T he Committee sponsored several The Antitrust Review of the - PDF document

Summer 2002 Issue No. 9 The Transportation Antitrust Update Transportation Industry Committee • Section of Antitrust Law • American Bar Association Note from the Chair: In This Issue: T he Committee sponsored several The Antitrust Review of the Japan Airlines successful programs this past spring. See and Japan Air System Merger page 31 for a brief description. by Naveen C. Rao .................................................. 2 The articles in this issue of our newsletter cover a range of transportation competition New Competition-Related Railroad issues. Naveen C. Rao of the Federal Aviation Legislation Introduced in the Senate Administration analyzes the Japan Fair Trade by Andrew B. Kolesar III..................................... 13 Commission’s approval of the merger of Japan The Orbitz Controversy: Airlines and Japan Air System earlier this Travelocity’s Perspective year. Andrew B. Kolesar III of Slover & by Andrew B. Steinberg....................................... 19 Loftus provides a summary and analysis of S. 2245, the Railroad Competition, Arbitration, and Service Act of 2002, introduced by Senator Conrad Burns this past April. As the The Transportation Industry Committee second part of a point/counterpoint exchange, WEBSITE is here: Andrew B. Steinberg, formerly general http://www.abanet.org/antitrust/committees/ counsel of Travelocity.com and currently industry/trans.html general counsel of Church & Dwight Co., Our website includes pages with reports of responds to the perspectives on antitrust issues recent developments, announcements of relating to the Orbitz online travel service that upcoming meetings, and useful links. Back were offered in our last issue by Gary issues of this newsletter are available as well. Doernhoefer, general counsel of Orbitz, We invite you to visit the website and provide L.L.C. us with your feedback. Special thanks go to each of our contributors and to our “desktop publishers,” Deborah Papineau and Cindy Eagle of Covington & Burling. I am also pleased to recognize the contributions of our Committee Vice Chairs, Denise Díaz and Carolyn Corwin, who are making significant contributions to our Committee’s activities. Trey Nicoud

Summer 2002 - Issue 9 The Transportation Antitrust Update TRANSPORTATION INDUSTRY COMMITTEE LEADERSHIP (2002-2003) THE ANTITRUST REVIEW Committee Chair : ..................................Trey Nicoud OF THE JAPAN AIRLINES Committee Vice-Chair : ......................Denise L. Díaz Committee Vice-Chair:................ Carolyn F. Corwin AND JAPAN AIR SYSTEM Council Liaison : ......................... Calvin S. Goldman MERGER Naveen C. Rao * NEW MEMBERS INVITED O n April 26, 2002, the Japan Fair Trade New members are cordially invited to join the Commission (JFTC) approved the Section of Antitrust Law and the merger of Japan Airlines (JAL) and Transportation Industry Committee. Most of Japan Air System (JAS) in a transaction that the Section’s programs are developed by the will combine that country’s second and third Committees, giving members the opportunity carriers. 1 largest domestic When the to plan and participate in programs that will be transaction is complete later this year, the of the most value to their practices. Similarly, resulting carrier, known as “JJ” in Japan, 2 will the newsletters, Handbooks, and Monographs leapfrog All Nippon Airways (ANA) and published by the Committees offer a unique become Asia’s largest airline, with estimated chance to work on publications that will have annual revenues of US$17.5 billion. 3 The a national distribution. At Transportation new company will be the third largest carrier Industry Committee programs, members can in the world after American Airlines and meet attorneys from across the country who United Airlines in terms of revenue and sixth are also interested in transportation antitrust • law. * Naveen C. Rao is an attorney in the Office of the Chief Counsel at the Federal Aviation Administration. He lived in Fukuoka Prefecture Japan for two years prior to law school and is a private pilot. The opinions expressly in this article are solely those of the author and do not represent the views of the Federal Aviation Administration. The author gratefully acknowledges the assistance he received from Rebecca Fuller and Larry Arima in preparation of this article. 1 Japanese Fair Trade Commission, Business Consolidation by Japan Airlines Co. Ltd. and Japan Airsystem Co. Ltd. Through Establishment of a Holding Company , Apr. 26, 2002 [Available at: http://www.jftc.go.jp/e-page/press/2002/april/020426 JJ.pdf]. 2 Geoffrey Thomas, ANA’s youthful state of mind , Air Transport World, Mar. 1, 2002, at 26. 3 Sumiko Oshima and Michael Mecham, Troubled Times Put JAL on Acquisition Path , Aviation Week & Space Technology, Nov. 19, 2001 [Available at: http://www.aviationnow.com/content/publication/aws t/20011119/avi_air.htm]. 2

