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Delta Air Lines' our-way-or-no-way attitude risks subverting US & Japan interests on Haneda flights

Delta Air Lines, more than any other carrier, has successfully used aeropolitical lobbying to bring it closer to partners and positively grow its business. Delta, via predecessor Northwest Airlines, formed the first ATI JV, with KLM.

More recently, Delta pressured the approval of a JV with Aeromexico, despite the absence of US-Mexico open skies. Delta has sought to grow closer to China Eastern Airlines by taking a stake that remains questionable in some corners of the Chinese government. Delta is the only North American carrier participating in JVs with airlines strong in both London Heathrow (Virgin Atlantic) and continental Europe (AF-KLM). Through other equity stakes Delta has displayed a cooperative attitude, gaining a favourable position on scarce slots in many of these markets, some of which are alleged to be rife with corruption.

In these examples Delta has emerged stronger and for the better, but where Delta cannot win, or its competitors stand to gain more, Delta can turn aggressive. This is now on display with the latest round of talks between the US and Japan over the first daytime slots for US airlines at Tokyo Haneda Airport. Delta rejects the few slots being offered as ending in a piecemeal result; Delta wants to move its entire Narita operation to Haneda, which at present numbers would require 14 slot pairs, a number so large it cannot even form a negotiating point. Unless Delta becomes reasonable, or is quietened, it is possible that no airlines may benefit.

Any expansion of Haneda slots would benefit Delta's competitors far more than itself, after Delta recently lost an attempt to grow its local business by purchasing Japan's Skymark. Although a business cannot be blamed for lobbying to bring itself benefits, Delta states its individual needs as a policy that will benefit all. There is an argument for the US government to step up its rejection of Delta's protectionism.

Delta failed to buy Skymark, a fresh strategic approach. Now Delta reverts to protectionism

Delta's overly bold calls for more Haneda access are not new. In 2013 Delta held an event in Tokyo calling for the ability to move its Tokyo Narita hub to Haneda; a loud move in conservative Japan where much is done behind closed doors, and not through trying to win the press. This did not win Delta friends, and at worst it strengthened animosity.

In Jun-2015 Delta publicly repeated its call to be able to move its Narita operation. The remark was a side comment, and probably not necessary, but reflective of Delta's aggressive manner. As CAPA has previously written:

Delta rattled nerves again in Jun-2015 in a regulatory filing when it wrote it would give up the right to operate Seattle-Tokyo Haneda, the source of a contentious fight amongst US carriers. Rather than bow out with whatever grace was left in the saga, Delta took the opportunity to lament the long-established, and accepted, policy at Tokyo Haneda:

"Delta remains strongly opposed to any further changes to the Haneda operating rules unless and until Japan is willing to open the airport under normal open skies terms and allow Delta to relocate its Tokyo hub operation to the preferred airport. Any incremental or phased deal effective before then would be harmful and unfair to Delta as a Narita hub operator. Accordingly, we urge the U.S. government to aggressively pursue a full opening of Haneda to allow fair and equal access by U.S. carriers and their customers."

Right or wrong this was most certainly not likely to generate a positive response in Tokyo.

See related report: Delta Air Lines' proposed investment in Skymark clouds a possible joint venture with Korean Air

In summer 2015 Delta attempted to be the sponsor of domestic Japanese carrier Skymark, which entered bankruptcy. Delta was in the running with All Nippon Airways, and CAPA gave a positive outlook to a Delta-Skymark deal. The strategic and equity partnership would have boosted Delta's trans-Pacific attraction by having a local partner, giving Delta greater relevance in Japan. Delta would have benefitted from some transfer traffic at Haneda, Skymark's largest base, but it would have been unable to use Skymark's slots for its own flights, or to convert Skymark's domestic slots to international flights to feed Delta services from other points in Asia.

Putting Skymark under Delta would have enshrined a third competitor in what is largely an ANA-JAL duopoly, and Delta would have allowed Skymark to realise its potential to a far greater degree than an ANA-Skymark partnership. ANA naturally wants Skymark to succeed, but not so much that it takes business from ANA.

In the end, creditors selected ANA, although Tokyo was surely fearful of a Delta-Skymark partnership, based on past confrontations with Delta. No doubt Delta in the short- and long-term would have sought aeropolitical changes to further its partnership with Skymark.

Delta's Tokyo Narita hub still relevant: Korean Air/Seoul Incheon deal yet to be consummated

Ideally Tokyo would not have been such a concern for Delta if it had had its way, and been able to establish an Asian hub at Seoul Incheon in partnership with Korean Air. Incheon was welcoming of the idea, seeing Delta as a way to boost transfer traffic at a time when Incheon's transfer traffic was declining, but without the critical support of a partner – SkyTeam's Korean Air – the hub would not have worked.

