New AirAsia Japan delays service entry to July 2016.

On February 10th, AirAsia Japan (Mk II) [DJ] officially admitted that it would be unable to meet its target operations launch in April 2016 (New AirAsia Japan receives AOC; takeoff in April 2016.). The company explained it was due to "a number of factors." This becomes the second delay (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.), and they will now work to start flying in July, which would put it more than one year behind their original time schedule (New AirAsia Japan takeoff slipping to Summer 2016?).

Airbus A320-216(SL) JA02DJ/F-WWBO (msn 6972), AirAsia Japan's second aircraft, will be delivered in late February, though its first A320 has yet to fly since delivery last October. A special livery designed by Mika Ninagawa was planned for the second example, but seems to have been postponed to a later airframe. Flight training was originally slated to begin in November last year, but is now planned by March. (Photo: Tobias Gudat)

Japan's fifth LCC had already been set back with a 10-month delay (AirAsia Japan is officially reborn; first flight June 2015.), largely due to shifting strategy to focus more on the international market rather than domestic, difficulties in recruiting pilots and setting up a maintenance scheme, and much-longer-than-anticipated preparation to apply for an Air Operator's Certificate (AOC). It finally obtained one on October 6th, 2015 and announced that it would launch in April with flights from Nagoya/Chubu Centrair [NGO/RJGG] to Sapporo/New Chitose [CTS/RJCC], Sendai [SDJ/RJSS], and Taipei/Taoyuan [TPE/RCTP] (New AirAsia Japan receives AOC; takeoff in April 2016.). However, until now their first Airbus A320 has not flown once since delivery four months ago (New AirAsia Japan receives first Airbus A320.).

Dissatisfied with slow progress, effective December 1st, the LCC group replaced CEO Yoshinori Odagiri, formerly a veteran from All Nippon Airways [NH/ANA] who also headed the first AirAsia Japan (Mk I) [JW/WAJ], with ex-Skymark Airlines' [BC/SKY] Chairman Takashi Ide and President Masakazu Arimori in a surprise move (Skymark relaunched with ANA sponsorship.). Mr. Ide was made AirAsia Japan's Chairman while Mr. Arimori took the place of CFO, while ex-Dell Osamu Hata was promoted to CEO (AirAsia Japan CEO to quit, ex-Skymark executives coming.). However, it must be noted that Skymark and AirAsia Japan are different; the former has been a domestic player centered around its precious slots at Tokyo/Haneda [HND/RJTT], while the latter is based at Chubu Centrair with at least 55% of its capacity to be international.

Nonetheless, the Skymark duo have wide and deep knowledge of the domestic market and expertise in running a low-cost operation in Japan's unique economic and regulatory environment. And, the hidden agenda may be that, they along with management at AirAsia have not given up on eventually merging AirAsia Japan and Skymark, which has so far been politically impossible (Is AirAsia considering a Skymark takeover?) (ANA and AirAsia bid to save Skymark.). Skymark's new President Nobuo Sayama still maintains close relations with the duo, and Skymark's new owners Integral Corporation and ANA Holdings have agreed to re-list the airline by 2020. Meanwhile, the government has hinted liberalizing Haneda to a significant extent sometime, but not long, after the 2020 Tokyo Olympics/Paralympics, and AirAsia and Skymark may be quietly waiting for the appropriate time.

With the latest postponement, some media have voiced concerns over whether AirAsia Japan could really take off. However, though it may be delayed, the Japanese unit of Asia's largest LCC has so much potential it could realize and Tony Fernandes is probably serious about it. Aside from Spring Airlines Japan [IJ/SJO], AirAsia Japan is best placed among Japanese LCCs to tap into China, the single largest (and still growing) source of inbound visitors to Japan, as it already has brand-awareness with AirAsia Group carriers serving 17 Chinese cities. Furthermore, sister carrier AirAsia X [D7/XAX] (and probably Thai AirAsia X [XJ/TAX] as well when Thailand's ICAO red flag is lifted and FAA rating is returned to Category 1) is venturing into the trans-Pacific market (starting with Honolulu [HNL/PHNL]) with a stop in Japan using fifth freedom rights, and if this proves successful, it could grow not only to provide a Japan – North America operation (which is a shrinking market), but a competitive one-stop China – North America (growing market) option.

Source: Nikkei Shimbun, 2016 February 10th (in Japanese) 
Source: Travel Vision, 2016 February 10th. (in Japanese)

New AirAsia Japan takeoff slipping to Summer 2016?

Effective December 1st, AirAsia Japan [DJ] revamped its board by essentially relegating CEO Yoshinori Odagiri to Adviser, a largely ceremonial position, and instead promoting CFO Osamu Hata to CEO and hiring bankrupt Skymark Airlines' [BC/SKY] former Chairman Takashi Ide as Chairman and former President Masakazu Arimori as CFO (AirAsia Japan CEO to quit, ex-Skymark executives coming.). But what made AirAsia Group swap management during such important times when it is preparing to launch operations?

