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Travel News

Delta, American drool over JAL’s Asian routes

Written by editor

ATLANTA — Japan Airlines isn’t the real prize in the fight between Delta Air Lines and American Airlines over who gets to partner with the troubled carrier.

ATLANTA — Japan Airlines isn’t the real prize in the fight between Delta Air Lines and American Airlines over who gets to partner with the troubled carrier.

They’re after JAL’s Asian routes — and the premium passengers that come with them.

The winner gets a bigger revenue stream, more power to help shape overseas customer options and ticket prices, and the potential to one day fly its own aircraft and passengers on JAL’s routes.

That’s why the two U.S. carriers will charge ahead in their pursuit of JAL despite its bankruptcy filing, plans to shrink service and the tarnished image that has sent travelers to other carriers.

Growth in Asia won’t cure all that ails the major U.S. airlines, but it would provide a much-needed boost. Airlines can get higher fares for seats to Asia because international business travelers tend to spend more than leisure fliers. Business travelers fly more, and often at the last minute, which means paying higher walk-up fares.

Travel from North America to the Mid-Pacific region, which includes Japan and South Korea, represented 5.8 percent of total premium international air traffic in November but 12 percent of all premium revenue, according to the latest International Air Transport Association data.

Overall passenger volume between North America and the Asia/Pacific region is expected to rise 3.8 percent in 2010 and 5.6 percent in 2011, according to a survey of airlines conducted by IATA. Between Europe and the Asia/Pacific region, it is expected to rise 4.4 percent in 2010 and 6.1 percent in 2011.

“It’s really where the money is these days,” Charles River Associates aviation consultant Mark Kiefer said of Asia.

American and its oneworld alliance partners, including Japan Airlines, currently have about 35 percent of U.S.-Japan market share. That would drop to 6 percent if JAL leaves oneworld and dilutes American’s revenue from the region. American, which transfers roughly 400,000 passengers annually to Japan Airlines at Narita Airport outside Tokyo, does not break out total revenue for Japan or the Pacific region.

American, its partners and a private equity firm have offered $1.4 billion to Japan Airlines to stay in the oneworld alliance. American, a unit of AMR Corp., is based in Fort Worth, Texas.

Delta Air Lines Inc., based in Atlanta, is part of the SkyTeam alliance, which includes Air France-KLM. SkyTeam currently controls 30 percent of U.S.-Japan market share, according to Delta. That would increase to 54 percent if JAL joins Sky-Team, Delta said. Delta carries 3.7 million customers per year from the U.S. to Japan.

Delta and its partners have made a $1 billion offer to JAL. But perhaps more importantly to JAL, they offer access to their large global network of passengers and routes. Delta is the world’s biggest airline.

It is unclear how fares will be affected if Delta or American win the JAL fight. That’s because the U.S. economy is just starting to recover from a deep recession, so the airlines would risk losing customers by hiking prices. The recent U.S.-Japan Open Skies agreement also leaves the door open for new airlines to enter the market in the future, which could keep prices in check.

Frequent fliers will keep their reward miles banked with American and Delta, though their ability to use those rewards to book flights on Japan Airlines flights would likely change if JAL’s U.S. partner changes.

American and Delta seek to keep pace with the Star alliance, which includes United Airlines, Continental Airlines and JAL rival All Nippon Airways. Star has 31 percent of U.S.-Japan market share, American says. A Continental spokesman did not dispute that figure.

United, Continental and All Nippon Airways have applied for antitrust immunity so they can work together more closely on flights across the Pacific. Delta would submit its own application if it lands Japan Airlines. American wants to apply for antitrust immunity with JAL if JAL remains part of oneworld.

A joint venture allows airlines to share costs and revenue on certain flights regardless of which airline owns or flies the aircraft. It differs from a codesharing agreement, where one airline bears all the cost but another airline might get a share of the revenue for booking a customer.

Japanese travelers have been switching from JAL to All Nippon Airways after JAL’s image was tarnished by a spate of safety lapses, starting about five years ago.

Yesterday’s bankruptcy filing by Japan Airlines, which showed $25.6 billion in debt, may push more customers to ANA.