999 the company announced that it would eliminate an additional 1,300 jobs and reduce its board from 28 to 11 members in order to speed decision-making.

Despite returning to profitability in fiscal 1999, Japan Airlines faced an uncertain future. Even though it had cut costs substantially during the 1990s, JAL was still confronted with the high cost of using Japan's largest airports and downward pressure on fares from increasing competition. As it looked toward the 21st century, JAL was planning to spin off to the public several subsidiaries within the catering, distribution, and information systems divisions--moves that would further its focus on its core airline activities. It was also likely to sell off more of its hotel and resort operations. In addition, JAL was considering joining one of the large global airline alliances, most likely the Oneworld grouping led by American Airlines and British Airways.