Airbus A320-216(SL) JA01DJ/F-WWBV seen before delivery. It was handed over to AirAsia Japan on October 9th, and arrived at Japan on October 16th. Their second aircraft, to be adorned with a special livery designed by Mika Ninagawa, will be delivered in February. (Photo: Tobias Gudat)

Reportedly, there was unmendable distrust between James Rhee, North Asia CEO for the AirAsia Group, and Mr. Odagiri. Japan's fifth LCC had been set back with a nine-month delay (AirAsia Japan is officially reborn; first flight June 2015.), largely due to shifting strategy to focus more on the international market rather than domestic, difficulties in recruiting pilots and setting up a maintenance scheme, and much-longer-than-anticipated preparation to apply for an Air Operator's Certificate (AOC), which it received on October 6th (New AirAsia Japan receives AOC; takeoff in April 2016.). But without Mr. Odagiri's strenuous yet patience-necessary talks with regulator Japan Civil Aviation Bureau (JCAB), AirAsia Japan could not have obtained it. However, Mr. Rhee could not wait any longer.

On the other hand, Mr. Hata, who previously worked as CEO for Dell Japan, does not have any experience in the airline industry, let alone a unique market like Japan. So talks to headhunt the former Skymark duo reportedly started as early as late September, when they withdrew from Japan's embattled third largest airline after sponsors Integral Corporation and ANA Holdings installed a new board (Skymark relaunched with ANA sponsorship.). Mr. Ide and Mr. Arimori had maintained both official and personal relationships with Mr. Fernandes; the first AirAsia Japan (Mk I) was originally planned to be a joint-venture (JV) with Skymark until ANA stepped in, while AirAsia Group bid to sponsor Skymark (ANA and AirAsia bid to save Skymark.), and at one time Mr. Ide envisioned merging Skymark with the new AirAsia Japan in the long-term. But all of this was politically difficult as Skymark held 36 precious slot-pairs at heavily-regulated Tokyo/Haneda [HND/RJTT] (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.).

Meanwhile, its first aircraft, Airbus A320-216(SL) JA01DJ, which had arrived on October 18th (New AirAsia Japan receives first Airbus A320.), remained dormant at Nagoya/Chubu Centrair [NGO/RJGG], as the airline still did not have a working maintenance team. The aircraft's battery died and its auxiliary power unit (APU) went out of order, and it was not able to have an engine run-up until early December. Training flights were expected by November, but that too has been pushed back to at least January. It is widely believed that its current April 2016 in-service target could be missed by several months. Sources close to the matter also point out that it has already used almost half of its initial 7 billion JPY capital, and cash injections are likely necessary as it takes delivery of its second A320 in February and more employees come on-line.

Can the ex-Skymark duo guide AirAsia Japan? They have wide and deep knowledge of the domestic market and expertise in running a low-cost operation in Japan's unique economic and regulatory environment, however, that said Skymark's success centered around its prized slots at Haneda while AirAsia Japan is based at Chubu Centrair, and Skymark has been a purely domestic carrier while AirAsia Japan plans to allocate at least 55% of its capacity to international. And there is reportedly already looming distrust between employees and the new management, and rumors point out Mr. Hata may be leaving the airline as well.

AirAsia Japan is a stepping stone for the AirAsia Group to expand its network to North America, and also has the potential to bring true (non-ANA/JAL) competition back to Japan. Hopes are still high AirAsia Japan would keep Mr. Fernandes' words, "This is Part 2 of AirAsia Japan's performance, and it will be the last. There won't be a third."

Source: Diamond Online, 2015 December 7th. (in Japanese)
Source: Aviation Wire, 2015 December 16th. (in Japanese)
Source: Aviation Wire, 2015 December 17th. (in Japanese)

AirAsia Japan CEO to quit, ex-Skymark executives coming.

New AirAsia Japan [DJ] has announced that effective December 1st, CEO Yoshinori Odagiri will resign and Chief Financial Officer (CFO) Osamu Hata, formerly with Dell Japan, will be promoted to succeed the role. AirAsia Group has also confirmed that on the same date, ex-Skymark Airlines' [BC/SKY] executives will join the board, including former Chairman Takashi Ide and President Masakazu Arimori, both of whom stepped down from Japan's bankrupt third largest airline (Skymark to file for bankruptcy.) after a new management was installed by ANA Holdings, parent of All Nippon Airways [NH/ANA], and Integral Corporation (Skymark relaunched with ANA sponsorship.).

New AirAsia Japan's CEO Yoshinori Odagiri (center) poses in front of their maiden aircraft Airbus A320-216(SL) JA01DJ at Chubu Centrair after delivery on October 16th. Osamu Hata will be promoted to CEO while ex-Skymark Airlines Takashi Ide will play the representative role of Chairman. (Photo: Aviation Wire)

AirAsia Group started courting the duo not long after Skymark's board was revamped effective September 29th. They had maintained both official and personal relationships with AirAsia Group CEO Tony Fernandes, and at one time Mr. Ide even envisioned handing Skymark control to Asia's largest LCC group in the long term (ANA and AirAsia bid to save Skymark.). Mr. Ide will become Chairman and Mr. Arimori will become CFO, taking the place of Mr. Hata. The duo has wide and deep knowledge of the domestic market and expertise in running a low-cost operation in Japan's unique economic and regulatory environment. That said, Skymark's success centered around its 36 slot-pairs at regulated Tokyo/Haneda [HND/RJTT] while AirAsia Japan is based at Nagoya/Chubu Centrair [NGO/RJGG], and Skymark has been a purely domestic carrier while AirAsia Japan plans to allocate at least 55% of its capacity to international.

