Japan, USA sign open skies pact

The negotiations of the USA-Japan open skies treaty have been ongoing for quite a while now.  This latest round of talks, held last week, was actually extended by a day to allow for the final details to be ironed out since they were so close.  And ultimately the deal that they struck seems to be a very fair and very good one for the airlines and for customers.

Tokyo Service

With the exception of Tokyo all destinations in Japan are now accessible with unlimited frequencies by all American and Japanese carriers.  That is a significant step forward.  The Tokyo market, however, is key to pretty much all service to Japan and the agreements reached on that front are quite interesting.  Both airports – Haneda and Narita – will remain slot controlled due to the significant demand for service to those airports.  And the number of slots that US-based carriers have at Narita will actually decrease a tiny bit.  But there’s a good reason for that.

Tokyo’s Haneda airport – the more convenient and desirable destination for most passengers headed to Tokyo – is opening up to more international flights starting in 2010.  Some of those flights will be potentially operated to the United States under this deal with as many as four daily flights permitted.  That is going to be a very significant benefit for whichever carrier manages to secure those slots.  There are a number of restrictions on the new Haneda slots, including late night departure times which aren’t particularly ideal.  But it is better than nothing.

Anti-trust Immunity

There are some other interesting nuggets that came out of the agreement as well.  Anti-trust immunity (ATI) will be permitted on the US-Japan routes for the first time ever.  While there will still be specific applications required for such operations the ATIs will permit coordination of schedules, service and fares for partner carriers on routes between the two countries.  The Star Alliance carriers of ANA, Continental and United Airlines are best position to take advantage of the ATI opportunities and they’ve already announced their intentions to do so. The three carriers expect to be able to better coordinate their offerings and streamline operations.  In addition to the Star Alliance three, JAL will likely take advantage of the ATI opportunities once they figure out which suitor they’re going to dance with in the bankruptcy/bailout recovery effort.  Both Delta and American Airlines are still pursuing the carrier aggressively and being able to apply ATI policies to the operations following whatever deal might be reached will be rather beneficial to whichever partnership comes out of that deal.

Extra Freedoms

Finally, both countries will be removing restrictions on fifth freedom routes.  Fifth freedom flights are some of my favorites because the routes seem strange when viewed out of context.  They are flights operated between two countries, neither of which the airline is based in, where the airline is permitted to sell seats only on that route.  There are a number of such flight in Asia particularly, such as Air France flying between Bangkok and Hanoi or Ho Chi Minh City.  And there are a few in the USA, like Cathay flying from Vancouver to New York City’s JFK airport.  As part of this agreement fifth freedom flights will the permitted without restriction by Japan or the United States.  This is great for carriers that want to grow their route maps onward from Japan or the USA.  These “add-on” segments generally help to make flights that might otherwise not be profitable happen, so there is an increase in service between markets.  Plus there is the opportunity to grab the “other” flight generally rather cheap and have some fun flying on different carriers.

The loser on this bit is most likely Delta which acquired a number of route authorities ex-Tokyo when they bought Northwest Airlines recently.  That purchase gave them a number of slots and authorities from Tokyo and now all the other carriers who desire such will be able to get in the game on those flights, assuming they can find the slots.  Also, the third country will still need to approve the fifth freedom flights so it isn’t completely open, but there are many more opportunities now for many more carriers.

Mostly good, but potential gotchas

Overall, agreements such as this are generally a good thing for passengers.  The increased opportunities for carriers to provide service generally means that where they think there is a market airlines will try, at a lower cost than if they had to buy route authorities to provide such service.  The ATIs are always a bit of a toss-up as they essentially permit collusion and price-fixing between partners.  As long as there are enough non-partnered carriers in a market that generally isn’t a problem but it is something that always causes a bit of apprehension as it can lead to higher prices due to less competition. Still, there’s a lot of potential good news out of this agreement.  Now we just wait to see how it actually plays out.