January 6 - BTC Letter To His Excellency Seiji Maehara


January 6, 2010

His Excellency Seiji Maehara

Minister of Land, Infrastructure, Transport and Tourism

2-1-3 Kasumigaseki, Chiyoda-ku

Tokyo 100-8918

Japan

Dear Minister Maehara,

I write to you as Chairman of Business Travel Coalition (BTC), representing corporate travel buyers from around the world, regarding the future of Japan Airlines (JAL) and its vital role in providing competitive discipline in the Japan-to-U.S. and European Union as well as the intra-Asian marketplaces for commercial aviation and air cargo services. I want to especially applaud your strong leadership in rejecting a proposal to turn JAL’s international routes over to All Nippon Airways, which would effectively reduce competition from three to two airline alliances.

The Japan-to-U.S. marketplace, with 6.3 million annual passengers, is vitally important to economic prosperity for both of our nations and for those corporations whose business travel activities essentially underwrite the aviation system between our two countries. An antitrust-immunized Delta Air Lines (DL)/JAL tie-up would be so dominant that it would irreversibly harm competition, including Japan-to-U.S. routes, Asia-to-U.S. routes and between alliances. Indeed, on an annual basis, some 3.5 million Asia-to-U.S. passengers would be left with only one or two competitive air transportation alternatives.

A DL/JAL immunized alliance would be so damaging to competition such that BTC and other organizations would oppose it with the force, if necessary, to ensure such an application were denied.If on the off-chance the U.S. Department of Transportation (DOT) abandoned its long-codified principles regarding antitrust immunity (ATI) and granted ATI to DL/ JAL, the outrage and opposition would likely be so strenuous from the U.S. Department of Justice (DOJ) and the U.S. Congress that legislation would no doubt be drafted to immediately shift competency for approving ATI applications from DOT to DOJ. In all likelihood, it would be exceedingly probable that DOJ would initiate its own investigation, or bring independent action, to challenge such an anti-competitive transaction.

To seriously state that ATI would be granted to DL/JAL, one would have to be possessed of the irrational conviction that DOT would:

1. reverse its highest priorities of protecting consumers and improving competitive choice;

2. undercut the oneworld alliance as an important inter-alliance competitor for Japan and northeast Asia, while illuminating the promised benefits of a U.S.-Japan Open Skies agreement;

3. reject a policy of favoring immunity for airlines with complimentary networks and embrace a new policy of favoring immunization for airline combinations where significant route-overlap exists, and where remedies are ineffective;

4. invalidate its long-held policy of disallowing immunity for airlines with competing networks at the same hub, such as DL and JAL at Narita;

5. ignore the negative impact on business airfares from reducing oneworld’s U.S.-to-Japan market share from 35% to 6% while creating a SkyTeam monopoly with 62% share and a duopoly of SkyTeam/Star Alliance with 93% share;

6. disregard the fact that there is no plausible new entrant with the assets and an airport hub capability to replace competition that will have disappeared; and

7. accept the idea that a DL/JAL immunized coordination would harm competition without offsetting consumer benefits.

To be clear, a DL/JAL combination would be opposed by numerous groups in the U.S., including BTC, and never receive DOT ATI approval.

Some analysts argue that JAL and its shareholders would benefit from approximately $400 million in incremental annual revenues -- an assertion that vividly serves to undermine the pro-competitive, pro-consumer rhetoric that has dominated the discourse, thus far, about an immunized DL/JAL tie-up. In fact, it’s out of the pockets of business travelers and their companies that the $400 million in incremental revenue would come due to far less competition. Unfortunately, shareholders would never see a yen of it, as the venture would never be immunized by DOT for the reasons stated above.

JAL remaining in the oneworld alliance with American Airlines is obviously best for competition and consumer choice. Three immunized alliances, with relatively balanced Japan-to-U.S. market shares of some 33% each, offer the best long-term promise that all relevant markets would be aggressively contested. Japanese and U.S. corporations compete globally and require price-competitive and innovative airline networks in all regions of the world to and from where their employees travel. Currently, these corporations do not benefit from three viable immunized global airline alliances. Immunizing oneworld business ventures, with JAL as a leading member, would level the playing field and ensure that three global networks forcefully battle for business, not take it for granted.

ATI applications that are challenged, as DL/ JAL would certainly be, can take up to 30 months or more to resolve. According to a Financial Times report on 4 January 2010, ATI approval is needed by October 2010 when Haneda Airport’s fourth runway will be commenced, which is very problematic for the timing of a DL/JAL application.Unlike an American Airlines/JAL ATI application, a DL/ JAL request would be fought vigorously by many parties, including BTC.

Minister Maehara, it is critically important to the interest of all stakeholders -- passengers, corporate travel buyers, current employees and retirees, management, communities and shareholders -- that JAL return to sustained financial viability as soon as possible. JAL remaining in oneworld and seeking ATI with American Airlines, on reasonable terms, would be actively supported by BTC and other travel organizations in the U.S. Such broad support would ensure expeditious processing and approval of an ATI application.

I would be most willing to meet with you should you desire more information or analysis.

Yours sincerely,

Kevin Mitchell

Chairman

Business Travel Coalition


cc:

United States

Hon. Hillary Clinton, Secretary of State

Hon. Eric Holder, Attorney General

Hon. Ray LaHood, Secretary of Transportation

Hon. Larry Summers, Director, National Economic Council

Hon. Christine Varney, Assistant Attorney General, Antitrust Division, Department of Justice


Japan

To be determined, Enterprise Turnaround Initiative Corporation of Japan

Hon. Ryuhei Maeda, Director General, Civil Aviation Bureau

Mr. Haruka Nishimatsu, President & CEO, Japan Airlines Corporation


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