Japan has taken several more steps towards deregulating its skies by liberalising overseas fares and licensing two new domestic airlines.

The Ministry of Transport is promoting fares competition by allowing higher discounts on international tickets. From October, fares for overseas tours may be 35 per cent below International Air Transport Association standard prices. On individual overseas tickets, the permissible discount will be more than 50 per cent, effectively eliminating any controls. In practice some Japanese travel agents have already been offering such discounts with Tokyo's tacit approval, but the new rules will make those discounts legal.

When it launches flights on 13 September, Skymark Airlines will be Japan's first new domestic carrier in 35 years. Skymark was formed two years ago by His Co, a discount air ticket broker, and the Japanese finance company Orix Corp. It gained its transport licence in July.

Skymark will start with three daily Tokyo-Fukuoka flights using a leased Boeing 767-300ER. When its second 767 arrives in October, Skymark will either add more Fukuoka frequencies or open a second route. Hideo Sawada, Skymark's chairman, says the airline is considering routes to the northern island Hokkaido and the resort of Okinawa.

A second newcomer, Hokkaido International Airlines, or Air Do, plans to launch service on October 30 between Tokyo and Sapporo.

Credit agencies have cited growing domestic competition as one cause for recent downgrades of both Japan Airlines and All Nippon Airways. Together with Japan Air System, these stand to lose from startups.

Skymark is applying immediate pressure with fares 50 per cent below the normal price. It claims its costs will be lower because of no-frills inflight service and fewer restrictions than the incumbents on staff work rules. JAL will match these fares, but ANA has not yet said if it will. All three incumbents face an obvious cost-price squeeze and their unions are already taking steps to strengthen their resistance to more cost cuts. Those steps include a proposed alliance between unions representing ground crews at all three airlines.

In anticipation of the new competition and the opposition its unions would mount, Japan Airlines formed JAL Express Co, or JEX, which launched 737 flights in July on two routes from Osaka. All Nippon is now debating whether to revive its dormant charter subsidiary, World Air Network.

Neither startup has enough slots at Tokyo's domestic airport to mount a serious challenge. Compared to Skymark's three daily flights to Fukuoka, JAL and ANA each offer 12, and JAL plans to add more in October. Until Skymark and Air Do secure more slots at major airports, the competition they offer will be mostly symbolic.

Source: Airline Business