In the 1980s, Japan Airlines (JAL) was an aviation powerhouse, leading the world in both passenger and cargo transport. It boasted the largest fleet of Boeing 747s in the industry, symbolizing its dominance. For Japan, JAL was more than just an airline; it was a national icon, much like Singapore Airlines is for Singapore—a standard-bearer of service excellence.
However, JAL’s journey took a dramatic downturn, becoming a cautionary tale of corporate mismanagement. Initially state-owned, JAL enjoyed the protection and backing of government oversight, which insulated it from the competitive pressures of the open market. This environment fostered inefficiencies and a lack of urgency that would later cripple the airline after its privatization.
Without the safety net of government support, JAL struggled to adapt to the realities of a competitive market. The airline, plagued by self-inflicted issues and global crises, accumulated debts amounting to ¥2.32 trillion (S$28 billion) by the early 2000s. This debt load was more than 100 times its valuation, leading to its bankruptcy in 2010—the largest in Japan’s non-financial sector at the time.
The man credited with orchestrating one of Japan’s most significant corporate turnarounds was Kazuo Inamori, a 77-year-old retiree and Buddhist monk with no prior experience in the aviation industry. Despite his unconventional background, Inamori transformed JAL into the world’s most profitable airline within two years—a feat that many described as miraculous.
The story of JAL’s dramatic recovery is detailed in the series “Inside the Storm,” which explores how major corporations navigate crises and adapt to survive and thrive under pressure.
FROM INVESTMENTS TO DEBTS
Hiroshi Sugie, a former JAL pilot with nearly four decades of service, recalls the airline’s descent into trouble. The turning point, he noted, was the management’s aggressive expansion and investments outside the aviation sector during the airline’s peak. One notable example was the acquisition of the Essex House, a Manhattan hotel, for US$190 million (S$260 million) in the mid-1980s, followed by a costly US$100 million renovation.
“They bought a famous hotel in New York. It was incredibly expensive. Even if it was fully booked for the next 30 years, it would’ve been unprofitable,” said Mr. Sugie.
These costly investments left JAL overexposed just as Japan’s economy began to falter. In 1992, JAL posted a loss of ¥53.8 billion, the first since its full privatization in 1987. This marked the beginning of seven consecutive years of losses, forcing the airline to cut its workforce and sell assets, including the Essex House, to recover from the overspending of the previous decade.
Diversification beyond its core aviation business was just the beginning of JAL’s woes. A series of global events further exacerbated the airline’s problems. The Sept 11 attacks in 2001, followed by the Iraq War and the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, severely impacted passenger numbers, wiping out the airline’s already thin profit margins.
Hiroyuki Kobayashi, who served as a JAL pilot for 42 years, highlighted the significant challenges SARS posed for the airline’s management. “The SARS crisis posed a big challenge for the management, which subsequently led to various cost-cutting measures such as less marketing expenditure,” he said.
In response, JAL secured a ¥90 billion loan from the government-owned Development Bank of Japan, adding to a previous loan obtained after the Sept 11 attacks. These loans pushed the airline’s debt to over ¥240 billion, further straining its financial stability.
INEFFICIENCIES TO THE FORE
Amid these external challenges, JAL faced additional difficulties in its domestic market, where All Nippon Airways (ANA) had long been the dominant player. In 2002, JAL acquired Japan Air System (JAS), the country’s third major carrier, which primarily operated short-haul routes. However, this merger introduced further inefficiencies and costs due to the diverse fleet of aircraft types, including McDonnell Douglas and Airbus, operated by JAS.
Philip Zerrillo, a marketing professor at Singapore Management University (SMU), used JAL as a case study for his students. He explained, “All of a sudden you have multiple plane makers. That means you have to have multiple spare parts and multiple crews.”
Japan’s aviation regulations compounded these challenges. “In Japan, you weren’t allowed to have your crews be multiple-aircraft rated … So the ability to convert to smaller planes or shift crews between planes – all of that stuff was off the table,” he added.
JAL’s oversized fleet, especially its Boeing 747s, was ill-suited to many of its routes. Meanwhile, newer airlines were flying smaller, more efficient planes at full capacity, leaving JAL struggling with empty seats and high overheads.
Despite its mounting troubles, JAL continued to borrow heavily, seemingly confident that the government would bail it out. “It always thought the government would have its back,” said aviation enthusiast Keishi Nukina. “And it would spend money left and right.”
The global financial crisis of 2008-2009, however, was the final blow. In 2009, JAL sought yet another emergency loan, this time for ¥100 billion. This fourth bailout eroded confidence among customers and employees alike. “People were unhappy,” said Mr. Kobayashi, reflecting the growing sense of insecurity and the belief that failure was inevitable.
