11

All Nippon Airways Co., Ltd. (ANA), one of Japan’s lead-ing airlines, has a dominant position in the domesticmarket and a strong presence on international routes.The Company, which has earned an excellent reputa-tion among passengers for its reliability, is constantlyworking to further improve its performance in the fun-damental factors of the airlinebusiness—safety, comfort,on-time operation, and conve-nience. Our long-standing,carefully cultivated brand im-age and our willingness totake on new challenges are key assets in our effortsto strengthen our competitive edge. With deregulationleading to fare liberalization, the airline industry hasentered an era of full and open competition. ANA seesthese developments as business opportunities and istaking an aggressive, forward-looking approach toachieving steady growth in the years ahead.

© J

EPPE

SEN

SAN

DERS

ON, I

NC.

22

Following the implementation of a numberof deregulation measures, the Japanese airlineindustry is in a period of full and open competi-tion. Approaching these developments asbusiness opportunities, ANA is working to builda foundation for future growth by formulatingand implementing market-driven strategies. Anexample is our strategy for Tokyo InternationalAirport (Haneda Airport), our principaldomestic base and, with more than 50 millionpassengers a year, the sixth busiest airport in theworld. By focusing on flights to and fromHaneda, we are working to bolster the competi-tiveness of our route network and improve our

he ANA Group has the largest routenetwork in Japan, with a market share of

about 50% on domestic routes. The Companyhas built a strong operational foundation in thedomestic market. ANA is the leading airline onseven of the top ten routes by number ofpassengers, including the extremely importantTokyo-Sapporo route. Customers rate ANAhighly for safety, and its well-known brandimage is synonymous with reliability. Domesticroutes, which currently generate about 70% ofANA’s air transportation revenues, are making asignificant contribution to the Company’sperformance.

T

33

A N A ’ s C h a l l e n g e s a n d C o m p e t i t i v e A d v a n t a g e s

profitability. ANA can already assert a dominantcompetitive edge at Haneda. The ANA Group,which holds about 45% of the slots at Haneda,received 13 more flights per day upon thecompletion of a new runway.

Currently, passenger demand on trunkroutes is firm. In particular, a clear shift to airtravel has begun on the routes that competewith the Shinkansen bullet train. As a result,from July 2000, we began to operate shuttleflights in cooperation with Japan AirlinesCompany, Ltd. (JAL), and Japan Air System Co.,Ltd. (JAS), between Tokyo and Osaka. Includingland transportation, about 35 million people a

year travel between these two cities. We are alsoreorganizing our local route network by trans-ferring lower-demand routes to subsidiary AirNippon Co., Ltd., and by focusing on efficiencyand convenience in commuter flights, such asthose offered by Air Hokkaido Co., Ltd. In theseways, ANA is leveraging its competitive edge inthe domestic market to further strengthen andexpand its operations on domestic routes.

44

2000, our network, includingcode-share flights, had ex-panded to 40 cities on 100routes with 1,261 flights perweek. With our own aircraft,we served 27 cities on 44

routes with 354 flights per week.Since joining Star Alliance, ANA has

worked to rebuild its profit foundation byshifting its fundamental strategic emphasis oninternational routes from “scale” to “quality andprofitability.” Membership in Star Alliance willincrease our international competitiveness andfoster opportunities to obtain new customers.

NA has used its strong position in thedomestic market to make an aggres-

sive entrance into the international arena. Interms of total passenger numbers, ANA is thelargest airline in Asia and the sixth largest IATAmember airline. In 1998, we became an incum-bent carrier*, and we are taking steps, such as theinitiation of service on the Honolulu (October1998), San Francisco (December 1998), andChicago routes (April 1999), to steadily expandour business opportunities. In October 1999, webegan a new phase of growth in internationalroutes when we joined Star Alliance (see page 9),the world’s largest airline network. As of July

A

55

A N A ’ s C h a l l e n g e s a n d C o m p e t i t i v e A d v a n t a g e s

Accordingly, we are striving to make the most ofour alliance membership. Specifically, we areworking to expand regions served and flightsoffered through code-sharing, to attract morealliance passengers through frequent flyerprogram tie-ups, and to increase customersatisfaction by providing high-quality, seamlessservice from reservation to arrival (see page 12).Each of these steps will make a significantcontribution to improving customer conve-nience, one of the fundamental factors of theairline business. At the same time, thesemeasures will also serve to strengthen ANA’spresence in overseas markets.

ANA will focus its international operationson New Tokyo International Airport (NaritaAirport), which will be utilized as a hub. A newrunway will open at Narita in 2002, presentingANA with new business opportunities. We willtake advantage of those opportunities byoffering daily service on key routes, therebyimproving our profitability. ANA will furtherstrengthen its operational foundation oninternational routes by following a growthstrategy that leverages the provision of mutuallybeneficial services by alliance partners.

* Incumbent carrierIncumbent carriers are those airlines that can freely determine, without limitations, routes andflight frequencies for service between Japan and the United States as well as for service onroutes continuing on from Japan and the United States to third-country destinations. Japan hasthree incumbent carriers—ANA, JAL, and Nippon Cargo Airlines Co., Ltd. (NCA). The UnitedStates also has three—Northwest, United, and Federal Express.

66

In service, our strategy mainly targetsbusiness travelers, which are highly profitable,especially on international routes. During theyear under review, we worked to further im-prove customer service. For example, we becamethe first Japanese airline to introduce theadvanced B777-200ER aircraft, which we putinto service on the Tokyo-Chicago and Tokyo-San Francisco routes.

Building on the popularity of our B747-400 aircraft deployed on our Chicago route, weequipped our B777-200ER aircraft with in-flightbar counters and business counters, whichcontinued to draw favorable attention. We are

NA’s operational developmentactivities are based on the funda-

mental management policy of always providingcustomers with the best value in terms of bothservice and price. ANA is highly regarded by itscustomers for the high quality of its service. Inan annual survey conducted by Nikkei Businessmagazine, for example, ANA has been selectedby business leaders as “Best Airline” for fourconsecutive years. With competition intensifyingdomestically and internationally, we will use ourstrong brand image to build enterprise valuethrough the provision of high-value-addedservice and a fare structure that meets the needsof customers.

A

77

A N A ’ s C h a l l e n g e s a n d C o m p e t i t i v e A d v a n t a g e s

also steadily expanding the number of loyalANA customers by taking steps to raise cus-tomer satisfaction, including the introduction ofsuch customer-oriented services as on-demandvideo equipment in first class and business class.

We have taken advantage of the liberaliza-tion of fares and our dominant market positionin Japan to offer passengers flexible fare sched-ules developed in consideration of demandtrends, principally in the domestic market. Inthis way, we are working to improve value forcustomers by offering them a wider range ofmore convenient choices. The effective use of avariety of discount fares, such as advance-

purchase discounts, has contributed to arecovery in demand, which had been sluggish.As a result, domestic passenger revenues havebegun a full-fledged fundamental recovery. Inaddition, we are pursuing a strategy ofexpanding our points of contact with customersby making use of Internet sales and informationtechnology (IT). In the future, ANA willcontinue working to expand its passenger baseby adding value in ways that strengthencustomer loyalty.