When a national flag career, Japan Airlines collapse, where the value of the firm is just “$150m – less than the price of a new jumbo jet.”. What could have went so wrong?
“JAL will have to replace some of the older, less fuel-efficient planes in its fleet and reduce the number of routes it flies.” -The error can be caused by lack of communication / Co-ordination with-in JAL.
There are a total of 6 airlines running under JAL,
which we can consider this as dis-economy of scale when it makes a lose. This error may be caused by marketing / Business Development, since they are responsible for opening different routes or simply acquiring the subsidaries.
However, their decision most probably based on statistical data from the Accounting department. There are a few limitations that apply to Accounting,
– considerable amount of judgement and estimation used
-> They may have over estimated their revenue and under-estimated their cost.
– based on historical cost principle
-> The most significant cost in an airline is the fuel cost, it accounts around 27% of the cost, they may have fail to estimate the rising fuel cost.
Or even Operation, as they may fail to use the right aiccraft type for different routes.
Source: http://news.bbc.co.uk/2/hi/8466997.stm