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The U.S. Department of Transportation in the coming weeks is
expected to finalize this month's tentative approval of two antitrust-immune
joint ventures competing between Japan and the United States. Once approved,
American Airlines and its Oneworld partner Japan Airlines and Star Alliance
members All Nippon and the recently merged United Airlines and Continental
Airlines can move forward their separate joint ventures to coordinate
scheduling, pricing, corporate deals and network planning between the two
While the approval of antitrust immunity advances the
tentative Open Skies agreement—since Japanese negotiators predicated the
bilateral on DOT's granting of antirust immunity—it does not lift Japan's
restrictions on point-of-sale discounts in the country, leaving it as one of
the few markets in the developed world in which carriers are required to
structure deals almost solely through back-end rebates. Sources, however, said
Japan's Ministry of Land, Infrastructure, Transport and Tourism is considering
a reversal of what some characterized as antiquated pricing requirements.
Representatives from each joint venture said it was too soon
to spell out details on corporate strategy with their new transpacific
partners, as the carriers are not yet immune from the antitrust rules that
govern how they cooperate. Still, given current price restrictions, there is
much both alliances will have to reconcile once final approval comes.
"The corporate marketplace is set up very differently
in the U.S. and many other countries in the free world," according to
Steve Smith, Japan Airlines' vice president of passenger sales for the
Americas. "Everybody in the U.S. and most everywhere else goes off of a
net discount. Corporations like that because they can see the savings right up
front and there's no real hassle. In Japan, it's all based off of a back-end,
and that requires a lot of personal labor to handle."
Japan-based airlines can play by the rules of individual
markets, and both ANA and JAL structure corporate deals in the United States
much like their native competitors, but a rule change would benefit
multinational companies with Japanese points of sale, the airlines said.
"It surprises a lot of corporate travel managers to see
how the Japanese point of sale works, because it really is still a back-end
pricing platform in 90 percent of the cases," said Gary Weiss, ANA
director of market development. "Travel managers look at it and they
either think they went back in a time machine 20 years or wonder how they're
going to manage this in an efficient, Six Sigma environment. Quite frankly,
there isn't a good answer to that."
Still, Weiss, Smith and others said they were optimistic
that Japan will drop its pricing restrictions. "I'm very involved with our
global accounts, and all of our global accounts want a Japan point of sale,"
Smith said. "At some point, Japan has to change. Major global corporations
are coming in there and demanding it."
Meanwhile, the new antitrust-immune joint ventures will
shift the competitive landscape between Japan and the United States—a shift
that DOT ruled in its tentative approval is pro-competitive.
Based on July 2010 OAG data cited by DOT, the immunized Star
carriers would have nearly 36 percent of the seats connecting Japan and the
United States, while the immunized Oneworld carriers would have 26 percent.
Meanwhile, immunized SkyTeam carriers, which were not involved in this
particular antitrust immunity request, hold about 34 percent of the market, DOT
"Delta and Korean Air currently operate with immunity,
have a strategically placed immunized connecting hub in Seoul and have a
sizable presence in the U.S.-Asia market," DOT said in its tentative
DOT also examined six citypairs in the U.S.-Japan market
where more than one ally currently offers nonstop service and where "the
resulting increased concentration could, in theory, give one airline or
alliance an increased ability to exercise market power to increase fares to
supra-competitive levels." Those markets are Tokyo to Chicago, Honolulu,
Los Angeles, New York, San Francisco and Washington, D.C. DOT determined in
each case that "market forces are likely to address potential competitive
DOT in its tentative order concluded, "By sharing risk
and optimizing the joint network, the Star and Oneworld applicants each state
they will be able to accelerate the introduction of new capacity, give
consumers more travel options and shorter travel times and reduce fares."
On the Los Angeles-Tokyo route, four competitors would
remain—including each of the three primary immunized alliances and Singapore
Airlines, a Star member with no antitrust immunity—none with a share greater
than 50 percent, which would be "sufficient to discipline fares in the
market," said DOT. The same would be true in New York, a large market
split among the three immunized alliances.
On the San Francisco-Tokyo route, United and ANA together
would claim a larger share of the nonstop market, which links two Star hubs,
but should they "attempt to increase prices, we believe that passengers
will have ample opportunity and incentive to shift to competing services,"
DOT concluded. "Also, Oneworld carrier JAL will initiate the only nonstop
service between San Francisco and [Tokyo] Haneda, likely an effective means of
competing in the competitor's hub-to-hub market."
DOT also suggested that immunized partners operating the
Chicago-Tokyo route, where a duopoly would form after the effective loss of two
competitors, "would face limited incentives to raise fares above
competitive levels because of current connecting traffic volumes."
Similarly, though the nonstop Washington-Tokyo market would be left with just
one carrier, DOT wrote that the route's role as "a trunk route for
connecting traffic" would dissuade any one competitor from cutting
capacity or raising fares.
contributed to this report.
This report appeared
in the Oct. 25 issue of Business Travel News.