Japan Airlines (JAL) and Japan Air System (JAS) are likely to be forced to give up valuable slots at Tokyo's busy Haneda airport to win approval for their merger, which has raised regulatory concerns.

The Japanese fair trade commission issued preliminary comments in March on the proposed merger, opposing it on anti-competitive grounds unless concessions are made by the would-be partners.

Many observers believe JAL and JAS will have to surrender at least 10 daily slots at congested Haneda, the country's main domestic airport and Asia's busiest. Some even say the deal could collapse if the commission recommends to the Transport Ministry that they give up more than 15 daily slots.

JAL and JAS are hoping the commission will deliver its final verdict quickly, with JAL president and chief executive Isao Kaneko saying he was optimistic that it would approve the deal.

Conceding that issues raised by the regulatory body would "not be easy to solve", he says the carrier was "not pessimistic about the outcome", and disputed some of the commission's findings.

"It is true that some of the points raised were singled out because of insufficient understanding of our intentions," he says. The commission is concerned that the merger, which is effectively a take-over by JAL of smaller JAS, will reinforce the former's dominance of international services, and reduce competition domestically, raising prices and preventing new players from entering the deregulated market. All Nippon Airways (ANA) is the country's main domestic player with a home-market share of around 50%.

JAL and JAS say their merger would put them on an equal domestic footing with ANA, but the latter disputes this, saying the enlarged airline will dominate major trunk routes and international services.

ANA in December wrote to the commission formally requesting that the merger be blocked. Kaneko, however, dismisses concerns about competition, claiming consumers will in fact have more choice in future.

"Overall, we believe the commission issued its report in the belief that more competition in the domestic airline industry is needed," says Kaneko. "This is what integration between JAL and JAS is aiming for. The goal is to open up the domestic air travel market, now dominated by a single strong player, to make it truly competitive.

He adds that the partners will closely examine the issues raised and propose measures to further stimulate competition. "At the same time, we will present our views in detail and explain how integration will activate competition in the domestic air travel market and improve convenience for travellers. I am confident that the commission will understand our position," he says.

JAL and JAS unveiled their planned merger in November. If the development is approved, a joint holding company will be formed in October this year, with operations being combined from early 2004.

Source: Airline Business