Japan aviation fuel tax and aero charges cuts show serious intent to reform the sector

Japan’s airline industry is under stress. That much is obvious from Jan-2010’s bankruptcy of the country’s iconic flag carrier. When Japan Airlines entered bankruptcy protection at the beginning of the year, the high cost of operations in the country was highlighted as a major obstacle to future survival. So, as well as pushing the airlines to become more efficient, the government came under pressure to remove some of the more obvious elements of that add up to an impossibly costly backdrop for JAL, All Nippon and a small secondary sector.

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Today’s report in the Nikkei that the Transport Ministry (MLITT) was to reduce the punitive tax on jet fuel and, again, to lower notoriously high landing charges is therefore a major milestone. This is all down to the action-focused Minister, Seiji Maehara, who is making it a crusade to rectify Japan’s aviation industry ailments.

The domestic tax, unaltered since 1972, is massively higher than for example in the US, whose jet fuel tax is approximately USD11 per kilolitre. In Japan it is currently close to USD300 per kilolitre – or nearly 30 times higher. The proposed new tax level would, according to Nikkei, mean a reduction in cost for a single aisle aircraft domestic sector between Haneda and Sapporo Chitose (the world’s busiest air route) of around USD2,500. With some 1.500 domestic flights a day, such a reduction would make a massive impact on JAL’s and ANA’s bottom lines.

And substantial cuts are to be made also to the country’s excessive airport charges, with Tokyo Narita costing over 50% more than comparable airports elsewhere in the world. And, as the formerly domestic-only Haneda is opened up to more international service, the scale of charges promised to be anything from an astonishing 200% to 800% higher than foreign airports.

There is one note of caution. These cuts are to be proposed in the MLITT’s 2011 budget request next month. At a time when the Finance Ministry is hoping to capture every yen it can, Mr Maehara will need lots of political support to press his case.

If he is successful, this could be the first step on a long path for Japan’s aviation industry to become a viable and competitive world force.

See related report: Japan aviation policy under a Kan-do government. Bureaucracy the stumbling block to a new future