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US-Japan reach open skies deal. Star in box seat, battle for Japan Airlines to intensify

14-Dec-2009

The US and Japan have reached agreement on the text of a landmark open skies aviation agreement, which, once finalised, will liberalise US-Japan air services for the carriers of both countries and set in motion the final stages of an alliance tussle over Japan Airlines (JAL) that will re-shape North Asian aviation. The clock is now ticking for American/oneworld and Delta/SkyTeam to sew up a deal with JAL, but complex factors in JAL’s own turnaround plan, including painful pension reforms, are expected to slow progress. United, ANA and Continental have a much smoother path and could gain considerable advantages from an earlier grant of antitrust immunity for their Pacific alliance.

The agreement – scant information on Tokyo area airport access

Details regarding the crucial element of access for US carriers to Tokyo area airports is scant, with the US side only noting the agreement would “provide opportunities for growth of US carrier operations at Tokyo’s Narita Airport and ensure fair competition regarding the new opportunities at Tokyo’s close-in Haneda Airport”.

Continental Airlines applauded the historic agreement, noting it would provide the US industry “guaranteed access to Tokyo's Haneda Airport for the first time in the 30-plus years it has been closed to US carriers”, without specifying details.

The following is what is known about the open skies pact, reached after five rounds of negotiations that commenced in May-2009:

  • Routes/carriers: Airlines from both countries would be allowed to select routes and destinations based on demand for both passenger and cargo services, without limitations on the number of US or Japanese carriers that can fly between the two countries or the number of flights they can operate;
  • Capacity/pricing/cooperation: The agreement removes restrictions on capacity and pricing, and provide unlimited opportunities for cooperative marketing arrangements, including codesharing, between US and Japanese carriers. American and Japanese carriers will be able to apply for anti-trust immunity (ATI) with each other, subject to relevant approvals.
  • Timeframe: The US government did not disclose a timeframe, but JAL President and CEO, Haruka Nishimatsu noted, "we are looking forward to the expansion of passenger and cargo traffic between the two countries from October 2010”.

US Secretary of Transportation, Ray LaHood, stated, “achieving Open Skies with Japan, a major US transportation and trade partner, has been a long-standing US goal and is good news for air travelers and businesses on both sides of the Pacific”. He added, “once this agreement takes effect, American and Japanese consumers, airlines and economies will enjoy the benefits of competitive pricing and more convenient service.”

Mr LaHood urged both sides to “act affirmatively, in order to put the agreement into effect”, perhaps in reference to the volume of work needing to be done by the Japanese Government to put JAL’s house in order.

Japan Airlines supporting, to apply for immunity with a “strategic” US partner

Of all the responses to the open skies agreement, Japan Airlines’ views are crucial. The carrier only noted it “warmly welcomes the positive conclusion” of the talks and intends to apply for ATI “with a strategic US partner as soon as possible, so as to seize this opportunity to strengthen our network and bring added benefits to our valued customers. 

American accuses Delta of attempting to “derail the talks”

American Airlines stated the US-Japan open skies agreement would “establish and foster a healthy global aviation framework in the Pacific Rim and replace the existing bilateral agreement that has governed aviation between the US and Japan since 1952”, by “ending discriminatory aviation policies and are in the best interest of American and Japanese people as well as the nations' airlines."

But American took a swipe at Delta Air Lines, accusing it of attempting to upset the talks.

American explained the existing US-Japan bilateral agreement had “provided a competitive advantage on routes to, from and through Japan for certain carriers for many years”, adding American joins the other US air carriers in the market to applaud government negotiators for “effectively reaching an agreement to best serve the interests of the traveling public, despite the last minute efforts by the dominant carrier in the market, Delta/Northwest Airlines, to derail the talks”.

American Airlines stated the agreement would “effectively reset the playing field and enable new working relationships, particularly pro-competitive joint ventures granted anti-trust immunity by the US and Japanese governments”, without mentioning JAL, which American is desperately attempting to retain in the oneworld alliance.

Delta, which is aiming to lure JAL away from the oneworld alliance with the promise of a cash injection, ATI and other benefits, issued a brief statement, thanking negotiators for their efforts and adding, ”Delta has long supported open skies in international markets, citing the well-established benefits for consumers, airline employees and investors”.

Delta did directly mention JAL, noting the agreement “opens the door to antitrust immunity, which would enable Delta and Japan Air Lines to engage in deeper and more effective cooperation, producing greater benefits for the carriers and their customers”. Delta added it is “confident that the Department of Transportation would grant it antitrust immunity with JAL”.

But there is much water to go under bridge before such an application can be lodged.

United to apply for immunity with ANA/Continental “shortly” – Tilton

For the Star Alliance, the path is much smoother. United Airlines President, Chairman and CEO, Glenn Tilton, stated, “we have the right partners and look forward to forming a joint venture across the Pacific with our long-time partner All Nippon Airways (ANA) and Continental, providing our customers with access to more destinations and convenient schedules."

Continental joined the Star Alliance in Oct-2009 and currently serves Japan in conjunction with alliance partners, including United and ANA. Continental stated it is “currently discussing deeper cooperation with these two airlines on trans-Pacific routes, and this cooperation would be facilitated by the new open skies agreement”.

ANA has not yet responded to the open skies announcement, but previous reports suggest it is keen to launch an application for ATI with its US partners as soon as possible. Mr Tilton added United expects to file an application with the Department of Transportation for anti-trust immunity across the Pacific with Continental and ANA “shortly”.

Here again, ANA, with its clearly defined alliance linkages, has the advantage over its larger rival, JAL. ANA will be hopeful of obtaining ATI approval quickly, to make maximum use of new slots that come available in Tokyo next year, as well as streamline and enhance its network across the Pacific and beyond. ANA will also be hopeful of a drawn-out and bruising tussle between American/oneworld and Delta/SkyTeam over JAL.


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