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1 Deregulation of Domestic Air Transport in Japan Study of the Civil Aeronautics Law Revision in 2000 Study of the Civil Aeronautics Law Revision in 2000.

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Presentation on theme: "1 Deregulation of Domestic Air Transport in Japan Study of the Civil Aeronautics Law Revision in 2000 Study of the Civil Aeronautics Law Revision in 2000."— Presentation transcript:

1 1 Deregulation of Domestic Air Transport in Japan Study of the Civil Aeronautics Law Revision in 2000 Study of the Civil Aeronautics Law Revision in 2000 May 2006 Aviation Industries Division, Civil Aviation Bureau, MLIT Yusuke Namikoshi

2 2 1. Barriers

3 3 Before the supply-demand adjustment was abolished with the revision of the Civil Aeronautics Law in 2000, the air transport business was supplied by 3 major airlines and their group airlines. Situation Before Abolition of Supply-demand Adjustments Share of domestic air transport 78.1 million passengers Share of flights in Haneda airport 1995

4 4 Market access License System on a route basis for supply-demand adjustment Strategic route assignment for 3 major airlines(1970) Abolishment of route assignment systems and promotion of double/triple tracking*(1986) JAL International & Domestic (Major Routes only) ANA Domestic (Major & local routes) JAS Domestic (Local routes only) * 2 or 3 airlines operating on the same routes Abolishment of the standard for double/triple tracking(1997) New entry to Japanese domestic airline business in 1998 for the first time in the past 35 years. Skymark Airlines (Haneda=Fukuoka), AirDo (Haneda=Sapporo) Permission system on the company basis (Lowering the standard for double/triple tracking step-by-step) entry Advanced submission system Slot allocation of congested airports to be reviewed every 5 year from the viewpoint of promoting competition and enhancing networks Fares and charges Approval system Enactment of Civil Aeronautics Law (1952) Amendment of Civil Aeronautics Law (2000) Cost based fare setting Partial introduction of submission system (1994) Zone Approval System (1996) Airlines are allowed to freely set price between the pre-calculated Standard Cost and 25% discount from it. Introduction of submission system for promotional fares with up to 50% discount Fares are established so that total revenues could meet the total cost including a moderate profit, provided sound business management practices are followed. Submission system No supply-demand adjustment Route setting and scheduling Permission on a company basis Permission to be rendered on a company basis mainly based on the satisfaction of safety standards Route, frequency and schedule to be decided at the discretion of airlines in principle. Approval required when using congested airports Advanced submission system Fare and charges to be set at the discretion of airlines, in principle Ministers order Minister of Land, Infrastructure and Transport may order to charge inappropriate and unfair fares and charges Deregulation of Domestic Air Transport Business Gradual Deregulation Current System

5 5 With the revision of the Civil Aeronautics Law, further deregulations were implemented such as abolition of supply-demand adjustment. Background and Objectives of the Revision Background Various user needs Growth of air transport business Objectives By promoting a free and competitive market advantages such as the following can be achieved: Diversifying and enhancing services Decrease in fares and charges More efficient and invigorated economic activities Abolishing supply-demand adjustment

6 6 2. Process

7 7 Process leading to abolishment of supply-demand adjustment Deregulation Package Promotion Plan (Three-Year Plan) decided by the Cabinet in March Realizing a free and fair economy based upon market principles and the rule of self-responsibility. Change from prior-regulation to post-check-regulation in administration Abolition of supply-demand adjustment was decided after preparing plans for related issues, including how to maintain air services to remote islands and the rules for distributing departure/arrival slots at congested airports. Ideal Methods for Preparing Market Environment for Abolition of Supply- demand Adjustment in Domestic Air Transport Business Report by Air Transport Subcommittee of the Council for Transport Policy in April 1998 Council, including members from government, academia, and airlines held 9 meetings to discuss preparation of market environment. Revision of Civil Aeronautics Law Enforced 1 Feb. 2000) Incorporating the ideas from the Council, The Civil Aeronautics Law was revised including abolition of supply-demand adjustment and advanced submission system in fares and charges.

8 8 Reaction from Airlines Regarding Deregulation Regarding the abolition of supply-demand adjustments, Council for Transport Policy heard opinions from airlines. The opinions from airlines were, principally, in favor of abolition of supply-demand adjustments, with the expectation of being able to run business freely and actively. Opinion (requirement) from airlines Maintaining regulations and inspections to guarantee safety. Assistance for maintaining regional air services such as air services to/from islands. Making objective and clear rules for distributing departure/arrival slots at congested airports

9 9 3. Results

10 10 Market access License System on a route basis for supply-demand adjustment Strategic route assignment to 3 major airline(1970) Abolishment of route assignment systems and promotion of double/triple tracking*(1986) JAL International & Domestic (Major Routes only) ANA Domestic (Major & local routes) JAS Domestic (Local routes only) * 2 or 3 airlines operating in the same routes Abolishment of the standard for double/triple tracking(1997) New entry to Japanese domestic airline business in 1997 for the first time in the past 35 years. Skymark Airlines (Haneda=Fukuoka), AirDo (Haneda=Sapporo) Permission system on the company basis (Lowering the standard for double/triple tracking step-by-step) entry Advanced submission system Slot allocation of congested airports to be reviewed every 5 year from the viewpoint of promoting competition and enhancing networks Fares and charges Approval system Enactment of Civil Aeronautics Law (1952) Amendment of Civil Aeronautics Law (2000) Cost based fare setting Partial introduction of submission system (1994) Zone Approval System (1996) Airlines are allowed to freely set price between the pre-calculated Standard Cost and 25% discount from it. Introduction of submission system for promotional fares with up to 50% discount Fares are established so that total revenues could meet the total cost including a moderate profit, provided sound business management practices are followed. Submission system No supply-demand adjustment Route setting and scheduling Permission on the company basis Permission to be rendered on the company basis mainly based on the satisfaction of safety standards Route, frequency and schedule to be decided at the discretion of airlines in principle. Approval required when using congested airports Advanced submission system Fare and charges to be set at the discretion of airlines, in principle Ministers order Minister of Land, Infrastructure and Transport may order to charge inappropriate and unfair fares and charges Deregulation of Domestic Air Transport Business Gradual Deregulation Current System