Mr. Odagiri, who also served as CEO with the first AirAsia Japan [JW/WAJ] (CoachFlyer JW8541: NRT - FUK on AirAsia Japan's Airbus A320.), will become Adviser. Although no reason has officially been given, the former ANA veteran is likely stepping down due to conflict of ideas within the board on how the new Japanese unit would be run. Having been founded in July 2014, Japan's fifth LCC has been set back with almost a year's delay in launching operations (AirAsia Japan is officially reborn; first flight June 2015.), largely due to shifting strategy to focus more on the international market rather than domestic, difficulties in recruiting pilots and setting up a maintenance scheme, and much-longer-than-anticipated preparation to apply for an Air Operator's Certificate (AOC), which it obtained on October 6th (New AirAsia Japan receives AOC; takeoff in April 2016.).

In terms of voting rights, the new AirAsia Japan is owned by AirAsia Investment 33%, Rakuten 18%, Noevir Holdings 18%, Alpen 18%, and FinTech Global Trading 13%. Having received an AOC, it took delivery of its first Airbus A320 on October 9th (New AirAsia Japan receives first Airbus A320.) and revealed that operations would start in April 2016 from their Chubu Centrair hub to Sapporo/New Chitose [CTS/RJCC], Sendai [SDJ/RJSS] (New AirAsia Japan mulls Nagoya – Sendai.), and Taipei/Taoyuan [TPE/RCTP]. The original AirAsia Japan ceased operating in October 2013 after the Malaysian parent terminated the joint-venture (JV) with partner ANA due to managerial differences. It has since been relaunched as Vanilla Air [JW/VNL] under full ANA control (Vanilla Air launches operations.).

Source: Aviation Wire, 2015 November 27th. (in Japanese)
Source: Nikkei Shimbun, 2015 November 28th. (in Japanese)
Source: Asahi Shimbun, 2015 November 29th. (in Japanese)
Source: Aviation Wire, 2015 November 30th. (in Japanese)

*Edited/updated on November 30th.  

Skymark relaunched with ANA sponsorship.

On September 29th, bankrupt Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) officially revamped its ownership structure and management. A 100% capital reduction was performed, followed by a 18 billion JPY capital injection together from Integral Corporation, ANA Holdings, and UDS Airlines Investment, which officially became the new owners of the embattled airline, controlling 50.1%, 16.5%, and 33.4%, respectively (Creditors choose ANA/Skymark proposal over Delta/Intrepid.). UDS is a new investment firm jointly owned by Development Bank of Japan (DBJ) and Sumitomo Mitsui Banking, both now long-time partners of ANA Holdings.

Boeing 737-86N(WL) JA73NJ taxies at New Chitose. Skymark intends to retain a fleet of at least 26 baby Boeings. Can Skymark remain independent? Caught in between the incumbent carriers and new LCCs, what market could it pursue outside its bread-and-butter (for now) Haneda? (Photo: Ryosuke Yano)

The former Skymark management, including Chairman Takashi Ide and President Masakazu Arimori, has been entirely replaced by six new executives. Integral's President Nobuo Sayama has become Chairman and Masahiko Ichie of Development Bank of Japan (DBJ) assumed the role of President. Senior Managing Director is Hideo Yaguchi from OCS, an ANA Holdings cargo subsidiary, who will be responsible for general supervision. Manabu Motohashi, the sole person on the board from within Skymark, is Managing Director and Executive Officer, taking responsibility for management planning, overall control for marketing, and information system. Integral's Shigeki Nishioka has become Director and Executive Officer, overseeing finance, accounting, general affairs, human resources, and listing preparation. ANA's Noriyuki Masukawa has been appointed Director to supervise safety operations.
 
At the same time, Skymark signed a binding code-sharing agreement with rival All Nippon Airways [NH/ANA], subsidiary of the bankrupt carrier's now 16.5% owner ANA Holdings, which is the centerpiece of the struggling airline's corporate rehabilitation plan (Skymark gives in to ANA; Japan reverts to duopoly.). Discussions are being held to implement code-sharing on 13 routes; all but three routes out of Tokyo/Haneda [HND/RJTT] and Sendai [SDJ/RJSS], which is being axed at the end of next month (Skymark to pull out of Sendai in October.). Omitted from Haneda are to Fukuoka [FUK/RJFF], Kagoshima [KOJ/RJFK], and Sapporo/New Chitose [CTS/RJCC], where ANA already commands the lion's share of flights and they learned the Japan Fair Trade Commission is unlikely to give a nod.

"We're working towards starting code-sharing in Winter 2016/2017," said Mr. Sayama, adding "We hope to reveal the outline of code-sharing by mid-October." ANA has been pushing Skymark to adopt their Able-D reservations system, which was also taken up by previous ANA-sponsored airlines AIRDO [HD/ADO] (d.b.a Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ]. However, taking up the system meant pricing needed to have consent from ANA, and all income would go into ANA first and then later be transferred to the airlines, virtually making the three quasi-subsidiaries of ANA. Mr. Sayama has said "Nobody can call that independent, so Skymark can't do that." Outgoing Chairman Mr. Ide had also stated that preserving Skymark's own reservations system, handmade by former President and CEO Shinichi Nishikubo, and modifying it to make it compatible with code-shares, instead of abandoning it and wholly-adopting Able-D, is key to keeping Skymark independent from ANA.