Korean Air was unconvinced of the strategic benefits to itself. Delta's response with heavy-handed tactics (cutting codeshares, frequent flyer earning rates) was meant to force Korean Air into a partnership, but it only served to alienate Delta from Korean, in a part of the world where relationships are critical; neither easily established, nor easily mended. Whether with the Japanese government or Korean Air, Delta is not making friends. Delta's attempt to woo Skymark shaded its intentions with Korean Air, while Delta's China Eastern stake has some contradictions with a Korean Air partnership.

See related reports:

US and Japan to negotiate daytime Tokyo Haneda slots in Feb-2016 

With no Delta-Korean Air partnership, and the partnership scenario of Delta-Skymark having ended, for its Northeast Asian hub strategy Delta has returned to its bid to move its Narita operation to Haneda. It is an understandable wish, even if being clamoured for very loudly and directly.

Yet Delta is trying to subvert any opening of Haneda slots. In this ‘our-way-or-no-way’, all-or-nothing approach, unless Delta gets what it wants – a large presence at Haneda – no airline should receive anything. “These individual slot issues wouldn’t exist if Japan allowed true Open Skies access to Haneda...The U.S. and Japan should only enter into talks when Japan is willing to open access to Haneda airport,” a Delta spokesperson said in Nov-2015 to Dallas News

The Dec-2015 US-Japan negotiations about daytime Haneda slots did not produce a definitive outcome, although the parties committed to talking again later. A date of 09-Feb-2016 has been set for the next round of high level talks, when Delta expects a deal to be finalised unless it intervenes.

In Jan-2016 Delta Special Counsel Ben Hirst told the Minneapolis/St. Paul Business Journal that upon resumption of US-Japan air talks in Feb-2016, Delta will continue with its all-or-nothing argument. The article said, without directly quoting Mr Hirst: "Delta wants Japan to either keep its two airports operating at status quo or completely open up Tokyo International Airport in Haneda to everyone. Hirst said Haneda could accommodate Delta as a hub."

Although Delta's line is not new, Mr Hirst told Detroit News that it did not expect the US government to endorse the Japanese proposal: “We didn’t really fully understand that this was happening until just before Christmas. We’re still in the midst of preparing our response...It’s a total reversal of where the government has been, on the U.S. side.”

Where Delta benefits, it advocates liberalisation. Slots often the lurking issue

Delta's argument on Haneda raises the airline’s own anti-competitive, anti-liberalisation concerns, when considered within the confines of Japan, but when comparing it with Delta's global developments – its view on Haneda is downright contradictory.

There are hypocrisies about slots. Delta wrote that "we urge the U.S. government to aggressively pursue a full opening of Haneda to allow fair and equal access by U.S. carriers and their customers." In 2015 both Delta and United sought to add a flight to Shanghai Pudong, and while Delta was successful in obtaining Shanghai Pudong slots, which are constrained, United was not. Delta's SkyTeam partner China Eastern is based at Shanghai, with powerful influence on the government, and slot allocation. United, being a member of Star, is in competitive territory in Shanghai, and is not a welcome presence. Delta is probably quietly content that United Airlines did not have the "fair and equal access" at Shanghai Pudong that Delta wants at Haneda.

Delta's next step with China Eastern is likely to push for US-China open skies so that the two can form a JV, improving their business but also making it difficult for competitors. Air China and United have a difficult relationship, but could theoretically focus on their own deeper partnership. American would have a more difficult time as its mainland Chinese partnership is a confined arrangement with Hainan Airlines that has not significantly grown. oneworld lacks a mainland Chinese member, no doubt partially because state-owned carriers (with the nudging of their alliance partners, such as Delta and United) have pressured the Chinese government to signal difficulties towards oneworld. This is also not the fair and equal access that Delta champions for Haneda.

Slot allocation in China is generally considered a less-than-transparent process, a situation that China is seeking to change as it trials a competitive slot allocation process in 2016. Likewise at Mexico City, home to Aeromexico. Delta petitioned the US government for an ATI JV with Aeromexico. JetBlue requested that Aeromexico and Delta detail their slot arrangements at Mexico City Airport, home to a murky slot regime potentially prohibiting smaller carriers from growing, and where the two majors would have a substantial portion of the slots. JetBlue, which was unsuccessful in obtaining the slot pool it wanted (in terms of quantity and time allocation), diplomatically referred to Mexico City's "complicated procedures for acquiring slots".

