When deregulation took hold in the USA in 1978, it changed the face of domestic airline travel. It led to an explosion of new airlines - and the collapse of several established ones - before the market settled in its new, more competitive form.
After years of baby-steps along the same path, Japan introduced full liberalisation of fares and routes in its domestic airline industry early last month. Japan's market, however, is very different to the USA's and the effects of deregulation will probably be less dramatic.
Airline officials say the key difference is that Japan is so much smaller, with most domestic traffic passing through a few key airports where slot restrictions can affect the entire market's development. Today, say the officials, 80% of all Japanese domestic traffic passes through Tokyo Haneda, Osaka Itami, Osaka Kansai and Tokyo Narita airports. By comparison, only about 20% of US domestic traffic passes through New York La Guardia, Chicago O'Hare, New York Kennedy and Washington DC put together.
All Nippon Airways (ANA) and Japan Airlines (JAL) say liberalisation will create "great opportunities for new business". ANA says: "We have complete freedom to create fares, and to structure our routes in a way that will allow us to increase the number of passengers we carry."
ANA, JAL and Japan Air System have all announced extensive discount fares for April-June - in some cases at up to 74% below standard return fares. ANA predicts that 95% of its passengers will fly on discount tickets in this period, compared with about 70% in the corresponding months of last year.
The airlines hope that the discounts will stimulate the market sufficiently to offset the inevitable damage to yields - already depressed by the economic woes that have dogged Asia since 1997 and aggravated by soaring costs.
"We estimate we will be maybe 2-3% down on yields. But we expect more passengers because this [new fare system] will stimulate demand," says ANA. JAL adds that the airlines are not just competing with each other, but also with an efficient surface transport system, the "Shinkansen" bullet train, which can be a more attractive option than flying on some central Japanese routes, such as Tokyo-Osaka. This makes it all the more essential to try to draw passengers with the new fares.
Removing legislative route restrictions still leaves some non-legislative constraints in place. The lack of slot availability will severely restrict entry into some of Japan's most lucrative domestic markets, while political pressure is likely to be applied to prevent airlines from withdrawing from unprofitable services to remote destinations.
This has prompted some analysts to comment that the industry "will see all the disadvantages of deregulation and none of the advantages".
Neither ANA nor JAL plans to stop any services, although they do not rule out doing so. They will try instead to stress the adjustment of frequencies and the increased use of low-cost subsidiaries with smaller aircraft. ANA will transfer some of its routes to its Air Nippon subsidiary, which operates smaller, single-aisle Boeing 737s and Airbus A320s, as well as regional turboprops. JAL will do the same with JAL EXpress and J-Air.
On top of all this, it seems that the deregulation that prompted the appearance of start-up carriers Skymark and Hokkaido International Airlines - known as Air Do - in the domestic market will make life increasingly difficult for the newcomers.
Both airlines suffered financially in the fierce price war which erupted with their entry on to the scene early last year, competing with the big three carriers on key trunk routes at fares up to 50% lower than those of the established operators. Now airlines can apply unlimited discounts, but this will only work to the advantage of the more financially secure majors. The small carriers are also restricted in expansion by slot availability. This will be partially relieved at Tokyo Haneda, however, by the opening of the airport's new runway, expected to add 62 new slots a day from July.
JAL does not believe deregulation will lead to many new start-ups, saying that the examples of Skymark and Air Do will put off some potential entrants. Some airline officials and analysts suggest, however, that there may be a "boomlet" in regional aviation in Japan. There are many underused regional airports in the country and these may be a target for those cautious of taking on the majors on established high-density routes, or unable to secure the necessary slots.
As one JAL official puts it: "Everybody wants to fly the money-making routes, but there are other routes which do not go through these hubs. There are a lot of airfields in Japan which are underused and, before they get turned into stock-car race tracks, the Ministry of Transport would like to have airliners landing there."
Source: Flight International