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Japan-US "Open Skies" Agreement

Japan-US "Open Skies" treaty opens untitrust immunity bids

John Hughes and Chris Cooper  Dec 14, 2009

The U.S. and Japan agreed on a draft “Open Skies” treaty, clearing the way for carriers including United Airlines, All Nippon Airways Co., and Continental Airlines Inc. to seek antitrust immunity.

The accord outlines plans to erase government limits on flights between the two nations, including restrictions on the prices carriers can charge and markets they can serve, Japan and the U.S. said today in separate releases.

Airlines in the U.S., the world’s largest aviation market, and Japan, the third-largest, will be able to act more like a single company for pricing, scheduling and marketing global flights. The U.S. Transportation Department, which requires Open Skies agreements before it will approve antitrust immunity, said the two nations aim to sign the treaty by next October.

“We have the right partners and look forward to forming a joint venture across the Pacific with our longtime partners All Nippon Airways and Continental,” Glenn Tilton, chief executive officer of Chicago-based United Airlines parent UAL Corp., said in an e-mailed statement.

Apply ‘Shortly’

United plans to file an application for antitrust immunity along with Star Alliance partners All Nippon and Continental “shortly,” according to the e-mail. The partners, members of the world’s largest airline grouping, are currently limited to selling seats on one another’s flights and sharing some revenue.

Tokyo-based All Nippon, Asia’s second-largest carrier, said it would “quickly” make preparations for a strategic tie-up with its U.S. partners, while Houston-based Continental said it is discussing deeper cooperation with All Nippon and United, the carriers said in separate statements.

Open Skies “is good news for air travelers and businesses on both sides of the Pacific,” Secretary of Transportation Ray LaHood said in a release. “American and Japanese consumers, airlines and economies will enjoy the benefits of competitive pricing and more convenient service.”

Japan Airlines Corp., Asia’s largest carrier, will be able to seek antitrust protection with Oneworld partner American Airlines or SkyTeam carrier Delta Air Lines Inc., depending on which of the two companies the carrier selects after negotiations that are now under way.

More Passengers

“We appreciate the immense efforts put in by authorities of both nations on this issue, and are looking forward to the expansion of passenger and cargo traffic between the two countries from October 2010,” JAL President Haruka Nishimatsu said in an e-mailed statement.

Delta, the world’s biggest airline, is trying to lure Tokyo-based JAL to SkyTeam, the second-largest airline grouping. Atlanta-based Delta has offered to invest $500 million in JAL as part of a $1 billion plan that includes loans and sales guarantees.

American, the world’s second-largest carrier, has countered with a proposal to invest as much as $1.1 billion in JAL, along with private-equity group TPG. American is owned by AMR Corp., which is based in Fort Worth, Texas, and is a member of Oneworld, the third-biggest global alliance.

Major Overhaul

An agreement would be the first major overhaul of a 1952 aviation treaty between the U.S. and Japan since 1998. About 178 million international airline passengers traveled in and out of the U.S. last year, and 56.5 million did so in Japan, according to the International Air Transport Association.

Discussions began Dec. 7 in Washington and ended on Dec. 11. It was the fifth round of talks on the Open Skies agreement.

Restrictions that would be wiped away under Open Skies include one that lets the U.S. and Japanese governments veto fare increases for flights originating in their nations. Another limit lets only three U.S. carriers, Delta, United and FedEx Corp., serve all Japanese markets with unlimited flights.

United Parcel Service Inc., American, Continental, US Airways Group Inc., Hawaiian Holdings Inc. and Atlas Air Worldwide Holdings Inc. are among carriers that would no longer face flight limits under Open Skies.

Japan-US "Open Skies" treaty opens untitrust immunity bids
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