Aeromexico and Delta shot back that, "MEX is no different than many other major international slot-controlled airports where the Department has granted antitrust immunity." Although Mexico City may be slot-constrained like other airports, many airlines can attest to Mexico City having an opaque slot regime. JetBlue noted that Aeromexico and Delta's combined Mexico City slot share was equivalent to the oneworld's slot grouping at London Heathrow, which Delta and Northwest (and others) used as an argument to deny ATI in past decades.

In the end, Delta benefitted from liberalisation by taking a stake in Virgin Atlantic and forming an ATI JV, making Delta the only carrier with a JV in both the top premium market of London Heathrow and with a large group in continental Europe (AF-KLM, which dominates the also strong market of Paris).

Delta's demonstrable benefits from existing open skies, their seeking open skies with China, and their calling for true open skies with Japan contrast with Delta's protectionist antics over the UAE and Qatar.

See related reports:

Japan has made daytime Tokyo Haneda slots available to US carriers

In 2013 Japan allocated a new tranche of daytime international slots, which included reserving four for Japanese carriers on US routes. The US slots were not allocated, since the two sides could not agree to a deal.

Haneda slots for mainland China were not put into use until 2015, when relations thawed and the Chinese and Japanese sides could negotiate. The four US slots for Japanese carriers would likely have been matched with four Haneda slots for US carriers, following Tokyo's allocation for all other countries.

See related report: Japan awards international Tokyo Haneda Airport slots, but Narita Airport remains the main hub

Latest indications are that this figure has been increased to five slots for each country. It is unclear where the additional slot has come from (Haneda is theoretically at capacity), but slots have cropped up unusually in the past: in 2015 Qantas was able to make use of a daytime Haneda slot, despite previously only being allocated midnight hour slots. Any daytime slots will in fact be beneficial, unlike the potential risks that Delta faces from growth at Haneda. No doubt American, Hawaiian and United would like more Haneda slots, but they recognise an outsized demand will not get them anywhere.

The daytime slots are more valuable than the nighttime slots (22:00-06:00) for three main reasons. Firstly, they enable more convenient flying times to/from Haneda, which also impacts ground travel to/from Haneda Airport given limited public transportation hours and expensive taxis in Japan. Secondly, two-way connections become possible. Thirdly, daytime slots will make non-west coast US destinations viable from Haneda; the narrow window of night time slots, combined with time zones and flying duration, has meant so far that interior US points could not be viably served, as was the case with American's failed Haneda-New York JFK service.

Delta's impractical request: it wants as many Haneda slots as JAL has

Some reports indicate that Delta wants 13 daily Tokyo Haneda slots in order to move its hub from Narita to Haneda. For 2016 on average, Delta is using 14 daily slots at Narita. Over the past decade, Delta peaked at 22 daily Narita slots in 2009. With Delta's 2016 average (14 slots) as a benchmark for what it would need in order to move its existing Narita operation to Haneda, the airline is effectively asking for as many slots as the next four largest airlines have, combined.

The even bigger impracticality is that Delta's request would mean that it would have 70% as many international slots as local carrier JAL, and half as many as ANA.

Tokyo Haneda international slot pair (all times) by carrier, and theoretical size of Delta (in red) if it moved its Narita operation to Haneda: 11-Jan-2016 to 17-Jan-2016

The above chart is for all international slots, but the ANA and JAL count includes less valuable midnight hour slots.

Delta presumably wants all daytime slots, and 14 daytime Haneda slots for Delta would mean that it would have almost as many daytime slots as JAL (15), and not far behind those of ANA (21).

Focusing on daytime slots skews the balance towards Delta and shows how impractical – and outlandish – Delta's request is. The US government would be challenged to present this request, or anything near it, to the Japanese government. It would be a farce for the US government to ask Tokyo to allow a foreign carrier – and one that has been persistent and difficult – to take a position at the prized Haneda airport that would make it as large as Japan's flag carrier.

Tokyo Haneda daytime (0600-2200) international slots operated by ANA and JAL, and theoretical size of Delta (in red) if it moved its Narita operation to Haneda: 11-Jan-2016 to 17-Jan-2016

Delta's concern is that expansion in the US-Haneda market would favour the ANA/United and JAL/American partnerships (each with ATI JV), allowing them to capture more US-Tokyo point-to-point demand through offering more Haneda flights. Delta's Narita network will become less attractive, forcing Delta to remove US-Narita services. As those flights decrease, there will be fewer passengers for Delta's Narita-Asia beyond flights (64% of Delta's US-Tokyo Narita passengers connect beyond Narita, according to Delta).

