All Nippon Airways is emerging from the pandemic with a fresh business model, new technologies and a new hybrid carrier – AirJapan – as it seeks to return to growth as soon as possible. Tony Harrington reports
On the eve of its milestone 70th anniversary, Japan’s largest airline group, ANA, is reinventing itself. Having edged back from the Covid abyss, the company is not just rebuilding but reshaping for a rapidly evolving future featuring changes in customer preferences; new technologies, markets and risks; and a non-negotiable requirement to achieve net zero emissions by 2050.
Like most of the airline industry, ANA was forced by the pandemic to slash spending, rationalise activities and rethink past practices to ensure future resilience. These and other economic measures, together with the start of a market recovery, helped the group to return a modest profit in the three months to 30 June 2022, the first quarter of its new financial year. This was the first positive result in 10 quarters.
But what is really reflected in the ANA Group’s financial turnaround is not simply a ‘back to normal’ outcome as it emerges from Covid. Far from it: the result also delivers the first dividends of a new business model, which increasingly will reshape the style and substance of the group’s passenger service on the ground and in the air. The new approach includes a new ‘flexible fleet’ strategy to more closely match capacity and product to demand, as well as the creation next year of AirJapan, a hybrid airline which will sit between the company’s full-service carrier ANA and its low-cost unit, Peach.
The ANA Group has also continued throughout the pandemic to look beyond the horizon. It has worked with strategic partners to develop and test a range of new technologies, from robots which can speedily sort, stack and optimise the loading of luggage onto planes, to autonomous and zero-emission airport vehicles, trials of delivery drones, an ‘air taxi’ partnership with US-based Joby, and the rollout of contactless transit through terminals to enhance both efficiency and hygiene for travellers.
A key plank of the group’s future strategy is collaboration with a diverse mix of industry leaders in the race help neutralise aviation’s contribution to global warming, by participating in a long list of national and international projects designed to progressively deliver low-emission practices and technologies.
“Even through Covid, we always maintained our environmental goals,” said Chikako Miyata, ANA’s chief sustainability officer. “We want not just to recover from Covid, but to recover in a way which is green.”
Communication is key
“At the core of our ESG (environmental, social and governance) programme, we believe that the first and most important thing is to communicate with our stakeholders to help determine what ANA’s role is in society,” said Miyata. “We need to look at how the business is able to reduce any negative impacts, and how we can make positive impacts. Most of our CO2 emissions – 99% – are from the operation of our aircraft, so we have been working on improving operations, and how we can achieve carbon neutrality in 2050.”
On the day it announced its first-quarter return to profitability, ANA also detailed a package of “transition strategies” including new fuels, partnerships and programmes designed to help the company achieve both sustainable growth and environmental improvement through interim actions to 2030, en route to net zero emissions in 2050.
“We are dedicated to achieving our sustainability goals by 2050 and are making investments in multiple areas to meet our commitments,” said ANA Group’s president and chief executive officer, Koji Shibata. “Sustainability is a top priority for ANA and by establishing transition strategies we hope to lead the airline industry forward into a carbon-neutral future.”
Of course, a sustainable future needs a stable foundation. The fragile first-quarter financial results reflect not only the scale of the pandemic’s impact on the ANA Group, but also the scale of actions required to continue recovery and recreate a robust business.
For two-and-a-half years, the group’s earnings have been critically depressed, and although losses eased significantly in FY21 after spiking the previous year, the company remained deeply in the red until it finally crept back to black in Q1.
In lockstep with global trends, domestic air travel in Japan has recovered far faster than international traffic, while cargo has thrived and continues to be a significant driver of ANA’s turnaround, with demand for freight space at a premium – particularly for high-value shipments including vaccines, automotive parts, semiconductors and electronic equipment – and boosted even more by the pandemic’s disruption of global sea freight operations.
However, unlike most other markets, Japan persisted with stringent anti-Covid measures well into 2022, seriously delaying recovery of the country’s air transport sector at a time when demand for flights was surging, and ANA Group’s competitors were increasingly reactivating flights.