By this point, it was clear to all that JAL was riddled with inefficiencies. “There was a lot of bureaucracy, complacency, very slow decision-making and not really the guts and the energy to make deep-seated changes to the airline,” said Jochen Wirtz, Vice Dean of Graduate Studies at the National University of Singapore Business School.
A DIFFERENT KIND OF LEADER’
Kazuo Inamori, the man chosen to save JAL, was known for his unconventional approach to business. “If they didn’t change their way of thinking, JAL’s managers wouldn’t even be able to manage a grocery store,” he famously declared upon taking charge.
Inamori, the founder of the ceramics and electronics giant Kyocera, took the helm after JAL filed for bankruptcy protection. The airline underwent a drastic restructuring, slashing 15,700 jobs—nearly a third of its workforce—cutting salaries by up to 30 percent, and receiving a final bailout of ¥900 billion, with some of its debts forgiven.
But Inamori knew that financial restructuring alone wouldn’t save the airline. He needed to change the company’s culture. Hideo Seto, the former chairman of the Enterprise Turnaround Initiative Corporation of Japan (Etic), which oversaw JAL’s restructuring, explained why Inamori was the right choice: “We required a different kind of leader … who could instill a new set of values – someone who had the power and would augur well for the people on the ground.”
Despite being an ordained monk since 1997, Inamori’s approach to business was anything but traditional. He famously took no salary at JAL, believing that leading by example would inspire the staff. “The fact that I worked for no salary influenced the staff,” he said. “They could see that I was desperate to rebuild the company, even though I had no links to JAL previously.”
Inamori’s management philosophy placed a strong emphasis on employee welfare, believing that employees who felt valued and motivated would contribute to the company’s success. “This is Mr. Inamori’s management philosophy – the idea is the employees do their best, and as a result, they contribute to society,” Seto said.
THE AMOEBA EFFECT
To address JAL’s challenges, Inamori implemented the Amoeba management system, a method he had developed at Kyocera. This system decentralized decision-making, empowering small teams within the organization to take responsibility for their operations. This approach, which was a significant departure from traditional Japanese corporate culture, required a high level of trust in employees.
Terence Fan, an assistant professor of strategic management at SMU, observed that the Amoeba system involved employees understanding how their actions impacted the company’s bottom line. “People had taken for granted lifelong employment and a little bit of the fact that they were just serving their bosses. And there was a lot of inertia,” he said.
Inamori closely monitored each department’s performance, scrutinizing financial figures and demanding explanations for any lack of improvement. This approach eliminated the practice of passing the buck, ensuring that poor performance was addressed directly.
By the fiscal year 2011/12, JAL had become the world’s most profitable airline, posting a profit of ¥186.6 billion—far exceeding the ¥60 billion target. The final proof of JAL’s turnaround came in September 2012, when the airline’s initial public offering raised ¥663 billion, marking the second-largest IPO worldwide that year after Facebook’s.
JAL has since modernized its fleet with fuel-efficient Boeing 787s and expanded its route network to include destinations in North America, the Middle East, Africa, and Central Asia. However, the airline faces ongoing challenges from low-cost carriers, which are increasingly entering medium- and long-haul markets.
“We can’t afford to be an airline just for the Japanese people; everyone should use it … We can’t let the seats be empty,” said Seto.
Looking ahead, the Tokyo 2020 Summer Olympics presents an opportunity for JAL to boost its revenues. The airline is also set to launch a new international budget carrier to tap into the growing demand for affordable
With its workforce restructured and finances stabilized, Inamori stepped down from the JAL board in 2013, becoming an honorary adviser in 2015. Despite the uncertainties ahead, Seto remains optimistic about JAL’s future. “If the executives don’t forget [the financial crisis of] 2009, and stay vigilant, I think they’re able to overcome any challenges,” he said.
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A stylized fact following the 2008 crisis is that U.S. growth substantially outperformed the rest of the advanced world. This again looks to be true in the aftermath of COVID-19 (Figure 1), with lots of debate on the underlying drivers. Some argue that this outperformance reflects loose fiscal policy and rapid immigration, while others see a productivity boom linked to tight labor markets. Whatever the source, cyclical outperformance may keep U.S. inflation stickier than elsewhere. There are some signs of this. Figure 2 shows the combined weight of items in the U.S. consumer price index (CPI) with month-over-month inflation above 2% (on a seasonally adjusted, annualized basis), alongside the same measure for the eurozone’s harmonized index of consumer prices (HICP). This metric is noisier than if we used year-over-year inflation, but it has the advantage of focusing on recent inflation dynamics, since there are no base effects to muddy the picture. Elevated inflation remains relatively broad-based in the U.S., consistent with strong growth, while inflation momentum is clearly fading in the eurozone.