This could mean the cancellation of beyond-Narita flights, impacting US-Narita demand. In Delta's view, the only way to stem this is to allow the airline to move its operation from Narita to Haneda. This will enable Delta to keep its operation in one airport and could give it disproportionately more slots than competitors, while allowing the status quo of US-Tokyo traffic to remain the same.

Delta reckons that of the 10 daytime Haneda slots (five for Japan, five for the US), the ANA/United and JAL/American partnerships would be awarded six to eight slots. Depending how many go to Hawaiian Airlines, Delta would secure one or two slots. Delta's two slots would be no different from its estimate that each carrier in the ANA/United and JAL/American combinations would receive two slots. But since Delta's competitors have partners, which Delta does not, their joint size in the Haneda slots is larger. Delta gives a projection that its share of mainland US-Tokyo traffic will decline from 22% to 8%, since competitors will have more access to convenient Haneda, whereas Delta will largely be at Narita.

In 2016 Delta uses 14 slot pairs at Tokyo Narita a day on average. This is down from a recent peak of 22 in 2009, when the movements of both Delta and Northwest are included. Flights between Narita and the US have decreased from about 11 in 2010 to eight in 2016. Narita-Asia flights have decreased from 11 in 2009 to six in 2016 (it was five in 2015, but increased with the introduction of seasonal Tokyo Narita-Hong Kong tags in lieu of daily non-stop). The beyond Asia flights have lost relevance as Delta introduces non-stop service to interior Asian cities, especially from its new Seattle hub.

Delta (including Northwest) US-Tokyo Narita and Tokyo Narita-Asia average daily slot pair usage: 2006-2016

ANA/United and JAL/American not negatively impacted by Haneda growth

Delta's competitors are not impacted negatively. First, American and United rely on the intra-Asia network operated by their Japanese partners. Delta has no Japanese partner to codeshare on to other Asian points. United's intra-Asia, fifth freedom operation from Tokyo Narita has been smaller than Delta's, and is down to two daily flights (Seoul and Singapore) compared with Delta's six.

Delta and United Tokyo Narita-Asia average daily slot pair usage: 2006-2016

United can decrease its intra-Asia by relying on ANA. Likewise American never had a beyond-Tokyo operation – only two US carriers were permitted. American relies on partner JAL for beyond Tokyo access.

ANA and JAL's international Northeast/Southeast Asian destinations are generally served from both Haneda and Narita airports. Of ANA's 21 Asian destinations, nine are served from both Tokyo airports while two are served only from Haneda (including Seoul, thus United's need for a Tokyo Narita-Seoul connection), and 10 only from Tokyo Narita. Of JAL's 15 Asian destinations, eight are served from both Tokyo airports, one only from Haneda, and six only from Narita.

ANA and JAL international Asian destinations by service from Tokyo Haneda and/or Narita airports: 11-Jan-2016 to 17-Jan-2016

City ANA JAL
Bangkok Both Both
Beijing Both Both
Busan - NRT
Chengdu NRT -
Dalian NRT NRT
Guangzhou Both HND
Hangzhou NRT -
Hanoi HND NRT
Ho Chi Minh NRT Both
Hong Kong Both Both
Jakarta Both NRT
Kaohsiung NRT -
Kuala Lumpur NRT NRT
Manila Both NRT
Qingdao NRT -
Seoul HND Both
Shanghai Both Both
Shenyang NRT -
Singapore Both Both
Taipei Both Both
Xiamen NRT -
Yangon NRT -

Carriers could be expected to shift existing Narita flights to Haneda using daytime slots, rather than to open all new sectors. These flights would logically be the routes with the highest Tokyo O&D demand – Los Angeles, New York. Haneda connections could work for the top popular connecting markets, such as Singapore. ANA and JAL use Haneda slots on Asian routes that have the highest O&D demand; those routes more popular for connections would be wasted on Haneda's convenient proximity to Tokyo and scarce slots.

US-Tokyo routes that are more dependent on connections, and connections to thinner points only served from Narita, would likely remain at Narita. It might appear that ANA and JAL would face a similar situation as Delta: reduced inbound US traffic would jeopardise beyond Narita flights.

But both ANA and JAL have been growing Tokyo Narita-US services. ANA is at an all-time record high for its US flights from Narita, while JAL is approaching its pre-bankruptcy size. The two expect to continue Narita-US growth as they grow their businesses, and aim to carry more North America-Asia transfer traffic – their key business opportunity.