“While we recognise that Japan’s border restrictions are [intended] to minimise the spread of Covid, we expect further relaxation of restrictions to speed up in Japan, such as the limit on number of entries per day, required tests and visa requirements, in order to revitalise the Japanese economy,” said Shibata.
“Before Covid, approximately 140,000 people per day entered Japan. Since June, the number has increased to 20,000 people per day, but it is still only one-seventh of what it used to be,” he explained. “We believe there is increasing interest to visit Japan, and the weaker yen poses a great opportunity. Group tours to Japan restarted from June, but the entry of foreigners for tourism purposes, including individuals, is critical for Japan.” At publication time, easing of restrictions was widely believed to be imminent.
Inextricably linked to the reopening of borders is the re-establishment of aviation connectivity, said Shibata, including through global partnerships such as Star Alliance, of which ANA is a key member. “Many airlines have reduced their networks and fleets in the wake of Covid,” he said, “making connections between carriers even more important.”
Other factors impacting recovery – but impossible for Japan to control – include continued diversions around Russian airspace, routinely the most efficient path between Japan and Europe, resulting in a 15-20% increase in operating costs due to longer flight times and higher fuel consumption on the airline’s limited long-haul services.
All these factors, together with the need to financially rebuild, address evolving customer requirements and embrace technological advances, have helped shape ANA’s new business structure, which, as well as driving growth in a new trading environment, is also centred on the capability to respond quickly and effectively to changing circumstances.
The first stage of the strategy has been collaboration between full-service ANA and low-cost Peach on a range of efficiency initiatives, including joint scheduling, shared sales and marketing resources, and a flexible fleet strategy.
The foundational element of this new internal partnership has ANA focused mainly on higher yielding business traffic, transferring many leisure travellers and destinations to Peach.
The larger carrier has temporarily codeshared on its low-cost carrier sibling, enabling the group to maintain connectivity and increase revenues while shrinking overall capacity. The share shift has more than tripled Peach’s Q1 passenger journeys year on year, boosting passenger load factors (+20.2 points, from 46.8 to 67), and approaching a quadrupling of Q1 revenue versus 2021.
While the codeshare will soon be terminated, the group is now exploring ways to directly sell Peach flights via ANA platforms, providing the LCC with much greater market exposure.
As well, in recognition of changing customer needs, AirJapan will launch in the second half of 2023, using ‘mid-body‘ Boeing 787-8 aircraft to serve short-haul international markets across Asia and Oceania, the latter a collective of countries including Australia, New Zealand, and island nations of the South Pacific and Melanesia.
Under the slogan ’Fly Thoughtful‘, AirJapan will offer a hybrid product which combines low fares with comfortable cabin space, enabling passengers to customise their journeys with more of what they want and less of what they do not – a higher fare delivering full service, or a lower price with fewer inclusions.
While specific details of AirJapan’s network, fleet size and frequencies are still to be revealed, the Asia and Oceania regions accounted for almost one-third of ANA’s international passenger revenue before the pandemic erupted, a pointer to the potential scale of the new airline.
“Our goal is to create a completely new kind of air travel experience that is neither a full-service nor a low-cost carrier, combining the best of both worlds while also featuring Japanese-style ideas and quality,” explained Hideki Mineguchi, president of AirJapan. “We will provide select options that customers actually want from the services offered by full-service carriers. Customers who prefer a simple trip and do not require additional options can reduce their travel costs.”
Underpinning the restructuring of its airline brands, and helping drive its new approach, the ANA Group will also greatly increase its use of customer data, said Shibata.
“The new service model is an initiative based on customer demand, and not simply a cost-cutting process,” he said. “We will build a business foundation to expand market share ahead of competitors during the recovery phase by leveraging the strengths of the ANA, Peach and AirJapan brands. In this new business structure, we will also establish a platform that leverages our valuable customer data assets and strengthens our non-airline-related business.”
An ANA ‘Super App’ is scheduled for launch by the end of 2022 to centralise customer interaction across the airline group, as is ANA NEO, a new games-based interactive platform that will enable users to virtually explore travel destinations and shop using connected smart devices.
