Regulatory Developments Increased security concerns and sky-rocketing fuel cost have severely affected the global airline industry in the past few years, leading to higher costs and a substantial negative impact on route profitability. For European airlines operating in Japan, this situation has been exacerbated by the extreme weakening of the Japanese Yen against the Euro, the underdeveloped air transport infrastructure, restrictive pricing and high operating costs. Airlines have limited means to sell products and services directly and transparently to consumers in Japan. Furthermore, airlines are only allowed to advertise and sell fares for international travel to and from Japan at rates officially approved by the International Air Transport Association (IATA), or in the case of Internet bookings, at rates within limits defined by the Ministry of Land Infrastructure and Transportation (MLIT). As the rates set by the IATA do not accurately reflect current market conditions, most individual fares are repackaged group discount tickets that can be sold only through licensed travel agents. Although restrictions on pricing and distribution have been relaxed for certain ticket types in the past two years, the permitted price range for certain IATA categories remains minimal. The cost structure makes Japan the most expensive place in the world to operate airlines. Airlines have long been required to pay prohibitive landing fees, navigation charges, airport terminal rent, airport terminal common user charges, and cargo handling fees. While the EBC welcomes the drive to lower costs initiated by the management of the newly privatised Narita Airport, the EBC urges the Japanese government to continually work towards reducing charges overall. To date, the scope and pace of change has been disappointing. Another area, which needs acute attention, is the lack of landing and take-off slots in Tokyo for routes to and from Europe. European carriers are lining up to increase frequencies and to add on new destinations, but only a few new slots have been allocated. The US-Japan Aviation Treaty has resulted in preferential treatment of trans-Pacific routes often connected with major Asian destinations. It is crucial that the Government of Japan does not introduce new discrimination between carriers, types of operations, and destinations when new slots become available at Haneda Airport. Prospects for EU-Japan Economic Integration The global economy depends on networks, be it telecommunication or transport on the ground or in the air. The services provided by the airlines are indispensable for the efficient functioning of the global economy. By the same token, the success of the Japanese economy is to a large extent dependent on a well-functioning link between Japan and other countries. European airlines are willing and ready to increase capacity to and from Japan, but the infrastructural constraints and regulatory environment do not permit the expansion of services. Improved access to the Kanto-market, more freedom in setting prices, and lower charges will enable international airlines to contribute to the economic development of Japan and support the Japanese Government in its ambitious plans to double foreign direct investment by 2011 and increase the number of visiting foreign tourists by 2010 to ten million per year. The EU and Japan should address issues with free pricing and access between Tokyo and Europe as an essential part of a EU-Japan Economic Integration Agreement. Priorities
Key Issues and Recommendations ■ Pricing and distribution Yearly status report: progress. The pricing and distribution mechanism for air travel in Japan is still not efficient nor consumer friendly. Some restrictions continue to inhibit the development of direct sales to consumers, more so for international air travel than for domestic routes. The EBC welcomes the new pragmatic principle assuming the "automatic concurrence" of Japanese carriers with any price filed by European carriers at MLIT in 2006 and the new scheme for "promotion campaigns" introduced in May 2007. The abolishment of the de facto lower limit on economy class fares is expected in 2008. However restrictions remain on certain IATA ticket categories which results in a substantial administrative cost burden for both the airlines and the distribution sector. Recommendation:
■ Airport infrastructure Yearly status report: limited progress. In 2006 some slots at Narita were reallocated and offered to European countries for operations on the second runway, however this second runway does not allow take off of fully loaded long-distance aircrafts and only a few additional operations were thus possible. The extension of the second runway at Narita (which will not be implemented before 2010) must include an adequate taxiway system. The construction of a fourth runway at Haneda will be finalized by 2010. An expert group under the Council on Economic and Fiscal Policy of the Cabinet Office has recommended the unconditional opening up of Haneda for international traffic and MLIT has announced its intent to allow for regular international night flights after 2010. In the meantime, a special "scheduled charter flights" scheme has been introduced for point-to-point traffic in Asia and seasonal operations by Japanese carriers. Recommendation:
■ High costs Yearly status report: limited progress. For Narita Airport an average net cost reduction effect of approximately 10% was negotiated. The EBC expects a further decrease following privatisation. In the long term, the Government of Japan needs to reduce the costs associated with the provision of air transport in Japan by as much as 50% in order to remain competitive with other hubs in Asia. Recommendation:
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