Brand Health Check...JAL needs to look beyond short-term cost cuts

Japan’s national carrier announced a loss of over a billion dollars in the three months to June, and a state-backed taskforce is now busy developing a turnaround plan. If it goes ahead, it will be the carrier’s fourth state bailout since 2001.

The airline has certainly seen better days. Between 1951 and 1985, JAL had a monopoly on international air travel into Japan, allowing it to ride on the back of the country’s economic boom. In the 90s it could afford to splash out on Janet Jackson as a brand ambassador. There has even been a TV drama based around the carrier.

The scriptwriters would have had a hard time dreaming up the current saga. A quasi-governmental agency is set to take on the airline, which has been hit by high fuel prices and slumping demand. Its close ties with the Government have also not helped - vote-hungry politicians have in the past encouraged the construction of regional airports, which have then been served as loss-making routes by JAL.

According to reports in Japan, the restructure will see 13,000 job cuts globally by the end of March 2015, which is close to double the initial forecasts. Many unprofitable routes are likely to be cut. The taskforce is trying to convince creditors to waive loans totalling US$2.7 billion in return for equity.

However, there is still hope for JAL. Delta Airlines is one of a number of US carriers that have shown interest in a tie-up with the airline in order to boost their ability to serve Asian markets. Delta has reportedly hired Fleishman Hillard to lobby Japanese politicians and opinion-makers in favour of such a deal. American Airlines is another US carrier said to be interested in sealing a tie-up.

Such is the importance of JAL within Japan that the final decision on whether to bail the company out will be taken by the prime minister. But if JAL is saved, the question is whether it can find a way to boost sales as well as cut costs.

Stuart Green, president, Asia-Pacific, Interbrand

Even in good times, the airline industry is a tough business in which to turn a profit. Airlines face a number of external factors that are out of their control.

The current conditions make it difficult for airlines to leverage their brands. The fact of the matter is that when people shop for an airline ticket, they are often forced to base decisions on price-point, route, schedule, corporate policy, or frequent flyer points, none of which involves the brand. However, for many traditional carriers, the economic downturn is proving to be an industry catalyst, and many experts believe that customer spending habits and airlines’ pricing and operational structures will be permanently altered. JAL should use this period of uncertainty to redefine what value means to its customers.

This implies that JAL must incorporate a long-term perspective into its recession strategies that goes beyond short-term tactical measures to trim costs such as grounding planes, redundancies, wage cuts, passing costs onto customers, paring schedules and closer airline co-operation. It should listen very carefully to what its customers are saying and foster a strong internal culture in order to deliver on these needs.

Shige Ota, president, Bilcom Inc

The significant downturn in JAL’s reputation has been caused primarily by the company’s financial problem. This problem has generated mistrust and caused three problems. The first problem is mistrust of the company’s safety The second is the debasement of its service quality. The third is concern over the risks associated with bankruptcy, such as the expiry of frequent flyer mileage cards.

In order to improve the brand image of JAL and regain the airline’s good reputation, communication with consumers has become a priority.

The messages could include scenes such as inspiring moments when flight attendants offer services, ground staff showing a hardworking spirit, or staff working in labs on research and development of new technology.

Since the financial problems of JAL are related to the Government and politics, the issues are very complicated and difficult to improve.

Therefore, the communication messages to boost brand image should be focused on the service quality and should not touch on the financial issues.

But the result of an improvement in its brand image could be decreased reputation risk and reform of its business structure.

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This article was originally published in 5 November 2009 issue of Media.