Process technology will also be enhanced. Check-in machines for domestic flights will be replaced with “a one-stop, stress-free experience on smartphones”. Inflight meals will be ordered online. And contactless passage through airports will be enhanced, using facial recognition technology for processes including security checks and aircraft boarding.
Optimising the group’s fleet will also be key to maximising efficiencies and reducing emissions. Since the start of the pandemic, the combined ANA-Peach fleet has fallen from 303 to 272 aircraft. But from next year it will start growing again, with a target of 285-290 planes by FY25, and confirmed plans for up to 50 new Boeing jets – 18 widebody Boeing 777-9s for delivery between 2023 and 2029, up to 30 narrowbody 737-8 Max aircraft from 2025, and two 777-8 freighters from 2028, all of them low-emission models to meet expected growth while also replacing older, less sustainable jets.
Emissions reductions will also come from new operational practices, technologies, ideas, partnerships and targets, continuing a commitment ANA first made over a decade ago to be among the industry’s leaders in cutting harmful emissions. The group has announced four climate transition strategies leveraging operational, technical and infrastructural developments, the use of sustainable aviation fuel and other “potential clean energy sources”, emission trading schemes, and “negative emissions technologies” based on removal of CO2.
ANA is committed to using SAF for at least 10% of its fuel consumption by 2030, with almost 100% coming from low-carbon sources by 2050. It has purchased or trialled a range of alternative fuels and continues to explore advancing technologies such as Direct Air Capture (DAC), through which CO2 is extracted from the atmosphere and transformed into carbon-neutral liquid fuels.
Japan wants a domestic SAF production capability by 2030, but will still require significant volumes of imported supplies, particularly as enviro-initiatives increase, enabling companies to offset their travels by buying SAF equivalent to the volume of fuel burned on their business flights, forcing up demand.
ANA currently sources its SAF from US-based LanzaJet Inc and the Finnish renewable energy group Neste. “In the future, we’re also looking at the possibility of investing in some suppliers,” said sustainability head Miyata.
In March, in an act of environmental bipartisanship, ANA and its main competitor, Japan Airlines, joined ACT FOR SKY, a collaboration of major industrialists committed to expediting the development, commercialisation, promotion and use of SAF produced in Japan from feedstocks including animal oils and fats, used cooking oil, woody biomass, municipal solid waste, exhaust gases and CO2.
ANA has partnered with Airbus on a research project to investigate the development of hydrogen aircraft and infrastructure which, while not a concept currently on the airline group’s radar, is intended to help diversify future pathways to net zero emissions by 2050 – the ‘never say never’ approach.
The group has also joined forces with Boeing to explore the development and use in Japan of sustainable aviation technologies including electric, hybrid, hydrogen and other so-called novel propulsion systems – again, not a commitment, just a consideration – and is working separately with Toyota Motor Corp and Joby, a leading US developer of eVTOL (electric vertical takeoff or landing craft), better known as air taxis, to investigate infrastructure, pilot training, flight operations, public acceptance, and regulatory approvals for these craft ahead of the 2025 World Expo in Osaka. Recently, it also paired up with the global convenience retailer 7-Eleven to trial drone deliveries of supplies in Japan.
Additionally, in an act of forward thinking not replicated by many of its competitors, ANA protected jobs throughout the pandemic, so that it was sufficiently resourced to restart operations as travel resumed post Covid. It also anticipated a future shortage of pilots, and therefore continued to employ them throughout the pandemic, despite freezing other new hires.
The sum of these dramas and developments is a long way from ANA’s beginnings in December 1952, when Japan Helicopter and Aeroplane Transport Company was established, commencing services early in 1953 with a pair of helicopters. The All Nippon Airways brand was created in 1957, and through multiple mergers and successive steep challenges over 70 years, the company has grown to become Japan’s largest airline, and one of the most progressive members of the global air transport community.
Emerging from Covid and rebuilding in its wake has been, and continues to be, the group’s steepest challenge; barring another global meltdown of pandemic proportions, achieving net zero emissions by 2050 is its next big, long task.
ANA is committed to reaching that milestone, and beyond that yet another: its 100th anniversary in 2052.