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Japan and the US Near Aviation Open Skies Agreement, American and Delta Salivate

All eyes are on Japan this week as US and Japanese negotiators get closer to signing an aviation Open Skies agreement. That, combined with the fight between American (AMR) and Delta (DAL) to woo Japan Air Lines, has Japan truly cementing itself as the most fascinating country to watch in the aviation world right now.

Japan and the US have long had a very tangled relationship when it comes to bilateral aviation agreements. There are strict rules about the number of available rights between the US and Japan, yet two US airlines have nearly carte blanche.

After World War II, Northwest and Pan Am were the two airlines that were given unequaled access to Japan. They could both fly not only from the US to Japan but beyond Japan to the rest of Asia. In 1986, United (UAUA) bought those route authorities from Pan Am and they and Northwest, now Delta, operate them to this day. Meanwhile, other airlines struggle to get into the market.

Back in the early 1990s, America West started an ill-advised flight from Honolulu to Nagoya. That was the only authority they could get. It didn't last long. More recently, US Airways (LCC) made a deal with Delta to swap Washington and New York operations. As a part of that deal, Delta would give US Airways access to Japan. They weren't getting it any other way, apparently.

In addition to this, international flights are mostly restricted to the far-out Narita airport with only some regional exceptions at close-in Haneda. The Japanese government is expected to allow international flights at Haneda, but the US wants to make sure its airlines can actually get slots. That has been a sticking point in the talks.

Assuming this all gets resolved, we'll have an attractive, open market, but what does it mean for the current big players? For United, it's not as significant because the airline long ago started overlying Tokyo to reach most of its Asian destinations nonstop from the US. For Delta, however, it's a different story.

Delta has a hub at Narita and that operation is thought to already be under pressure. When Japan Air Lines (JAL) fell into serious financial trouble, Delta saw an opportunity to step in and really boost its fortunes in Japan. So it made an offer to JAL to pour in a bunch of money and create a joint venture with antitrust immunity for travel over the Pacific. Sounds attractive for both. JAL gets money and a strong partner. Delta gains a ton of feed in Japan and can back away from doing its own flying over there instead focusing on its strengths.

But then there's American. American has been partners with JAL for many years, and they are both members of oneworld. JAL is an important member of the alliance, and American wants to keep it that way. So American put together what it calls the oneworld Total Value Proposition that offers the following:

  • American would partner with TPG investment group to pour $1.1 billion into JAL
  • American would enter into a joint venture with JAL asking for antitrust immunity over the Pacific
  • British Airways, Finnair, and LAN would expand cooperation to improve passenger flow with JAL
  • British Airways would enter into deeper codesharing with JAL
  • Qantas would offer its expertise to JAL if the airline wanted to build a low cost carrier within a carrier
I think you get the point. They're basically begging, and they're also saying that Delta and JAL as a combo wouldn't fly. They say there would be too much market concentration coming from those two carriers. Kind of funny to hear an airline that's trying to partner with BA at Heathrow use the opposite argue on the other side of the world. Kind of makes your head spin.
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