Boeing 737-881(WL) JA75AN takes off from Haneda. Now the ANA group has direct and indirect influence over a dominant 60% of domestic slots at Haneda. With Air Do, Solaseed Air, and Star Flyer having adopted ANA's reservations system and effectively becoming de facto subsidiaries of ANA, a key to Skymark's independence in the long term is to continue using its own platform. (Photo: Ryosuke Yano)

In addition, Skymark reached an agreement with Mizuho Bank for the establishment of a commitment line on September 17th, allowing up to 10 billion JPY in financing. Payments to creditors will commence on November 30th, and those claiming 1 million JPY will receive the entire figure while those claiming more will initially be given 5% of the amount exceeding 1 million JPY. Biggest creditor Intrepid Aviation, which initially sought for 900 million USD (108 billion JPY) for scrapping Airbus 330 leases (Skymark terminates all Airbus A330 leases.) and fought against ANA to sponsor Skymark with Delta Air Lines [DL/DAL] (Intrepid picks Delta to sponsor Skymark.), has compromised at 57.3 billion JPY, while talks are still continuing with Airbus, Rolls-Royce, and CIT Aerospace, which are the second, third, and fourth largest creditors, respectively. A settlement with Airbus and Rolls-Royce is to be watched, as rumors point out to ANA making a backroom deal to purchase three of Skymark's canceled Rolls-Royce-powered A380s and taking options for two more, which prompted the two creditors to make a last-minute sway in favor of ANA's sponsorship over Delta's (Bye-bye Skymark, Hello ANA Airbus A380?).

Mr. Ichie said that no new routes nor route cuts are planned for the following year, after Sendai is axed. The new chief said Skymark will focus more on building loyalty in its communities where it has a relatively stronger brand recognition, such as in Kobe [UKB/RJBE] and Ibaraki [IBR/RJAH]. The fleet will be kept at at least 26 Boeing 737-800s, and whether to renew the lease of the 27th machine, which is expiring in January 2016, is currently being evaluated. Mr. Sayama confirmed that Skymark will retain its current identity even after it emerges from bankruptcy protection, instead of renaming it SKY bee (Skymark hints at new brand: SKY bee?). Both the new and old management agree that Skymark could become quickly profitable and be listed again in three years. Regulator Japan Civil Aviation Bureau (JCAB) has hinted limiting ANA's financial involvement in Skymark to five years to keep competition at Haneda, however, ANA's cozy relationship with the governing Liberal Democratic Party (LDP) could make the winds blow in their favor again.

Skymark's load factors are quickly recovering. Although August is normally a high month as it is the peak summer vacation travel season coupled with Obon homecoming, the bankrupt airline produced load factors exceeding 90% for most Haneda routes. It doesn't directly translate to yields, however, it is nevertheless a positive sign. With the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) currently planning to allocate most, if not all of, new future slots at Haneda to international flights in preparation for the 2020 Tokyo Olympics/Paralympics, its domestic market remains closed off to LCCs, making Skymark the only low-fare option at Japan's most important airport. But what market will Skymark pursue beyond that? It has lost against LCCs on almost every other directly-competing route, and though much lower cost and offering lower fares than ANA or JAL, it has failed to generate demand, which the LCCs have succeeded in doing. Regional international routes within reach of its 737s are also seeing growing competition from LCCs. And with the domestic market shrinking, Haneda is not a safe haven forever.

Finding itself being caught in between the majors and LCCs forced Skymark to boldly (and unsuccessfully) pursue the demand for affordable premium travel, initially in the domestic market with all-premium A330s (Skymark Airlines inaugurates Airbus A330 service.) and in the international long-haul arena with premium-only A380s (Skymark posts loss but optimistic with strategy tweaks.). The A330s were also equipped with full galleys so that it could fly regional international routes as well. However, it was too costly and Skymark failed there. So what future lies for Skymark in the long term?

Source: Aviation Wire, 2015 September 1st. (in Japanese)
Source: Aviation Wire, 2015 September 2nd. (in Japanese) 
Source: Aviation Wire, 2015 September 11th. (in Japanese)
Source: Hokkaido Shimbun, 2015 September 15th. (in Japanese)
Source: Toyo Keizai, 2015 September 17th. (in Japanese)
Source: Toyo Keizai, 2015 September 24th. (in Japanese)
Source: Aviation Wire, 2015 September 29th. (in Japanese)
Source: Skymark Airlines, 2015 September 29th. (in English)
Source: Nikkei Shimbun, 2015 September 29th. (in Japanese)
Source: Aviation Wire, 2015 September 29th. (in Japanese)

Skymark gives in to ANA; Japan reverts to duopoly.

On April 22nd, Skymark Airlines [BC/SKY], Integral Corporation, and ANA Holdings jointly held a press conference at Japan's Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) announcing that an agreement had been reached with the private equity firm and the parent of All Nippon Airways [NH/ANA] to rebuild Japan's bankrupt third largest carrier (Skymark to file for bankruptcy.). It marks the bitter end of a fare war sparked by Skymark against the ANA/JAL duopoly. Founded in 1996, they were Japan's first child of deregulation and also the last to remain independent (Skymark accedes to ANA investment.).

