Doldrums bring unlikely benefits for upstart Skynet Asia Airways

by Yasushi Azuma

MIYAZAKI (Kyodo) It seems unusual that a small company would welcome the specter of an economic slump, but one newly born airline views the dreary business climate as a chance to fly high in the Japanese airline industry.

“Under the economic downturn, companies are dropping out of the competition,” said Skynet Asia Airways Co. President Shoji Shimoda. “This becomes a major business chance.”

The sluggish nature of the global airline industry offers Skynet Asia the chance to hire pilots from bankrupt airline companies at a low cost.

The salaries of pilots employed by Skynet Asia, mostly foreign nationals, are one-third of those paid to pilots working for major Japanese airlines, Shimoda said.

Most of these pilots used to fly for Australia’s second-largest airline, Ansett, which collapsed in 2001.

While the airline industry took a beating after the Sept. 11, 2001, terrorist attacks in the United States, this situation kick-started operations at Skynet Asia.

The airline signed a five-year lease contract for its first two Boeing 737-400s by paying $217,000 per plane a year, nearly 40 percent below the originally planned annual leasing cost of $350,000.

The leasing cost for the company’s third and fourth planes dropped further, to $145,000 per plane a year, less than half of the initial leasing cost.

Skynet Asia launched flight operations in August 2002, flying just one route, between Tokyo’s Haneda airport and Miyazaki, the company’s home base.

Since then, the airline has tried to offer a variety of services in a bid to lure customers away from major airlines such as Japan Airlines System Corp. and All Nippon Airways Co.

One gimmick is to serve seasonal local sweets to passengers on a rotating basis.

The service generated unexpected benefits — it not only pleased many customers but was also a boon for chestnut farmers in the village of Suki, Miyazaki Prefecture.

“Since sweets made of chestnuts became a big hit, local sweet manufacturers now cannot keep up with demand,” Shimoda said.

Now, many sweets manufacturers in the prefecture are keen to offer their products on Skynet Asia flights.

Skynet Asia is also unique in terms of fares. It offers an ultra-low price of 8,500 yen for an early reservation — the lowest among Japanese airlines — for a one-way flight between Tokyo and two cities in Kyushu, Miyazaki and Kumamoto.

Although Shimoda, 41, admits discount ticket offers trim company profits, he said Skynet Asia is now focused on boosting its brand recognition rather than on turning a quick profit.

To make a profit, Skynet Asia must operate flights at an average boarding rate of 55 percent for the Tokyo-Miyazaki route and 62 percent for the Tokyo-Kumamoto route.

The company had a bumpy start with regard to its second route. All flights on Aug. 1, the first scheduled day for the Tokyo-Kumamoto service, were canceled due to a delay in the arrival of airplanes.

But the boarding rate has now cleared the profitability line.

The hurdle has been easily cleared on the Tokyo-Miyazaki route with the average boarding rate hovering around 70 percent to 80 percent.

The regular fares of Skynet Asia are also roughly 30 percent lower than those offered by ANA and Japan Air System Co., which operates under the wing of the JAL Group.

The air carrier’s unique service also caught the public’s attention recently when it operated a round-trip flight between Tokyo and Miyazaki on Nov. 15, under a male-only flight attendant policy.

But the company is still expected to post a larger net loss than the earlier projected 600 million yen for the business year to March 31, due to higher-than-expected expenses tied to the launch of the Tokyo-Kumamoto route.

Shimoda said the company could go public later this year if it does not incur losses for the second half of the current business year.

The company had a negative net worth of 1.1 billion yen as of the end of March.

Shimoda hinted that the loss will be erased if Skynet Asia Chairman Mitsunori Mera, a wealthy owner of a group of four companies in Miyazaki Prefecture, digs into his own pockets to cover the shortfall, a scenario that has been floated for a long time.

Of Skynet Asia’s 2.5 billion yen in capital, Mera Denki Sangyo, one of Mera’s companies, spent 1 billion yen.

“It will take five years to eliminate the negative net loss of 1.1 billion yen, but we can erase it instantly,” Shimoda said.