OPEN SKY POLICY

WHAT IS OPEN SKY POLICY - THE US/JAPAN AGREEMENT

Japan-US 'Open-Skies' agreement may lead to big changes in air cargo market
14/Dec/2009 by Thomas Cullen.

Japan and the United States have agreed an initial outline of an 'Open-Skies' deal. The two governments concluded the draft late on Friday. In keeping with the nature of these agreements, rather than allowing free-trade in air services between the two countries, it rewrites an aviation agreement originating in 1952, expanding the number of airlines that can operate between the two countries and the capacity of these services. The treaty now has to be ratified by the two countries respective legislatures.

For the air cargo market the 'Open-Skies' agreement offers the potential for significant restructuring of a number of market segments. For example, at present only FedEx is permitted full access to the Japanese market whereas UPS operates within capacity and destination limitations. These restrictions will now be abolished.

The agreement also offers to remove limitations on pricing. At present the two governments can veto reductions in tariffs, however this is to be abolished.

Access to Japanese airports, such as Narita and Haneda, for American carriers is to be improved.

The agreement may also lead to extensive restructuring for the wider Japanese and American airline sector. Japan Airlines (JAL) is presently facing acute losses and is being approached by two consortia led by American Airlines and Delta respectively who are offering to recapitalise the Japanese carrier. JAL continues to receive significant subsidies from the Japanese government. Such an environment might have implications for JAL's relationship with its cargo services joint venture partner Nippon Cargo Airlines, which is owned by NYK.

The US government has had significant success with its 'Open-Skies' initiatives, reaching agreement with 95 governments. However not all the treaties are permanent or particularly stable, notably that with the EU which faces revision and possible termination in several years time.