Flying with Skymark until April 2009, Boeing 767-38E/ER JA767F now operates for Jetairfly as OO-JAP. Japan's first child of deregulation launched flights in September 1998 with a pair of 767s which grew to six at peak, but eventually moved to an all-737 fleet in September 2009. (Photo: Ryosuke Yano)

A total of 18 billion JPY will be injected into the cash-strapped airline. After performing a 100% capital reduction, a debt-equity swap will leave Integral controlling 50.1% and ANA Holdings 19.9%, with the remainder to be held by financial institutions that have a close relationship with ANA, including Development Bank of Japan and Sumitomo Mitsui Banking. The entire management including current Chairman Takashi Ide and President Masakazu Arimori would then be replaced. Six members will sit on the board, with three to be appointed by Integral and one by ANA, and the remaining two by ANA's partner banks. Its president will be selected by ANA, while the chairman will be chosen by Integral. All jobs will be retained, and ANA and Integral have agreed to re-list Skymark within five years.

Details of the new partnership and corporate rehabilitation plan, which need to be submitted to the Tokyo District Court by May 29th, will now be worked on. It has between today and May 8th to negotiate with creditors to reduce its 316 billion JPY debt (Skymark's total debts skyrocket to 300 billion JPY.), including 700 million USD (84 billion JPY) from Airbus for the A380 cancellation (Skymark hopes to settle Airbus A380 penalty in October.) and 900 million USD (108 billion JPY) from Intrepid Aviation for scrapping A330 leases (Skymark terminates all Airbus A330 leases.). A brand revamp is also being considered (Skymark hints at new brand: SKY bee?). ANA's original proposal called for Skymark to reduce its fleet to 20 aircraft, implement extensive code-sharing, joint ticket sales, joint fuel purchases, joint crew training, and align its network to complement that of ANA's, virtually transforming them into a feeder carrier, replicating how it controls AIRDO [HD/ADO] (d.b.a. Air Do), Skynet Asia Airways [6J/SNJ] (d.b.a. Solaseed Air), and Star Flyer [7G/SFJ] through minority investments and sending in executives from ANA.

Boeing 787-8 JA816A rotates from Haneda. ANA and its affiliates now dominate 60% of the highly-coveted slots at the downtown Tokyo airport, including the 36 slot-pairs allocated to Skymark. Domestic routes still contribute to almost 70% of the largest Japanese carrier's revenue. (Photo: Ryosuke Yano)

However, all may not go in protectionist ANA's favor, as the agreement is fragile with conflicting interests and differences yet to be solved. Japan's biggest airline together with its partner banks initially demanded a 80% stake in Skymark to keep it under its influence once and for all and leave genuine domestic competition out of bread-and-butter Tokyo/Haneda [HND/RJTT] for as long as possible. But the idea was vehemently opposed by Integral, which wants to rebuild Skymark as an independent carrier. Regulator MLIT has also said it would limit any ANA investment in Skymark to five years to prevent a return to the ANA/JAL duopoly era at Tokyo/Haneda [HND/RJTT], though this may be invalidated by the governing Liberal Democratic Party (LDP), with which ANA enjoys a cozy relationship.

In any case, now all of Japan's mainline carriers are affiliated with either ANA or Japan Airlines [JL/JAL]. Air Do, Skymark, Solaseed Air, and Star Flyer along with LCCs Peach Aviation [MM/APJ] and Vanilla Air [JW/VNL] are all in the ANA flock, while Fuji Dream Airlines [JH/FDA], Japan Transocean Air [NU/JTA], and Jetstar Japan [GK/JJP] have JAL influence, leaving tiny and still highly-unprofitable LCC Spring Airlines Japan [IJ/SJO] as the only non-ANA/JAL carrier, though AirAsia Japan (Mk II) is preparing to challenge the duopoly next year (AirAsia admits Skymark bid defeat, Japan unit delay to 2016.). For Haneda, JAL holds 40% of domestic slot-pairs (184.5) and ANA 37.4% (172.5), however, when the slots of de facto subsidiaries Air Do, Skymark, Solaseed Air, and Star Flyer are combined, that figure jumps to a whopping 60%.

Source: Nikkei Shimbun, April 22nd. (in Japanese)
Source: Skymark Airlines, April 22nd. (in Japanese)

Skymark hints at new brand: SKY bee?

Bankrupt Skymark Airlines [BC/SKY] (Skymark to file for bankruptcy.) confirmed that it will change its name and livery, and revamp their product along with staff uniforms. The re-branding could take place as early as late July, which is when their corporation rehabilitation plan would be implemented, provided it wins majority approval from creditors (Skymark's total debts skyrocket to 300 billion JPY.) at a meeting to be held in late June. The plan must be submitted to the Tokyo District Court, where it filed for bankruptcy protection, by May 29th.

Boeing 737-82Y(WL) JA737Z arrives at Ishigaki as flight BC567 from Naha on March 28th as Skymark's last flight to the southern Okinawa airport. Along with Miyako, it was dropped as part of their restructuring. (Photo: Aviation Wire)

"We want to think from zero," said Nobuo Sayama, President of Integral Corporation, in a weekend news program, revealing SKY bee is one of their top candidates for the new identity. Together with advertising agencies Sunny Side Up and TYO, the investment fund, which has pledged 9 billion JPY to keep the cash-strapped airline flying while it reorganizes (Skymark to cut 15% of flights, ground all Airbus A330s.), disclosed a logo that uses a hornet. On April 6th, Skymark's President Masakazu Arimori confirmed "We have come a long way, so we want to renew the airline. We can't tell if it will be SKY bee, but SKY will remain part of it."

