ANA pushes Air Do to trim costs


Airline sources say ANA is looking to buy a 20 percent stake in Air Do to bolster its position against the JAL-JAS team

Geoff Hiscock
Asia Business Editor

TOKYO, Japan (CNN) -- Bankrupt Japanese carrier Air Do will have to cut costs deeply to make a successful turnaround, according to its new alliance partner All Nippon Airways.

ANA, Japan's biggest domestic carrier, has already agreed to help Air Do with its restructuring.

But ANA President Yoji Ohashi said this week that Air Do's costs for aircraft leases, fuel, maintenance and wages will have to come down.

Air Do, the operating name for discount airline Hokkaido International Airlines, filed for court protection on June 24, with debts of about 6 billion yen ($50 million) (full story).

Hefty government debt load

It has been running six discount flights a day between Tokyo and Sapporo, the biggest city on the northern island of Hokkaido.

It's a popular getaway in both winter and summer. But Air Do struggled when competitors matched its ticket price.

About 3.6 billion yen, or 60 percent of Air Do's debt load, is owed to the Hokkaido prefectural government, the Sapporo city government and the Ministry of Transport. The airline is seeking to have these debts waived.

ANA sources told CNN on Thursday that while it has agreed to help Air Do, the details of its assistance would not be known for several months.

They said the areas where Air Do needs most help include maintenance, spare parts and personnel.

Code share at least six months off

The sources said any code share deal between ANA and Air Do was at least six months away. An equity stake is being considered, but not a takeover.

At the time Air Do filed for bankruptcy, aviation circles in Japan suggested ANA would take a 20 percent stake in the discount carrier.

They speculated that ANA wanted a tie-up with Air Do to help combat the powerful combination of Japan Airlines (JAL) and Japan Air System (JAS), which will merge in October.

On the cargo front, JAL expanded its reach earlier this month by joining the WOW cargo alliance (full story).

A change in market leader

While ANA has the biggest share of the Japanese market now, that will change once the JAL-JAS merger proceeds.

On the Tokyo-Sapporo route, JAL-JAS will have 25 round-trip flights a day from October, compared to ANA's 14. Air Do's six flights will help redress the imbalance, aviation sources say.

Earlier this week, ANA said its passenger numbers for the year to June fell 6.1 percent on flights within Japan, and 5.2 percent on international routes.

That reflected the downturn in travel after the September 11 terror attacks in the United States.

But ANA told CNN that it expected passenger numbers to recover in 2002-03, thanks to mounting traffic to China.

ANA pointed to the recent rapid growth on its flights from Japan to Beijing, Shanghai and Hong Kong.