Japan airlines keep most domestic flights despite few takers for seats


By Maki Shiraki and Tim Kelly

TOKYO, April 17 (Reuters) - Japan's top airlines are operating a majority of their domestic capacity even though the coronavirus outbreak has left seats on flights mostly empty, amid a lack of clear government directives on the functioning of transport infrastructure in the crisis.

ANA Holdings Inc 9202.T and Japan Airlines Co Ltd (JAL) 9201.T, Japan's two biggest airlines, have cut around 90% of international flights but left their domestic networks relatively intact, industry data showed. The two normally fly around 800 or more domestic flights daily.

They are currently flying around two-thirds of capacity with 10% of the usual demand, according to the airlines. That is despite Japan declaring a one-month state of emergency in major cities on April 7 which was expanded on Thursday to include the entire country.

The move is set to add further financial strain on the Japanese carriers. Their peers in India, Thailand and the Philippines have grounded all domestic flights under government orders, while those in Australia and New Zealand are flying less than 5% of their normal schedules due to travel restrictions and reduced demand.

Japan has not restricted domestic travel, and authorities in Tokyo and other big cities are only requesting people to stay in and asking bars and restaurants to temporarily close without penalty.

"The government has declared an emergency, but hasn't asked the airlines to reduce flights, rather they want to maintain the transport infrastructure," said a person familiar with operations at the airlines, who was not authorised to talk to media.

"Some planes are flying with less than 10 passengers, but we feel we need to keep that transport infrastructure," the person added.

An official at the Japan Civil Aviation Bureau, which oversees the carriers, described it as "business as usual", with the airlines setting schedules based on business conditions. The government only requires them to offer refunds or new bookings to passengers affected by cancellations, he said.

Neither carrier is government owned, but ties with regulators are close, with officials and politicians willing to extend financial help in troubled times to support a domestic aviation network that connects an island archipelago stretching almost 3,000 kilometres (1,864 miles).

In a stimulus package equivalent to a fifth of Japan's annual GDP, Prime Minister Shinzo Abe's government has promised financial support for the carriers, although it has yet to say how much.

The Scheduled Airlines Association of Japan, which represents ANA, JAL and 17 others, estimates that the pandemic will cost its members some 500 billion yen ($4.64 billion) in lost revenue by the end of May.

Over a year that deficit could balloon to 2 trillion yen, the industry lobby group predicts.

ANA has asked commercial lenders and the state-run Development Bank of Japan for 400 billion yen in aid, as it burns through cash during the crisis.

"I expect current cuts to operations to continue," said a second airline industry source familiar with the matter, asking not to be identified. If the coronavirus downturn lasts a year ANA will need at least 1.3 trillion yen, the source said.

An ANA spokeswoman said the carrier would consider further cuts to domestic flights, but because it was a necessary form of transportation it would continue to cooperate in maintaining basic services.

"The crucial question is whether there is going to be at least a partial recovery in operations by the summer," said Kazuma Ogino, a credit analyst at Nomura Securities in Tokyo.

($1 = 107.7200 yen)

(Reporting by Maki Shiraki and Tim Kelly; Editing by Jamie Freed and Muralikumar Anantharaman)

((tim.kelly@thomsonreuters.com; +813-6441-1311;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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