The Transportation Antitrust Update Summer 2002 – Issue No. 9 largest in terms of passengers carried. 4 The market. Finally JAS, primarily a domestic carrier with a handful of international routes, merger will entail the creation of a new holding company in October 2002; actual has a 23% domestic market share. Even before JAL and JAS announced their intent to merge operational consolidation will occur in 2004. in November 2001, Japan already had a highly While these figures are impressive, the truly concentrated airline industry. staggering numbers relate to the market concentration that will result from this merger. During the 1990s, the Japanese government According to Transport Minister Chikage Ogi, began to deregulate the domestic airline industry. Prior to 1997, the big three were the the new carrier will account for 70% of only carriers that provided domestic service. Japan’s combined domestic and international traffic. There will be a virtual duopoly for air New entry was finally allowed in 1997, and a service in Japan, with ANA and JAL-JAS number of new names have taken to Japanese skies as a result: Skymark Airlines (Skymark), holding a 97% market share of domestic traffic between them. 5 In spite of these Hokkaido International Airlines (Air Do), Lequios Airlines, Fair Inc., Amakusa Airlines, conspicuously high figures, the JFTC gave JJ and Iki International. These carriers operate the green light. domestically and do not carry significant The following is an analysis of the Japanese amounts of traffic. 8 domestic airline industry and the antitrust Prior to deregulation, air fares had long review conducted by JFTC. Information on been regulated by the Transport Ministry. antitrust in Japan generally is included in Prior to 1995 the Transport Ministry had to order to place the JFTC decision in context. approve all fares. Carriers could discount CURRENT STATE OF THE JAPANESE fares up to 50% upon notifying the Transport AIRLINE INDUSTRY Minister, so long as the discount was not Japan’s domestic airline industry currently projected to reduce total revenue. 9 The first consists primarily of three carriers: JAL, JAS, step towards true fare deregulation came in and ANA. 6 ANA is currently Japan’s largest September 1995, when carriers were allowed domestic carrier, with 49% of passenger air to set fares at their discretion within a range transportation services within Japan as marked by a price ceiling and a price floor measured by the number of passengers. 7 JAL, equivalent to 25% of the ceiling price. 10 In the country’s flagship international carrier, is early 1997, the government approved a in second place, with 25.2% of the domestic Revised Deregulation Action Plan that eliminated supply and demand controls for • domestic passenger air transportation in Fiscal 4 Id . at 1. 5 Turbulence Ahead, Asahi Shimbun, Jan. 8, 2002. • 6 ANA, JAL, and JAS each have several subsidiaries 8 The combined market share of these carriers totals for commuter, charter, and regional services. The about 3% of the domestic market. ANA group consists of the ANA mainline, Air Japan, 9 Study Group on Government Regulations and Air Nippon (ANK), and Nippon Cargo Airlines. The JAL group includes the JAL mainline, Japan Asia Competition Policy, Review of Government Airways (JAA), J-Air, Japan Trans-Ocean Air (JTA), Regulations in Domestic Air Passenger JAL ways (JAZ), and JAL Express. The JAS group Transportation Services-Research Report by the consists of the JAS mainline, Japan Air Commuter Study Group on Government Regulations and (JAC), Harlequin Air, and Hokkaido Air System. Competition Policy, at http://www.jftc.go.jp/e-page/ Source: 2002 Japan Air Directory. report/survey/1997/970312ap.htm. See also Section 105.4 of the Civil Aeronautics Law. 7 ANA did not begin international services until 1986 10 See Section 105.4 of the Civil Aeronautics Law. and still lags far behind JAL in international traffic. 3