Meanwhile, the selection of sponsors to help Skymark out of bankruptcy (Skymark seeks investor airline; scraps ANA & JAL dual tie-up.) is taking much longer than expected. "If there is an airline who is sincerely willing to help rebuild Skymark, we would like to work with them," said Mr. Sayama, implying their view of both bidders AirAsia [AK/AXM] and ANA Holdings, parent of All Nippon Airways [NH/ANA] (ANA and AirAsia bid to save Skymark.), as having no genuine interest in Skymark except for the lucrative 36 slot-pairs Japan's third largest carrier controls at Tokyo/Haneda [HND/RJTT]. "If our employees don't feel comfortable about the sponsor, we won't get along," reiterating that Integral is prepared to become its sole sponsor, taking full control of Skymark's rehabilitation.

On March 30th, ANA Holdings' new President Shinya Katanozaka said "We can't let a competitor slip away with the slots," adding "That would be detrimental to our business." So that Skymark wouldn't need to relinquish its precious slots, ANA would keep its investment under 20%, but "Partnering without shareholding is out of question," said Mr. Katanozaka, adding "We need to be at the center of their restructuring." The Ministry of Land, Infrastructure, Transport, and Tourism (MLIT), which regulates Haneda, has notified they would limit any ANA investment to five years, in an effort to keep Skymark as Japan's third force, but ANA's chief opposes "It took over a decade to get rid of AIRDO's [HD/ADO] (d.b.a. Air Do) and Skynet Asia Airways' [6J/SNJ] (d.b.a. Solaseed Air) debts, so in that event we will urge MLIT to lift that."

AirAsia Group's CEO Tony Fernandes is also expected to visit Tokyo soon to pitch his proposal to the embattled airline. According to people close to the matter, the chief of Asia's largest LCC group will present details of a plan to help Skymark settle penalties charged by Airbus and aircraft lessors for the canceled A380s (Skymark's Airbus A380 order in jeopardy.) and A330s (Skymark terminates all Airbus A330 leases.) as well as cooperate on operations, and discuss a potential future investment. "Our plan guarantees Skymark's independence," said the source. Meanwhile, a Skymark spokesperson said "We haven't talked in detail, so at this point we can't say if AirAsia's plan is acceptable or not." Mr. Fernandes is also busy with AirAsia Japan (Mk II), which is currently preparing to launch operations from Nagoya/Chubu Centrair [NGO/RJGG] by the end of this year (New AirAsia Japan eyes launch by year-end 2015.).

However, with Skymark starting to tweak its product, including overhauling its brand, it may actually decide to go without any airline sponsors after all. Check-in baggage allowance has been increased from 15 to 20 kilograms, while stricter cosmetics and hairstyle rules for flight attendants have been implemented, which at least don't seem to go in the direction of a LCC. But opting not to name any airline sponsors is likely to have a negative effect on their negotiation power with creditors in reducing their huge debt (Skymark's total debts skyrocket to 300 billion JPY.). Stay tuned.

Source: Reuters Japan, March 31st. (in Japanese)
Source: Jiji Press, April 1st. (in Japanese)
Source: Mainichi Shimbun, April 4th. (in Japanese)
Source: Aviation Wire, April 6th. (in Japanese) 
Source: Nikkei Shimbun, April 7th. (in Japanese)

*Edited/updated on April 7th, 2015.

Integral: Keeping Skymark the third force not priority.

On February 5th, Skymark Airlines [BC/SKY] announced that they had reached an agreement with Integral Corporation to restructure Japan's bankrupt third largest carrier (Skymark to file for bankruptcy.). The investment fund will finance 9 billion JPY under a debt-equity swap scheme, where Integral would become a shareholder once Skymark, which will be de-listed on March 1st, makes it to a listed airline again. 3 billion JPY will be used immediately to pay for overdue landing fees at Tokyo/Haneda [HND/RJTT].

Boeing 737-8HX(WL) JA73NH taxies at Fukuoka. The aircraft was returned to lessor Aviation Capital Group as N381AG in January. Skymark's fleet was standardized on 27 737s effective February 1st. (Photo: Ryosuke Yano)

"It's not a short-term investment; we're fully committed," said Integral's Director Nobuo Sayama, who revealed that four staff have already been dispatched to Skymark to help come up with a company rehabilitation plan that needs to be submitted to the Tokyo District Court by May 29th. Regarding sponsors (Skymark seeks investor airline; scraps ANA & JAL dual tie-up.), Mr. Sayama said "We're looking from a broad range."

Asked whether Skymark was still committed to retaining its position as Japan's third force, with no financial affiliation with All Nippon Airways [NH/ANA] nor Japan Airlines [JL/JAL], Mr. Sayama replied "That is not necessarily our priority," adding that restructuring the airline and putting it on a road to profitability within a year is. This virtually confirms that likelihood of an ANA investment is getting higher (Running out of time: Will Skymark join ANA?), as JAL remains prohibited from making any major investments until April 2017.

