ANA Goes Back to Flight School
- August 5, 2013
Japanese airlines are seeking to expand beyond the carrier business into related sectors that offer more diverse, stabler sources of revenue. ANA Holdings Inc., the country’s largest carrier, has taken a big step in that direction with its acquisition of Pan Am Holdings Inc. and its subsidiary, Pan Am International Flight Academy Inc., the U.S.-based aviation training company.
“We hope to create profits as soon as possible using the 170 billion yen in new funds that we received last year,” said ANA Holdings CEO Shinichiro Ito at the company’s shareholders meeting on June 27. ANA announced on July 30 that it would buy out Pan Am for 13.9 billion yen and operate it as a wholly owned subsidiary.
Pan Am was established as the pilot training division of Pan American World Airways in 1980. Following the bankruptcy of Pan Am World Airways, Pan Am has continued its operation as an independent training services provider. The company posted 5.57 billion yen in sales for fiscal 2012, and has the second largest number of flight simulators―the devices used for training―in the world, after CAE of Canada. Carriers across many regions, including North and South America and Asia, rely on Pan Am for flight training services.
ANA established its own flight training division, panda Flight Academy, in 2011 to train its pilots. In acquiring another flight academy based in the U.S., ANA aims to “stabilize revenue,” says a company official.
The problems that pose the biggest risks for airline carriers are infectious diseases, terrorism, and financial crises, none of which can be completely eliminated or avoided. But by having a revenue source that isn’t prone to disruption by such hazards, airlines can lower the danger of serious damage to their finances every time they’re hit by a sudden uncontrollable event.
The flight training business, although peripheral to a carrier’s main operations, promises steady demand. That’s why ANA has zeroed in on flight training as a stable source of revenue.
It’s projected that air travel will more than double over the next 30 years, with much of the growth occurring in Asia. More airlines and planes will mean a need for more crew members. ANA aims to expand Pan Am into Asia and in the future provide flight training services to other Asian airlines, including partner firms and subsidiaries―a strategy that would generate steady revenue.
So far, ANA has not yet announced any plans to provide training services to a specific airline. But in June the company established an investment management company in Singapore to facilitate its investment operations in Asia. And Philippine Airlines has announced that it entered negotiations with ANA over investment and a tie-up. If ANA continues to step up its overseas investment, it could provide flight training through Pan Am as part of its tie-up deals with other carriers. The more airlines ANA wins as clients, the firmer its revenue base.
Pan Am’s headquarters in Miami, Florida (above left). The company acquired another flight school in 2012, complete with control tower simulators (above right).
Providing a platform of services for the air industry
ANA picked up the idea of entering the training business from AirAsia, the largest low-cost carrier group in Asia. AirAsia Group has a large training center in Malaysia, where it trains crew and mechanics of its affiliate airlines. These affiliates include AirAsia Japan, which was established as a joint venture between AirAsia and ANA.
The tie-up with AirAsia alerted ANA to the advantage of having a large training center. The two companies recently dissolved that partnership, but through it ANA gained valuable ideas that it aims to apply to further growth.
AirAsia Japan, a joint venture of ANA and AirAsia, went into service in August 2012. The two companies ended the partnership this year due to management differences, and ANA now faces significant challenges in rebooting the low-cost carrier.
Looking back, this isn’t the first time Japanese airlines have attempted to diversify their businesses. During the bubble period, ANA and Japan Airlines tried expanding into hotels, only for both companies to take major losses. The difference between now and then is that ANA’s current strategy centers on the airline business, expanding only into closely related areas.
An ANA official says, “The acquisition of a training provider is just our starting point. We hope to offer a broad platform of services across the industry.” Specifically, the company aims to provide mechanical servicing, manage airports, lease planes, and handle other parts of the air industry infrastructure.
Competition continues to heat up in the air industry, with a rise in low cost carriers and the expansion of Middle Eastern airlines into Japan. Will airlines’ latest efforts toward business diversification prove to be effective at alleviating risks and raising stabler revenue? For ANA, its buyout of Pan Am will be an important test.
(Naomi Hino, Staff writer, Nikkei Business)
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