Japan is taking a first step towards liberalising the domestic market by introducing flexibility in local fares. But the move could backfire and lead to near-monopolies on individual routes.

Japan's Ministry of Transport plans to set benchmark fares for each domestic route based on cost and then allow carriers to discount by up to 25 per cent from April. Japanese airlines are not allowed to deviate from set fares on domestic routes.

All Nippon Airways predicts the system would lower domestic fares, but Japan Airlines and Japan Air System, which share less of the domestic market than ANA, are concerned. JAS is worried that lower fares will make its thinner routes unprofitable.

But JAL, while welcoming any moves towards liberalisation, warns that the imbalance in frequencies between competitors on domestic routes could act to constrain competition. 'We hope the differences in flight frequencies allotted to the Japanese carriers will be balanced as soon as possible so that we can have a really healthy competitive environment,' JAL says.

The issue under intense discussion now is whether the airlines will agree to make any discount tickets transferable. If they can agree on endorsement, airline officials predict all carriers will benefit. Other- wise, there is concern that airlines already dominant on a given route because of higher capacity rights, will be able to use discount fares to monopolise traffic even more.

With congestion preventing capacity increases, carriers see the main value of fare flexibility in filling off-peak and off-season flights with more discretionary travellers.

David Knibb

Source: Airline Business