Code-sharing with other domestic carriers such as ANA and JAL (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.) "has merits, and we are evaluating it in a positive way," Mr. Sayama added. Skymark quickly grounded their entire Airbus A330 fleet (Skymark Airbus A330 operates last revenue flight.) on January 31st, and President and Representative Director Masakazu Arimori revealed that load factor for the Haneda – Fukuoka [FUK/RJFF] route is back to exceeding 90% for February so far. Frequencies were also cut on a number of secondary routes (Skymark to cut 15% of flights, ground all Airbus A330s.).

Meanwhile, former President and CEO Shinichi Nishikubo's control of Skymark's shares has decreased to 9.78%, according to an ownership change report submitted by the airline to Japan's Ministry of Finance. The charismatic ex-leader had been the biggest shareholder holding 30.57%, however, 18.98 million stocks are believed to have been sold off between February 2nd and 4th for approximately 400 million JPY total.

Source: Skymark Airlines, February 5th. (in Japanese)
Source: Aviation Wire, February 6th. (in Japanese)
Source: Nikkei Shimbun, February 6th. (in Japanese)

*Edited/updated on February 7th.

Skymark to cut 15% of flights, ground all Airbus A330s.

Follow-up from Skymark to file for bankruptcy.

On January 29th, Skymark Airlines [BC/SKY] announced that its filing for bankruptcy protection (Skymark to file for bankruptcy.) with the Tokyo District Court had been accepted. During a press conference held by new President and CEO Masakazu Arimori and Representative Chairman Takashi Ide, it was announced that 15% of flights would be suspended and its entire Airbus A330 fleet grounded effective February 1st. Further network reductions will come into effect from March 29th, the beginning of the Summer 2015 timetable.

Skymark will move back to an all-Boeing 737 operator effective February 1st. The 271-seat all-premium Airbus A330s had only entered service on June 14th, 2014. (Photo: Aviation Wire)

Japan's third largest carrier currently flies 152 daily flights covering 23 nonstop routes, however, that will be reduced to 126 on Wednesdays and 128 on other days effective February 1st. A dozen routes spanning the following cities will be affected: Fukuoka [FUK/RJFF], Ibaraki [IBR/RJAH], Ishigaki [ISG/ROIG], Kobe [UKB/RJBE], Miyako [MMY/ROMY], Nagoya/Chubu Centrair [NGO/RJGG], Okinawa/Naha [OKA/ROAH], Sapporo/New Chitose [CTS/RJCC], Sendai [SDJ/RJSS], and Yonago [YGJ/RJOH].

Flight Reductions effective February 1st:
Fukuoka – Ibaraki from 2 daily to 1 daily. 
Fukuoka – Naha from 4 daily to 2 daily. 
Fukuoka – Sendai from 2 daily to 6 weekly. *Suspension from Mar/29.
Kobe – Naha from 2 daily to 1 daily. 
Kobe – New Chitose from 2 daily to 1 daily. 
Kobe – Yonago from 2 daily to 1 daily.
Chubu Centrair – Naha from 2 daily to 1 daily. 
Chubu Centrair – New Chitose from 2 daily to 1 daily.
Naha – Ishigaki from 3 daily to 2 daily. *Suspension from Mar/29.
Naha – Miyako from 3 daily to 2 daily. *Suspension from Mar/29.
New Chitose – Ibaraki from 2 daily to 1 daily.
New Chitose – Sendai from 3 daily to 2 daily. *Suspension from Mar/29.

From March 29th, in addition to the previously announced suspension of New Chitose – Sendai (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.), Skymark will also axe Fukuoka – Sendai, plus Ishigaki and Miyako entirely. Further terminations are likely as the airline reorganizes, with Kobe – Kagoshima [KOJ/RJFK], Kobe – Sendai, and Yonago – Naha probably next up; these three along with New Chitose – Sendai recorded load factors in the 30-40% range for December, one of the peak travel months. Yonago, only launched on December 20th, 2013 as a focus city boasting five routes last summer, as well as Sendai are likely to be closed down entirely (Skymark mulls Yonago pull-out and Sendai cuts.).

As for its fleet, the all-premium 271-seat A330-300s (Skymark Airlines inaugurates Airbus A330 service.) they had only introduced in June last year will be grounded effective February 1st. Six have been delivered so far, though the sixth was only recently handed over and was awaiting a ferry flight from France. Five are leased from Intrepid Aviation and one from CIT Aerospace, with four more on order for delivery by September this year, but Skymark will negotiate to return all airframes and cancel the remaining on order. As it dumped capacity on trunk routes, Skymark often had to slash price of the A330s' premium seats to below that of rivals' economy fares; the more Skymark flew the A330, the more they hemorrhaged. Pilots certified for the A330 will be retrained for the Boeing 737.

Total debt stood at 71 billion JPY, not including the 700 million USD in penalties Airbus is seeking for the cancellation of the Airbus A380 order (Skymark hopes to settle Airbus A380 penalty in October.). As it also needs to cancel A330 contracts, the figure is only estimated to grow in the following months.

Investment fund Integral Corporation will provide finance and help Skymark continue flying while it reorganizes, and Mr. Arimori added "No specific airline has shown interest yet, but we will continue to look for sponsors according to law." Prospect for foreign investment is not zero, but ownership change exceeding 20% will necessitate relinquishing Skymark's 36 prized slot-pairs at Tokyo/Haneda [HND/RJTT], which decreases the appetite of airlines abroad (Skymark's fate: MLIT discourages foreign investment.). Domestically, ANA Holdings, parent of All Nippon Airways [NH/ANA], is the only airline in a position to assist, as the controversial 8.10 Paper prohibits Japan Airlines [JL/JAL] from making any new investments until FY2017.

