The Post-JAL DAL

JAL and her presence in Narita International are like Godzilla in Tokyo, but is JAL worth 1.1 billion? Sky Team is an efficiently distributed machine that fills our sky with multiple lines at one of the lowest costing operation in flight. DAL is currently adapting her efficiency models to fit her service goals, but the NRT hub and her cost of operating as an oversea hub may not fit Delta's operation model. One reason Sky Team is willing to pay for JAL is the adaption of the Delta-Air France model for the Asian market.

Unlike most businesses, Delta has a history of closing international hubs. When DAL acquired Pan Am in 1985, she operated her Frankfurt hub for 12 years until 1997. Currently DAL has no oversea hubs and coincidentally operates the lowest costing flight hours in U.S. Mainline. Even as the low cost carrier of the Majors, how does DAL carries more passengers to more destinations than any American carrier. Let us look at DAL's semi-daily flight from CDG to ATL. This line exemplary since this 767 is operated by ATL based crew in air and controlled by AF gate agents on the ground. With DAL's JV with Air France and KLM, DAL is able to producing profit by blending codesharing flights. While experience and flight leader training are responsible for some elements of operational cooperation, most of the key elements were common practice across DAL and AF. So if this kind of operation is possible, how much would JAL worth to DAL?

With their prominent presence in NRT, DAL and JAL both staff hundreds of working crew in NRT every day. DAL inherited her NRT hub from NWA in 2008 and operates daily flights to various Asian destinations. With over hundreds of senior flight crew and ground crew, DAL's U.S. made efficiency and evaluation model is still pending implementation. How to cash in on the next boom in Asia and trim the operating cost of the NRT hub is going to be paramount to DAL's Asian strategy. Perhaps, DAL's cash reserve is pending withdraw to JAL. Alas, JAL is not the only one DAL can pursue in Asia. Behind the JAL sits the newly merged China Eastern.

Should JAL choose AA over DAL, then China Eastern may have a chance in working with DAL. Since CE's failed effort with Singapore Airlines, those proud people of Shanghai never found solace in simply merging Shanghai Airline with China Eastern. Those national carriers still operates ancient system and implement outdated procedures. DAL and her efficiencies expertise can benefit CE while CE's Shanghai Pudong hub can reduce DAL's operating cost in Shanghai while lubricating her network from Shanghai. Benefits aside, CE would be a long shot as Sky Team also has China Southern in her ranks. Sky Team and CS has been operating successfully, but her potential in Haikou, Hong Kong, Guangzhou and Zhuhai has not yielded significant monetary return for her codeshare partners. During my last visit to Haikou, China South is facing a large population of very price-averse passenger group that is being chiseled away by Hainan Airline and other low cost carrier.

With crisis comes opportunities. With JAL in trouble DAL and AA may be able to get a good buy out of an fly carrier. The key to DAL is not route assets held by JAL, but the cost efficiency from merging with JAL. In the end, JAL does worth more than 1.1 billion, but only to DAL not AA. Even if DAL loses the bid for JAL, DAL could immobilize AA and her liquidity for the short-term.