With the government reluctant to push any tie-up, the outlook for the partnership that struggling Skymark Airlines Inc. is aggressively seeking to form with Japan Airlines Co. remains cloudy.

It is crucial for Skymark to form a tie-up. Its revamp efforts could stall without such help from a partner when it is scrambling to rebuild its money-losing operations.

The president of Skymark said recently that he will pursue a code-sharing deal with JAL, offering space on some of its domestic flights from Tokyo’s Haneda airport to JAL customers to reduce the number of unfilled seats.

But the Land, Infrastructure, Transport and Tourism Ministry is concerned JAL’s involvement in Skymark’s reform plans could undermine fair competition in the aviation industry.

Japan’s flagship carrier made a remarkable turnaround after setting the record for biggest bankruptcy of a nonfinancial company in 2010. It was helped largely by a massive government bailout. The decision to authorize the use of public funds was made by the Democratic Party of Japan.

JAL’s business strategy is being scrutinized by the current ruling coalition, which is composed of the ruling Liberal Democratic Party and Komeito, as well as by JAL’s biggest rival, ANA Holdings Inc. They say an airline formerly backed by public money should not pursue strategies that could undermine a playing field perceived as level by other airlines.

Transport minister Akihiro Ota warned at a press conference last week that the ministry will strictly examine whether to give the nod to Skymark’s tie-up.

When the ministry was distributing the 25 new slots for domestic flights at Haneda airport in 2012, it gave ANA eight and JAL three, based on the equal competition policy. The slots are coveted as cash cow routes.

The code-sharing arrangement with Skymark, which owns 7.7 percent of the domestic flight slots at Haneda, would raise JAL’s share of the slots to 47.4 percent, which is nearly as big as ANA’s 52.6 percent, again raising doubts about competitive fairness.

Skymark is desperate to fill as many seats as possible because it expects to log a second consecutive year of net losses this business year in the face of growing competition with low-cost carriers and higher fuel costs from the Bank of Japan’s weakening of the yen under “Abenomics.”

The airline has also been negotiating with Airbus S.A.S. on a massive penalty it is facing for terminating its order for six A380 superjumbos. The aircraft maker has demanded that Skymark pay around $700 million, or about ¥83 billion, at a time when the carrier is expecting a net loss of almost ¥13.7 billion on a parent basis this fiscal year.

Skymark President Shinichi Nishikubo said his company aims to log revenue of ¥8 billion to ¥9 billion a year after the code-sharing deal with JAL. He hopes to begin the new service as early as February.

The relatively low load factors on JAL’s domestic routes mean it will be unlikely to sell as many seats as Skymark wants it to, said Masaharu Hirokane, an analyst at Nomura Securities Co.

“We think Skymark is likely to be disappointed by the number of seats it will be able to get Japan Airlines to purchase,” he said.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.