11 11 Application The planned operation meets established safety standards The planned operation is appropriate and feasible The applicant (company) has the ability to actually execute the business plan In case that the company plans to provide international air services, the planned operation is allowed under the existing bilateral and multilateral international agreements The applicant is controlled by Japanese citizens The applicant does not have any criminal record Examination of Business Plan Permission Manuals (Operational Manual, Maintenance Manual) Operation Routes and Schedules Conditions of Carriage (Article 100) (Article 104)(Article 107-2,107-3) Inspection of Facilities Operational Control Facilities Maintenance Facilities Training Facilities etc (Article 102) (Article 100) Fares and Charges (Article 106) (Article 105) ApprovalSubmission* Routes and schedule setting for domestic air services to/from congested airports and international services and international fares and charges are required to obtain the approval of the Minister of Land, Infrastructure and Transport Application Process under Civil Aeronautics Law

12 12 Air services to/from islands Subsidy for purchase of aircrafts Subsidize the cost of purchasing aircraft to be used for the route to/from islands Subsidy for the cost of operations Subsidize the cost of operations incurred for such air services to/from islands as is necessary to maintain the common welfare of island residents Reduction of taxes and fees Reduce fuel tax by 25% Reduce landing fee to 1/6-1/8 Reduce fixed property tax on aircraft to ½-1/3 Air services to/from small cities Reduction of landing fee Reduce the landing fee at Haneda Airport to 1/2-9/10 Allocation of slots at Haneda Airport Give benefits in allocating landing slots to those airlines that contribute to enhancing and maintaining services to/from small cities. While route and schedule settings are basically decided at the discretion of airlines under Civil Aeronautics Law, various measures are established to make it easier for airlines to maintain and enhance regional services. Assistance to Regional Air Services

13 13 Skymark Airlines Entry Oct Fleets B767(3), B737(2) Routes Haneda Shin-Chitose 9 Haneda Asahikawa 3 Haneda Hakodate 2 Haneda Memanbetu 3 Entry May 2002 Fleets B737 6 Routes Haneda Miyazaki 6 Haneda Kumamoto 6 Haneda Nagasaki 6 Air Do Skynet Asia Airways Entry July 1998 Fleets B767 6,B737(2) Routes Outline of new entrants New market entry and routes are steadily increasing Skymark Airlines AirDo Skynet Asia Airways Haneda routes operated by new entrants Fukuoka Kagoshima Miyazaki Kumamoto Tokushima Sapporo Asahikawa as of 1/4/2006 * As of 1 April 2006 New Entry Hakodate Skymark Airlines Skymark Airlines AirDo AirDo Fairlink Amakusa Airlines Skynet Asia Airways Skynet Asia Airways Iki International Airlines Orange Cargo Air Shenpix 25 Air Next Air Next 26 Star Flyer Star Flyer Number of domestic scheduled airlines Nagasaki Entry Jan Fleets A320 3 Routes Haneda=Kita- Kyusyu 12 Star Flyer Memanbetu Kobe Kita- Kyusyu Haneda Fukuoka 9 Haneda Kagoshima 4 Haneda Tokushima 4 Haneda Koube 7 Orange Cargo Orange Cargo

14 14 4. Benefits

15 Impact on Fare Levels Normal Fare Round-trip Fare Coupon Ticket Normal Fare Coupon Tickets Advanced Purchase Discount Flight Specific Discount Normal Fares Round-trip Fares Coupon Ticket Advanced Purchase Fare Flight Specific Discount Bargain Fare Web Discount Shuttle Fare Ticket-less Discount Birthday Discount Marriage Anniversary Discount One-day Pass Last Minutes Discount Normal Fares Coupon Ticket Advanced Purchase Fare Flight Specific Discount Bargain Fare Web Discount Shuttle Fare Ticket-less Discount Birthday Discount Last Minutes Discount Mileage Discount Special Seats Discount 2004 Normal Fares Round-trip Fare Coupon tickets Advanced Purchase Tickets Flight Specific Discount Bargain Fare Web Discount Shuttle Fare Diversity of Fares Competition in air-fares Examples of competition other than air-fares New entrants have set cheaper fares than those of existing major airlines. While the diversity and competition of air-fares progress, difference can also be seen in other areas of service such as seats and mileage cards Deregulation has promoted a decrease and diversity of airfares. It has also contributed to competition in areas other than airfares. (As of April 2006) Purchase limit of normal-fare tickets varies from within 3 days from reservations (JAL,ANA) to 20 minutes before departure (SKY).

16 16 Fukuoka Sapporo Kagoshima MIyazaki All Routes Entry of SKY Entry of ADO Entry of SKY Entry of SNA Increase in number of passengers (when passengers in 1997 is put as 1) Rate of increase in number of passengers of the routes with new entry compared with other routes. Source Information from Civil Aviation Bureau FY Number of passengers has increased highly on routes with new entrants compared to others. (Note) Number of passengers decreased from 2002 to Same trend (decrease) can be seen in the rate of all routes. Stimulation of Demand for Air Services Passenger increase at routes with new entry FY Haneda Fukuoka SKY ~Number of passengers has increased by 8 million at routes with new entrant for the past six years since new entry occurred. FY Haneda Sapporo ADO million in 6 years million million in 6 years

17 17 THANK YOU !!


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