The Japanese Government is preparing to deregulate domestic air fares in fiscal 1999 in a move that analysts say will serve to further stiffen competition in an already highly contested market.
A draft report from a transport ministry panel has urged the lifting of restrictions that require airlines to keep prices within 25% of present ceilings. The recommendations are likely to be included in a final report at the end of this month.
At the moment, the transport ministry approves fare ceilings based on cost, and airlines can set prices anywhere up to 25% below the maximum. The new system would simply require airlines to inform the ministry of their tariffs.
Paul Smith, airlines analyst at James Capel, argues that a "price war will become almost inevitable: not only will the incumbents be fighting the start-ups such as Hokkaido International and Skymark, which will be competing on a platform of low prices, but they are already fighting among themselves as Japan Airlines [JAL] tries to expand its presence in the domestic market at the expense of All Nippon Airlines [ANA] and Japan Air Systems [JAS]".
While the airlines are set for an increasingly fierce battle for domestic market share, their international operations are being hit by the Asian economic crisis. JAL is laying off 200 full time employees at its US operations, about one quarter of its 770-strong US workforce. It will also lay off around 100 temporary employees. JAL hopes to outsource more of its US activities and cut costs by about ´2.5 billion ($20 million) over the next six years.
Operations at three New York locations and Honolulu will be outsourced. The passenger division in Los Angeles and the passenger/cargo division in Honolulu will be spun off into a new subsidiary.
All Nippon Airways, meanwhile, is considering halting its Narita-Brisbane-Sydney service. The number of flights on the route was recently doubled from three to six a week as part of the company's much heralded international expansion strategy.
ANA says that a final decision should be made "within the next couple of weeks".