Skymark also said it will continue discussions with both ANA and JAL to reach a code-share deal (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.), however, the plan is likely to be reviewed as it was aimed to fill the excess capacity of the A330s. Layoff of staff is not planned, and its approximately 2,200 workforce will be retained at least for now.

The quarterly earnings report, which was due today, has been postponed to February 4th. Shares of Japan's troubled third largest carrier plunged 25% today on January 29th, down by 80 JPY, the maximum possible drop in a day, to 237 JPY per share. The carrier will be de-listed from the Tokyo Stock Exchange effective March 1st, so shareholders have until February 27th to manage their stocks.

But again, the biggest question is how will they restructure? Which market will they go after? Skymark will revert to an all-737 operator flying a network that is a fraction the size of ANA and JAL, without any loyalty program nor premium product. Fares will still be more affordable than ANA and JAL, but will be far from matching those of LCCs based at Tokyo/Narita [NRT/RJAA], its access of which has improved greatly both in terms of time and cost. As has been the case with its post-deregulation peers, will it eventually choose to come under the umbrella of ANA (Running out of time: Will Skymark join ANA?)? Or will it become Japan's first airline to be liquidated?

Source: Skymark Airlines, January 29th. (in Japanese)
Source: Skymark Airlines, January 29th. (in Japanese) 
Source: Nikkei Shimbun, January 29th. (in Japanese)
Source: Aviation Wire, January 29th. (in Japanese)
Source: Skymark Airlines, January 29th. (in Japanese) 

*Edited/updated on February 12th.

Skymark to file for bankruptcy.

Skymark Airlines [BC/SKY] has reportedly decided to file for bankruptcy protection with the Tokyo District Court, after an emergency board meeting was held on the night of January 28th. Investment fund Integral Corporation has been named by officials close to the matter, which will finance and help Japan's third largest carrier continue operations as normal. This becomes the second airline bankruptcy in Japan in five years, after Japan Airlines [JL/JAL] sought for bankruptcy protection in 2010.

Boeing 737-86N(WL) JA737R thunders out of Tokyo International Airport at Haneda, where Skymark controls 36 slot-pairs. This aircraft is leased from Avolon Aerospace. (Photo: Ryosuke Yano)

Charismatic and hands-on President and CEO Shinichi Nishikubo, who is also the airline's biggest shareholder controlling over 30%, is expected to step down. Managing Director Masakazu Arimori will assume leadership. Total debt is estimated to amount to over 100 billion JPY, including the 700 million USD in penalties Airbus is seeking for the cancellation of the Airbus A380 order (Skymark hopes to settle Airbus A380 penalty in October.).

Although predicting a 354 million JPY net profit for FY2014 only a year ago, its financial health quickly deteriorated from increased costs due to the introduction of the Airbus A330s (Skymark Airlines inaugurates Airbus A330 service.) and now-canceled A380s, continued depreciation of the JPY, high fuel costs (until a few months ago), and intensified competition with the LCCs as well as full-service carriers, which have become more aggressive.

The cash-strapped airline burned 2.5 billion JPY in cash reserves just in the six months to September 2014, bringing down the total on hand to 4.5 billion JPY, but after then they were probably bleeding at an even faster rate. Skymark's continued negative media coverage has apparently kept passengers from choosing to fly with them. They also enjoy no loyalty program, which was planned but shelved and is now considered one of their biggest mistakes in a country where brand affinity counts significantly. Its predicted record loss for FY2014 (Skymark braces for 13.7 billion JPY loss in FY2014.) is expected to be even greater.

A number of aircraft lessors as well as airlines are reportedly already showing interest in sponsoring Skymark's restructuring. Intrepid Aviation, which owns five of Skymark's six A330s (the other is owned by CIT Aerospace), as well as AWAS, GECAS, among others, along with Airbus are the biggest creditors, which probably will have a say in the decision. However, concerning financial assistance from airlines, unless the controversial 8.10 Paper, which prohibits JAL from making any new investments until FY2017, is reviewed, All Nippon Airways [NH/ANA] is virtually the only carrier able to give a hand. 

Mr. Nishikubo had said an investment from ANA would be the last thing they would be looking into, however, their reported consideration of it (Running out of time: Will Skymark join ANA?) and rejection probably illustrated their dire financial health. A dual partnership with ANA and JAL (Skymark takes ANA & JAL dual tie-up, axes Sendai – Sapporo.) was being orchestrated by Japan's Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) after the regulator was hesitant to accept Skymark's tie-up with JAL (Skymark in talks with JAL for broad tie-up.) and tried to keep Skymark afloat as Japan's third force and the last child of deregulation that remains independent.

Skymark currently operates 23 non-stop routes covering only domestic destinations using a fleet of five A330-300s and 27 Boeing 737-800s, and employs approximately 2,200 staff. Its 3Q FY2014 results will be released tomorrow on January 29th.

But the biggest question remains; how will they restructure?

Source: Nikkei Shimbun, January 28th. (in Japanese)

*Edited/updated on February 12th.