Special Feature: Reliably Capturing Demand Our Sophisticated Network Strategy 16 An Outstanding Network Strategy 18 Making the Changes that Will Create the New ANA 20 The ANA Group’s Future Network Strategy The ANA Group has been steadily preparing over the past several years for the 2010 completion of the expansion of Haneda and Narita airports in the Tokyo area. We are now at the stage where we must transform this business opportunity into stable growth. The feature section discusses the historical background and present status of the network strategy that is at the core of the ANA Group’s growth strategy. It also covers how our network strategy will support our transformation into a “new ANA.” All Nippon Airways Co., Ltd. Annual Report 2010 15 Special Feature: Reliably Capturing Demand Deepening Our Network Strategy An Outstanding Network Strategy Progress in the ANA Group’s Network The Narita-San Francisco route was representative, because it Strategy for International Routes allowed us to add demand for connections to Asian cities out of Narita, and demand for connections to U.S. cities out of The ANA Group has long had a strong domestic route San Francisco. The ANA Group’s international flight slots network. Our opportunity to fully develop our network increased substantially from approximately 170 round-trip strategy for international routes, however, came in April flights per week in 2002 to approximately 310 round-trip 2002 when Narita Airport’s temporary parallel Runway B flights per week in 2009 (total international passenger flights (2,180 meters) became available for use in addition to including arrival and departure slots at Kansai and Chubu Runway A (4,000 meters). airports). The ANA Group’s network strategy has developed in The ANA Group is approaching another turning point in tandem with three main phases of airport capacity expansion. 2010 with the expansion of the Tokyo-area airports. Phase III Phase I was the period prior to the expansion of Narita is about to begin, and we intend to generate new growth Airport that was completed in April 2002. Demand in Japan during it. for international routes is concentrated in the Tokyo area, and during Phase I Narita Airport was overwhelmed by the sheer volume of international flights. This kept the ANA Group from Features of the ANA Group’s fully using its international flight slots, thus limiting its ability Network Strategy to build its network. We used a point-to-point network at that time, aiming to capture mainly passenger demand for The network design process is largely split between service between city pairs. network planning and scheduling. Network planning involves Phase II began with the 2002 expansion of Narita Airport setting up the route network. It employs demand forecasts to that increased the number of international flight slots and formulate medium-term network strategy for domestic and the corresponding ability to build a strategic network. international routes. Scheduling formulates specific flight Demand linked to Star Alliance partners also increased, and timetables that enhance profitability based on network we set our sights on configuring a hub-and-spoke network. strategy, and then seeks to deploy aircraft, crews and other Former Point-to-Point Network vs. Hub-and-Spoke Network ◆ Point-to-Point Network ◆ Hub-and-Spoke Network Point-to-point network: a simple network of direct fl ights Hub-and-spoke network: Resembling a wheel, this route network is connecting two points. It is an effective network for structured so that fl ights to points on the periphery emanate from the hub meeting discrete demand for direct transportation airport at the center. Comparatively fewer passengers from spoke airports between city pairs. in smaller cities are concentrated at hub airports in big cities to increase operational effi ciency. 16 All Nippon Airways Co., Ltd. Special Feature: Reliably Capturing Demand Deepening Our Network Strategy An Outstanding Network Strategy resources with optimum effectiveness. Even with flawless network planning that sets up the route network based on analysis of precise demand forecasts with a medium-term perspective, poorly prepared scheduling of the resources required for network operation, from aircraft and personnel planning to slot management, will keep an operating diagram that works for both the ANA Group’s airline from capturing forecast demand and increasing earn- flights and code-sharing or connecting flights. Recently, the ings. Network planning and scheduling must be integrated. ANA Group has enhanced profitability by downgauging Network planning starts with the demand forecast, which aircraft on China routes where the balance of demand and is the key to constructing a multilayered hub-and-spoke capacity had eased because of increased competition and network. The ANA Group uses a proprietary system that does event risk and downgauging from Boeing 747-400s to Boeing not simply involve passenger