Japan airlines
team up to fly to
U.S., S. Korea

The alliance will help the carriers
increase competitiveness
and profitability

By Kae Inoue
Bloomberg News

TOKYO -- Japan Air System Co., Japan's No. 3 airline, said it plans to jointly operate international flights with Japan Airlines Co. and, separately, with All Nippon Airways Co. to cut costs and increase its market share amid increasing competition.

Japan's three largest airlines plan to offer the flights from as early as late October, JAS said. Under the plan, JAS will suspend operations between Tokyo and China and use those airport slots for joint flights with JAL and ANA on U.S. and South Korean routes, JAS said.

The agreement will allow JAS to increase the value of its departure and arrival slots at New Tokyo International Airport at Narita by switching them from flights to three Chinese cities, Hong Kong, Xian and Guangzhou, to potentially more profitable JAL and ANA flights to the United States and South Korea. JAL, which is JAS's second-largest shareholder with 8.25 percent, and ANA will be able to increase their flights from Narita, where slots are precious because the airport, Japan's hub, has expanded more slowly than demand and U.S. carriers have the majority of slots.

"This agreement, the first among Japanese airlines, is a good move for the three airlines to increase competitiveness and profitability," said Osuke Itazaki, a senior analyst at Okasan Economic Research Institute, who rates JAL, Asia and Japan's largest airline, "neutral minus." "JAS hopes to push up its load factor (seat occupancy rate) on international flights" which had been suffering, he said.

JAS plans to suspend its seven weekly flights between Narita and the three Chinese destinations. It will continue to operate flights to China out of Kansai International Airport near Osaka. JAS will also increase its Tokyo-Seoul flights to 14 a week from 12. The airline will share its remaining five Narita slots with JAL and ANA. JAL is likely to get three of the five, a person familiar with the issue said.

Code-sharing among airlines from one country requires approval from governments in destination countries; Japan has received such permission from the United States and South Korea. Under code-shared flights, airlines list flights under their own codes, but passengers fly on whichever carrier is serving the route. JAL shares fell 22 yen today to close at 455. ANA rose 2 yen to 397, while JAS shares were unchanged at 4,200.