Precipitation of Aviation Business

The board of directors of Skymark Airlines, the third biggest aviation carrier in Japan following All Nippon Airways and Japan Airline, decided to apply to Civil Rehabilitation Law on Wednesday evening. In short, it bankrupted. Although it had been making efforts to survive high competition in between two major companies and low cost carriers, Skymark failed in expanding its business. The bankruptcy revealed a fact that aviation business had exceeded saturation point.

Skymark was established in 1996, when Japanese government was promoting the comprehensive policy of deregulation. Starting from Tokyo-Fukuoka line, it became as big as the third aviation company with twenty-seven domestic lines. In the situation that other mid-size companies, such as Air Do or Star Flyers, required investment from bigger companies, Skymark insisted on independent management without debt.

Turning point was 2012, when low cost carriers jumped in the competition. Although Skymark had been reforming its management with introducing smaller aircrafts than those of major airlines and simplification of service for passengers to reduce transportation fare, it was forced to face competition for further cost cutting. Skymark took a policy of introducing greater aircrafts with wider passenger seats to compete with smaller companies.

However, Skymark could not earn sufficient seat occupancy. Its new strategy did not invite new customers to fulfill its seats and higher cost of greater aircraft harmed the balance seat of the company. Lawsuit of Airbus, requiring $700 million for withdrawal penalty in purchase of six A380, seriously damaged Skymark and directly caused its bankruptcy. The company precipitated to the ground only within three years.

It is concerned that deregulation of aviation business will be slowed down. At the time the government introduced deregulation policy in 1990s, passenger fare of airlines was extremely high for ordinary people to have trips. Skymark contributed to that goal as a leader of new comers. Now the structure of aviation business is coexistence of the major two and LCCs. Mid-size companies are still in hard situation.

Fundamental question is do we need such many aviation companies in this island country smaller than the State of California. With consistent request from local communities, the government allowed construction of a number of regional airports. But, those regional airports did not bring easy transportation, but great financial burden to the region. This is one aspect of distorted development policies leaning heavily on building infrastructures.