flow between city pairs. Instead, 777-300ERs on long-haul North American and European it accurately estimates passenger demand from the original routes. Moreover, the ANA Group has also aggressively used starting point to the final destination, including prior and code sharing to benefit fully from the ability of alliances to subsequent connecting flights (origin and destination de- enhance competitiveness in terms of number of flights and mand) and quantifies customer route and flight preferences higher operational efficiency. to calculate share and estimate number of passengers and The ANA Group is a member of Star Alliance, the world’s profitability by route and flight. Moreover, it also provides largest airline alliance, and our ability to capture growing forecasts and analyses based on data including economic demand in Asia gives us an important role. Making full use of growth rates by country and region and business trends this alliance to build a competitive network is critical. among companies worldwide. For scheduling, the ANA Group uses a Fleet Assignment Model (FAM) that optimizes aircraft deployment to maximize revenue. It puts particular emphasis on setting a universal Code Sharing (as of July 1, 2010) Partner Code Sharing Details Routes Connecting Routes Asiana Airlines Narita-Seoul, etc. 22 0 Air Canada Narita-Vancouver, etc. 3 1 Austrian Airlines Narita-Vienna 1 5 Shanghai Airlines Haneda-Hongqiao, etc. 3 4 Singapore Airlines Narita-Singapore, etc. 4 10 Star Alliance Swiss International Air Lines Narita-Zurich 1 0 Thai Airways International Narita-Bangkok, etc. 4 9 Air China Narita-Beijing, etc. 14 12 Turkish Airlines Narita/Kansai-Istanbul 2 0 United Airlines Narita-Los Angeles, etc. 11 148 Lufthansa Narita-Frankfurt, etc. 4 36 Note: The total of code sharing routes with the other 16 Star Alliance members is 315. Air Do Haneda-Sapporo, etc. 9 IBEX Airlines Haneda-Sapporo, etc. 13 Domestic Routes Skynet Asia Airways Haneda-Kumamoto, etc. 8 Starfl yer Haneda/Kansai-Kitakyushu 2 Oriental Air Bridge Nagasaki-Tsushima, etc. 5 Annual Report 2010 17 Special Feature: Reliably Capturing Demand Changes in Our Operating Environment Are Opportunities Making the Changes that Will Create the New ANA Maximum Use of Dual Hubs in the has created a signifi cant business opportunity. We have a strong Tokyo Area network of domestic and Asian routes, and the dual-hub strategy for the Tokyo area will therefore provide numerous advantages including The extension of Narita Airport’s Runway B from 2,180 meters to the ability to capture demand from connecting fl ights. 2,500 meters increased annual arrival and departure slots from 200 * Including 30 thousand late-night and early-morning slots. thousand to 220 thousand as of March 2010. The completion of a fourth runway at Haneda Airport will increase its annual arrival and departure slots from the current 303 thousand to 361 thousand* in Expanding New Catchment Areas October 2010 and 380 thousand* in the fi scal year ending March 2012. These expansions will allow scheduled international service to The ANA Group is now in Phase III of its network strategy. We are recommence at Haneda Airport, signifi cantly increasing convenience building a global network and working to expand our catchment area by permitting short-haul routes to major cities in China and Southeast in order to benefi t fully from the opportunities provided by the expan- Asia during the daytime (6am-11pm) and long-haul routes to Europe sion of Tokyo-area airports. The fi rst factor behind these initiatives is and North America during the night. the increased number of fl ights permitted by the airport expansions. In Thus the ANA Group will be able to expand its businesses with a July 2010, we strengthened our network in Southern and Eastern focus on international routes by employing a dual-hub strategy for the Europe by initiating service from Narita Airport to Munich, Deutsche Tokyo area. This entails strategic division of functions between the Lufthansa AG’s second hub. In October 2010 we will increase fl ights on ANA Group’s primary hub of Haneda Airport, which will be able to existing routes from Haneda Airport to China and Asia, while also complement its outstanding access to and from central Tokyo by initiating new nighttime routes to North America. We will also add a offering international fl ights, and Narita Airport, which will continue to succession of new operations to Asia, Europe and North America from be the ANA Group’s main hub for long-haul international fl ights. For Narita Airport. We aim to capture new demand by making full use of future growth, we have to move beyond capturing demand only in the the difference in operating hours of Haneda and Narita airports and maturing domestic market by participating more fully in international connecting fl ights to them. passenger traffi c. In the past, the ANA Group faced constraints in Second, we are expanding our alliance network.