Analysis of the effects of air transport liberalisation on the domestic market in Japan

Abstract

This study aims to demonstrate the different experiences in the Japanese domestic air transport market compared to those of the intra-EU market as a result of liberalisation along with the Slot allocations from 1997 to 2005 at Haneda (Tokyo international) airport and to identify the constraints for air transport liberalisation in Japan. The main contribution of this study is the identification of the structure of deregulated air transport market during the process of liberalisation using qualitative and quantitative techniques and the provision of an analytical approach to explain the constraints for liberalisation. Moreover, this research is considered original because the results of air transport liberalisation in Japan are verified and confirmed by Structural Equation Modelling, demonstrating the importance of each factor which affects the market. The Tokyo domestic routes were investigated as a major market in Japan in order to analyse the effects of liberalisation of air transport. The Tokyo routes market has seven prominent characteristics as follows: (1) high volume of demand, (2) influence of slots, (3) different features of each market category, (4) relatively low load factors, (5) significant market seasonality, (6) competition with high speed rail, and (7) high fares in the market. These characteristics particularly stand out when comparing to routes serving the UK, including UK domestics. Moreover, the outcomes of the analysis demonstrated the three significant different experiences compared to the intra-EU market serving the UK as a result of liberalisation: (1) decreased demand, (2) increased fares and (3) new entrants’ failures. Although competition among airlines seemed to be experienced in the beginning of the process of liberalisation, most of new entrants are governed by the control of network carriers, and this has affected the market, which resulted in fares to increase and demand to drop, particularly in the low demand markets. However, several markets on the Tokyo routes have been developed by low fares as a result of competition with high speed rail such as the Tokyo-Hiroshima and Okayama routes. The key objectives of the slot allocation policies were the promotion of competition and the improvement of consumer’s convenience with safety assured. They have not been accomplished yet because of several constraints. The constraints for liberalisation in Japan were discovered by comparing with the virtuous market flow circulation in the EU. The results of liberalisation in Japan have the opposite direction flow because airlines provide “high yield products”, which are caused by high cost structures of air transport in Japan, compared to the “high productivity products” of the EU. It is very difficult to promote a real basis for competition among airlines and HSR in Japan. Governments have been developing the transportation network of both rail and air in line with the growth of the Japanese economy under the name of competition policy since 1960s. The overestimated airport planning and demand by the government based on the bubble economy in Japan caused high cost structures as well. Furthermore, the Japanese Government has been reluctant to implement significant changes and face the impacts of deregulation in order to avoid the bankruptcies of airlines experienced in other liberalised markets. Therefore, the intensity of competition in the Japanese air transport has been interpreted and implemented differently from those of other areas as a result of this protective policy towards Japanese airlines. The standard of competition has not reached the level of other industries like manufacturing, which have been competing in the global market. It seems that Japanese government policy has accomplished its objective which forced two network carriers (JAL and ANA) to change the structure of organisations, labour cost and their companies’ hierarchical cultures, although the intensity of change is not enough compared with other airlines outside Japan as a result of liberalisation. Lower fares and reduced costs are crucial in order to develop demand and switch the direction of the market flow in Japan, as evidenced in the intra-EU market. A real basis for competition is expected when the number of slots will increase at Haneda airport in 2009. In order to prepare for the next step of liberalisation and international competition, fundamental changes and innovation should be implemented by removing constraints in the Japanese air transport system.