DIRE STRAITS FOR AIRLINES IN JAPAN DUE TO BURDENSOME FIXED COSTS
The coronavirus pandemic has stopped the movement of people around the world. The aviation industry, which has grown against the backdrop of globalization, is facing difficulties. Efforts are underway to navigate through this industry-wide shock, the Yomiuri Shimbun reported on July 1, 2020.
“Securing cash in hand is an urgent issue,” said Shinya Katanozaka, the president of ANA Holdings, Inc. At the beginning of a general shareholders meeting held in Tokyo on Monday, Katanozaka apologized to about 600 shareholders for not paying dividends for the first time in 10 years.
Airline companies have a heavy cost burden, such as payments for airplanes and labor costs. In the ANA Group’s case, daily expenses average slightly less than ¥3 billion, even though it was not operating any flights. All Nippon Airways Co., the core company of the ANA Group, is reducing domestic flights by about 51% and international flights by more than 90% in July. Given the high flight reduction rates, jetliners are sitting idle at Haneda Airport as they have nowhere to go.
The number of domestic flight passengers was down 90% in April and 94% in May from a year earlier. Meanwhile, domestic flights were cut by 56% in April and 85% in May. Thus, the effort to reduce flights could not catch up with the rapid decline in demand. The annual sales of the ANA Group are about ¥2 trillion. Fixed costs, which are generated even without flying planes, account for 60% of the operating costs for the aviation business. Compared with 20% to 30% in the manufacturing industry, the figure is high.