US carriers, however, increasingly regard Japan as an end market (and a declining one). Transfer traffic at Tokyo is being replaced by more non-stop US-Asia flights: Delta's Seattle hub, American's increased greater China services, United's secondary China network (and perhaps a Singapore non-stop service in the future).

ANA and JAL average daily US flights from Tokyo Haneda and Tokyo Narita: 2006-2016

Delta's Tokyo routes become pawns in Haneda talks

An expanded Haneda deal would benefit the US-Japan market and all other carriers, including the numerous routes that would end up with more convenient access. Some carriers may launch all-new Haneda flights rather than shift flights from Narita, but these would likely be a minority. Delta is trying to galvanise support by warning airports and communities that Delta would have to end Tokyo service to/from their airport if it does not receive all of the slots it wants (but will not get).

Delta first flagged that Minneapolis could lose its service, and then said the same for Detroit. Delta says its Detroit-Tokyo Narita flight has only 57 passengers going to/from Narita despite the service being operated on a 747-400. Delta says 24 passengers of its daily 250 between Minneapolis and Tokyo Narita originate in Minneapolis. (Ironically, these statements sound like Delta’s complaint about Gulf carriers having low point-to-point traffic, to say nothing about Delta's extensive fifth freedom Tokyo operation compared with the single daily Emirates Milan-New York JFK service that Delta lampoons.)

If either of these services were cancelled, many of the passengers could be routed over another hub. However it might be asked if these routes were already on the chopping block. Delta has been cutting Japan capacity, and said it would continue to do so.

As Delta's figures allude, Minneapolis does not have as strong O&D traffic as present from other Delta cities having Tokyo services (Los Angeles and New York, for example). Nor is Minneapolis as strong a connecting hub as Atlanta, which is Delta's biggest hub in its system based on domestic seat capacity. Detroit is a stronger local market for Tokyo than Minneapolis is. Although Minneapolis is Delta's third-largest hub, it has overlap with Detroit and Seattle.

Delta Air Lines top 10 hubs/bases/stations/focus cities ranked on available domestic seat capacity: 11-Jan-2016 to 17-Jan-2016

Haneda debate exposes Delta's Asian weakness with partners, while Seattle is still ramping up

American and United will need to untangle Delta's mess, and it appears that Delta is only just starting a misinformation campaign. Mr Hirst went for conspiracy theory, alleging that the US government would help the Japanese side hurt Delta's Asian operation. Mr Hirst said: “We have no place to turn...The truth is (that) there have been efforts on the other side to curtail Delta’s networks for many years. Now they’re finding a way to kill it, with the cooperation of the US government."

Even if Delta finds some relief – a compromise of some sort – its underlying problems remain the same: it is alone in Asia without a partner and its Asian hub at Seattle has question marks, at a time when American Airlines is bolstering Asian efforts from Los Angeles. Partner China Eastern will be some time off, and limited.

See related reports:

At the same time as Delta complains of the connecting hubs of Gulf carriers and their (far more limited) fifth freedom flights, it is desperately clinging it its own Tokyo Narita hub and fifth freedom flights. Ostensibly Delta's complaint is over subsidies, which have proven debatable. Less so for the subsidies that are received by China Eastern, Delta's new partner.

Whereas Gulf carriers' hubs are a modern production and link emerging economies, Delta's Tokyo hub has likely been through its glory days, and is now based in a country with a declining population. Whereas Emirates' fifth freedom Milan-New York JFK route was requested and welcomed by the Italian government, the US carriers' fifth freedom networks have been contentious and Delta predecessor Northwest was alleged to have abused rules on local versus connecting traffic.

But – never mind. It has always been a matter of ‘Delta's rules’. Delta may be the largest US (indeed, non-Asian) airline in Japan, but its history is far from illustrious.

In recent years Delta has insisted on being able to move its Narita hub to Haneda; has attempted to squander a nighttime Haneda slot; and has tried to derail US-Japan open skies. If Delta's doomsday scenario pans out to any extent it promises, there may be a heavy sigh of relief from Tokyo. This would be a shame for a carrier that has significantly improved what was often considered an awful in-flight experience, and has achieved some of the best operational and financial metrics in the global industry, leading the US sector.

Haneda is Delta's battle to lose, another where it will not have its way with the US government. After the slots are decided, Delta will no doubt put up a fight to be awarded many, and will perhaps consider delaying tactics. It is time for Delta to end its reliance on Japan and instead move on to its next plan for Asia. This time, being nice and playing well with others will not hurt. Delta has caused much unnecessary damage to itself, but it is repairable.

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