Air Transport World

Servicing the 70 million passenger market. (part II of a special report on Japan's domestic airline market)

Japan's huge domestic airline market has been served by three major airlines and a few smaller carriers--most of which are owned at least partly by the three majors--all under tight regulation by the Ministry of Transport.

Traditionally, the MOT has decided where the airlines fly, how often and what they will charge. It has the same authority over the splendid rail system--a strong competitor to the airlines--especially over the trunk routes with the famous Shinkansen Bullet Trains (ATW, 7/95). But things are changing. MOT is loosening its grip on the system.

The major departure from tradition came in 1986, when the lineup of airlines and their areas of operation was 'allowed to change. Most notably, All Nippon Airways, domestic since starting up in the 1950s, received authority to be Japan Airlines' competitor in international service. JAL, in turn, was permitted to expand its domestic operation beyond its traditional trunk-route-only operation. And finally, Japan Air System, also limited to domestic routes, obtained authority for international services. A year later, the picture changed again. JAL become privatized. This removed the last government-owned airline from the domestic arena.

And last fall, MOT eased the reins again, ever so slightly, permitting the domestic airlines to reduce fares by up to 50% without prior approval, the only requirement being a filing for the record.

The 1986 MOT changes have had some impact on the domestic operation, most notably giving the dominant airline, ANA, more competition from JAL. By last May, JAL had expanded from its essentially 5-city--Sapporo, Tokyo (Haneda/Narita), Osaka, Fukuoka and Okinawa--trunk-route system that it has dominated over the years, to 17 new points. It flew 14 routes covering the trunk system and had a 57% trunk market share in 1981, 48.6% to ANA's 43.8% in 1986. Now, it flies more than 47 domestic routes to serve its 24 airports.

JAL's chairman, Susumu Yamaji, says the airline's goal is one-third of the domestic traffic. He wants this to translate into 40% of total revenues. Thus far, JAL has been frustrated in its efforts, chiefly because of the physical restraints of airport congestion at key cities such as Tokyo and Osaka, two of the heaviest-traveled and most lucrative business-flier markets.

Although JAL dominated the trunk routes until two years ago, when ANA pulled nearly even, JAL had only a 20.2% share of total domestic boardings when the policy changed. By the end of fiscal 1993, ended March 31, 1994, JAL had increased its share of the total market to only 22.4%. It is gaining in its goal of 40% for domestic as a percentage of its total operating revenue. It was 34.3% in fiscal 1994.

JAS's market share, meanwhile, was 21.2% in fiscal 1993, just a little over a point under JAL's, though its share of the trunk-route traffic was only 10.3%. ANA's total market share was 46.2%, 52.1% if subsidiary Air Nippon's boardings are included.

One reason for JAL's frustration is the way the airlines serve the markets. …

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