JAPANESE AIRLINES DISCUSS CIVIL AVIATION AIR

UNCLAS SECTION 01 OF 02 TOKYO 000917 SENSITIVE SIPDIS STATE FOR EAP/J, EEB/TRA FOR BYERLY PASS TO DOT FOR K. GLATZ AND J. THIBODEAU PASS TO DOC FOR E. ALFORD AND D. LEE E.O. 12958: N/A TAGS: EAIR ELTN PGOV ETRD JA SUBJECT: JAPANESE AIRLINES DISCUSS CIVIL AVIATION AIR MARKETS AND NEGOTIATIONS REF: A. TOKYO 175 ¶B. 08 TOKYO 2982 SENSITIVE BUT UNCLASSIFIED. CONTAINS BUSINESS SENSITIVE INFORMATION. ¶1. (SBU) Summary: Japanese airlines report slight improvements in the international civil aviation market, particularly for leisure travel, but that the business, domestic, and freight sectors show no sign of recovery. Japan's position as a regional hub, according to Japan Airlines (JAL) and All Nippon Airways (ANA) executives, has changed and will continue doing so with the advent of smaller long-distance aircraft, e.g., the B-787. Neither airline seemed content with Japan losing its hub status, however. Overcrowding remains the most significant issue for the Tokyo airports and limits the possibilities for upcoming U.S.-Japan civil aviation negotiations, they said. Both sets of airline executives noted shortcomings in Japan's Asian Gateway Initiative and the government's overall policy on civil aviation. Neither airline identified specific requests for talks in Washington scheduled for May 13-15, but ANA hopes the USG will show "flexibility" to move the discussions beyond the focus on Haneda flights. End summary. Business Outlook -------------- ¶2. (SBU) The international passenger market for Japanese air carriers seems to have bottomed out in January and February with the last two months showing gradual improvements due to the yen's appreciation and the drop in fuel prices. Korea, Guam, and Hawaii are the strongest routes, a top level Japan Airlines (JAL) executive told EMIN April 16. (Note: The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) reports year-on-year numbers of international passengers fell 20 percent, domestic passengers by 10 percent, and freight traffic dropped 60 percent in recent months. End note.) Business travel is still suffering severely, because of cost-cutting steps that many companies took. Japan Airlines hopes companies will abolish these measures in the new fiscal year, which began April 1. Demand for domestic air travel shows no sign of recovery. The economic downturn is severely damaging Japan's air freight market, domestically but especially for trans-Pacific transactions. Japan Airlines has cut frequencies and lowered fares to meet the current challenges, according to the senior JAL executive. ¶3. (SBU) Despite severe declines in the aviation market, ANA does not plan to seek financial assistance from the GOJ, an ANA executive told EMIN April 17. The company does, however, have a long-standing credit facility with the Development Bank of Japan. All Nippon Airways, the executive said, generally considers support by the world's governments as unfair, but recognizes such support in these dire times is both temporary and necessary. Japan's Position as Regional Hub -------------- ¶4. (SBU) Japan's status as a regional hub has changed as aircraft have become more available that can fly directly from U.S. cities to anywhere in Asia, noted the JAL executive. He said many Japanese travelers from cities outside Tokyo now fly to Seoul or Taipei to connect to international flights rather than transfer in Tokyo, where the 45 miles between Haneda and Narita mean long and difficult transits. Since passengers prefer to fly direct, the delivery of the B-787 aircraft next year will change the whole market, claimed the executive. TOKYO 00000917 002 OF 002 Tokyo Airports -------------- ¶5. (SBU) Both JAL and ANA reiterated concerns with lack of slots at Haneda. The airport's chronic congestion means that many aircraft sit idle, said the JAL executive; thus having even one extra flight a day at Haneda will help. (Note: In the GOJ's recent stimulus proposal for aviation, MLIT offers two additional flights per day at Haneda Airport for domestic flights. End note.) Japan Airlines is hindered by inefficient domestic operations in which it flies wide-body aircraft at low load factors. The average load factor in or out of Haneda, he said, is 70 percent; operating smaller aircraft would boost JAL's competitiveness. The JAL executives did not directly speak out against Haneda's internationalization and gave a sense they could benefit from it, but at the same time they stated the airline "cannot agree to open it at the expense of domestic operations." The executive too noted the MLIT plans for Haneda seem flawed since current rules precluding late night flights at most other Japanese airports would limit airlines' ability to pursue the Haneda option. Echoing what some North American air carriers have said, it would be ideal if JAL could move its entire operation to Haneda rather than having split operations as is the case currently. ¶6. (SBU) Haneda should not be restricted to only short-haul services, said the ANA executive, and expansion of the airport should continue beyond the 30,000 extra nighttime slots available beginning 2010. All Nippon Airways also suffers from a lack of capacity at Narita and would like to increase capacity there as well to expand its network. The main problem at Narita is the limited domestic network, said the JAL executive. Civ Air Talks -------------- ¶7. (SBU) The JAL executive reiterated JAL has no specific or major requests for the upcoming civ air talks in Washington, and explained JAL and ANA are incumbent airlines and can operate with maximum flexibility. ANA executives repeated continued interest in anti-trust immunity (ATI),and recognized it would most likely be linked to an Open Skies agreement with the U.S. Neither airline seems concerned with current requirements to request fare approval from MLIT nor seems to seek greater flexibility in fare-filing. ¶8. (SBU) ANA executives believe MLIT would like to demonstrate Japan is liberalizing, as per the GOJ's Asia Gateway Initiative. However, MLIT, Japan's negotiator, lacks the necessary Cabinet authorization to agree to Open Skies. Given that the Asia Gateway Initiative (which liberalizes all points outside Tokyo) is as far as MLIT can go, European carriers struck agreements with Japan simply to obtain rights at Haneda, despite having scheduling problems using the nighttime slots. The Japanese executives also thought the Canadians would not actually use the new access they negotiated at Haneda. The ANA executives argued the U.S. should also consider having flexibility on Haneda, so that the negotiations can proceed to a new phase. ZUMWALT