Watch CBSN Live

US and Japan Open Skies Good and Bad for US Airlines

On Friday, I noted that Japan and the US were close to an Open Skies agreement for aviation between the two countries. It looks like it's a done deal. Late Friday, Secretary of Transportation Ray LaHood announced that "the United States and Japan reached agreement on the text of a landmark Open-Skies aviation agreement, liberalizing U.S.-Japan air services for the carriers of both countries." What does this mean for US carriers?

It's hard to know exactly what this means for a couple reasons. First, the official release was short on details. But, I found a good summary at which I assume to be true. The other issue is what will happen with the Japan Air Lines saga. That failing airline's decision to partner with American (AMR) or Delta (DAL) will mean vastly different outcomes for those two carriers.

One thing is clear. United (UAUA) and Continental (CAL) should be happy about this. United has long wanted to strengthen ties with Japan's ANA, but it hasn't been able to do so. One of the Japanese government's requirements here was that its carriers would be allowed to create the same types of ventures that the US and European carriers have created with antitrust immunity. So, you can expect to see United, Continental, and ANA file an antitrust application any day now. This will help them "rationalize" capacity and coordinate schedules and fares. Yes, it's good for the airlines, but whether or not its good for the consumer is a different issue.

For Delta, this is still a huge question mark. If Japan Air Lines (JAL) ends up aligning with Delta, then it's great news for them. They'll be able to create a joint venture with the airline and dramatically increase feed through their Tokyo hub. They will also be able to cut out some of the less profitable flights in exchange for having JAL feed them. If, however, JAL goes with American, then it simply means that Delta will find itself in the same place it was before but with stiffer, more-coordinated competition. That's not good.

With American, the potential outcomes are even more dramatic. If JAL chooses to stay with American, then it will form a joint venture and become a much larger force in the Pacific. If JAL goes with Delta, then American will effectively become irrelevant in Japan and will probably shrink from its already small position.

The other US carriers may be happy to have access to Japan, but they still won't really have access to Tokyo. Both Narita and Haneda are severely slot restricted, like Heathrow, but unlike Heathrow, the slots can't be bought and sold. So it's going to be virtually impossible for the those airlines to squeeze their way in to Tokyo with decent flight times unless the Japanese government gives them the slots. Besides, the ever-strengthening alliances will make it more difficult for other competitors to enter.

So this is certainly a mixed bag for US carriers, but I honestly don't think this is the amazing market-opening agreement that the feds seem to be touting it to be.

View CBS News In