David Knibb BRISBANE Japan's newest airline has upset its bigger rivals with its policy of fare discounts, but after eight months has bowed to pressure and is to raise ticket prices

For eight months Skymark Airlines, Japan's first new airline in 35 years, kept the domestic market in turmoil with fares discounted by 50%. But it has wilted under growing pressure from Japan's big incumbents.

Starting on 1 July, Skymark will raise fares on its inaugural Tokyo-Fukuoka route by 17%. Several factors have contributed to the airline's retreat. Chief among them was that Japan Airlines, All Nippon Airways (ANA) and Japan Air Systems have added capacity and matched Skymark's fare on the busy Fukuoka route, even though they may have operated at losses.

Skymark has faced other obstacles, starting with the limited number of slots awarded it at critical, congested hubs in Tokyo and Osaka. It complains about inconvenient counter locations in terminals and bureaucratic battles over regulations that limit its use of less expensive foreign crews.

The net effect has been sliding load factors, from 85% last November to 70-75%. At present fare levels that represents Skymark's break-even point.

Skymark's reliance on ANA for maintenance is also sensitive. ANA said in April that it would not perform this work on two more Boeing 767s Skymark plans to lease next year. Skymark officials claim ANA's decision was for competitive reasons. It will force Skymark into the added expense of forming its own maintenance unit or using facilities in Taiwan or South Korea.

Skymark continues to challenge the incumbents on other routes. On the Osaka-Fukuoka and Osaka-Sapporo routes launched in late April it is offering tickets at an average of 35% off normal fares. In May the start-up planned to increase its ´5 billion ($41 million) capitalisation by "a few billion" more yen.

Source: Airline Business