Magazine Says JAL & ANA In Talks To Merge International Operations

[Mulboyne]

Both ANA and JAL have denied media reports that they are considering combining parts of their business. Shukan Gendai has claimed that both companies have been looking at proposals to integrate their international operations and even their mileage programmes although the magazine stops short of suggesting there are plans for a full merger. The airlines are said to believe that members of the Ministry of Land, Infrastructure and Transport kisha club are the source of the report and they are now hunting furiously for theculprits. However, their firm denials have only served to fuel the belief that there is no smoke without fire. In particular, the idea of restructuring international divisions seems plausible given that similar discussions are taking place at other airline companies around the globe. ZakZak has an article in Japanese here which oulines the affair.

[gkanai]

This seems like collusion...

[Behan]

Talk about super monopolies! They could charge anything they wanted if they merged.

[Jack]

Talk about super monopolies! They could charge anything they wanted if they merged.

The beauty about the airline business is that it is self-regulated. If they charge too much you have the option of not flying. Or flying another airline.

[canman]

Right Jack, how well is that working with Air Canada and their monopoly in Canada. You don't have a lot of choices so you are screwed. This would just jerk the prices up as high as possible.

[Behan]

The beauty about the airline business is that it is self-regulated. If they charge too much you have the option of not flying. Or flying another airline.

But if there is a one company monopoly the choice will be fly or not fly.

[omae mona]

The beauty about the airline business is that it is self-regulated. If they charge too much you have the option of not flying. Or flying another airline.

Jack, pray tell, what industries do not have this magic, beatiful property of "self-regulation"? Talk about stating the obvious....

Is your point that if a single company controls certain routes, then it's not a monopoly because people can choose not to fly?

[Jack]

Jack, pray tell, what industries do not have this magic, beatiful property of "self-regulation"? Talk about stating the obvious....

Is your point that if a single company controls certain routes, then it's not a monopoly because people can choose not to fly?

Yes, that's exactly right. For example, let's pick a route for illustration, Shanghai-Tokyo and there is only one airline flying on that route with a 140-seat Boeing 737-700 and let's call that airline is JANAL. What would normally be $350 JANAL charges $1,000 because it is the ONLY one flying there. You can always take Korean and fly there from Seoul or from Taiwan, but let's say you don't. Perhaps 10 people will pay the $1,000 because they absolutely have to go. Others will not. They will wait for a special or fly an indirect route on another airline. JANAL seeing that its flight is largely empty, and as the flight date approaches, it would lower the price to stimulate demand.

Flying is almost never something you absolutely have to do. It is avoidable which is why airlines around the world have not yet been able to figure out how to gouge people.Or else why are they almost all bankrupt?

As for Canada, fares are extremely cheap because of WestJet http://www.wetsjet.com. Air Canada had a monopoly for 18 months but it quickly dissipated. plus, on international routes there always was competition. Tokyo-Toronto is the only monopoly route it has but even so fares are about ju man yen. I'm going to Tokyo in Golden Week and that's what I paid last week.

[omae mona]

Yes, that's exactly right. For example, let's pick a route for illustration, Shanghai-Tokyo and there is only one airline flying on that route with a 140-seat Boeing 737-700 and let's call that airline is JANAL. What would normally be $350 JANAL charges $1,000 because it is the ONLY one flying there. You can always take Korean and fly there from Seoul or from Taiwan, but let's say you don't. Perhaps 10 people will pay the $1,000 because they absolutely have to go. Others will not. They will wait for a special or fly an indirect route on another airline. JANAL seeing that its flight is largely empty, and as the flight date approaches, it would lower the price to stimulate demand. Flying is almost never something you absolutely have to do. It is avoidable which is why airlines around the world have not yet been able to figure out how to gouge people.Or else why are they almost all bankrupt?

Thanks for the remedial course in basic economics and common sense. My point is that the definition of "monopoly" has nothing to do with whether the underlying product or service is a basic necessity of life. The fact that "Flying is almost never something you absolutely have to do" does not imply there cannot be a monopoly in the airline business.

Anyway, if this merger were to happen, the increase in airline fares is going to do wonders for Japan's already vibrant tourism industry and growing status as a business hub in Asia.

[Jack]

Thanks for the remedial course in basic economics and common sense. My point is that the definition of "monopoly" has nothing to do with whether the underlying product or service is a basic necessity of life. The fact that "Flying is almost never something you absolutely have to do" does not imply there cannot be a monopoly in the airline business.

Anyway, if this merger were to happen, the increase in airline fares is going to do wonders for Japan's already vibrant tourism industry and growing status as a business hub in Asia.

You obviously don't even understand remedial economics because I keep telling you fares will not go up and you keep saying they will. A merger 99% of the time is made to lowers costs, not to increase prices. capish? Or maybe that's too much of a complex issue for you to understand.

[Tsuru]

Yeah Jack... the fares indeed don't go up. It's just the outrageous airport taxes and fuel surcharges that they have been piling onto the tickets that are making flying more expensive.

On every single flight from Europe to J-land in recent years I paid nearly as much in airport tax as the actual fare part of the ticket, and it's just getting worse.

[Jack]

Yeah Jack... the fares indeed don't go up. It's just the outrageous airport taxes and fuel surcharges that they have been piling onto the tickets that are making flying more expensive.

On every single flight from Europe to J-land in recent years I paid nearly as much in airport tax as the actual fare part of the ticket, and it's just getting worse.

That's irrelevent to the monopoly discussion on here.

[Tsuru]

Does this mean you agree with me?

[Mulboyne]

A merger 99% of the time is made to lowers costs, not to increase prices.

Who would be the other 1%?

[wuchan]

Yeah Jack... the fares indeed don't go up. It's just the outrageous airport taxes and fuel surcharges that they have been piling onto the tickets that are making flying more expensive.

On every single flight from Europe to J-land in recent years I paid nearly as much in airport tax as the actual fare part of the ticket, and it's just getting worse.

I'm flying back to the US (via toronto) in april and the fuel/tax charges are more than the ticket.

[canman]

Speaking of good old Air Canada Jack, if I want to fly them home, I will have to fly Narita to Vancouver. Then Vancouver to Toronto. Then Toronto to Ottawa. Why because they have a monopoly and if I want to use them it is that or not go home. So I will fly Nortworst as usual, since I only have one stop in Detroit. How does Westjet, a small regional carrier have any effect on this situation.
And yes Wuchan, my ticket price is less than the fuel surcharges plus taxes and airport fees.

[Samurai_Jerk]

capish?

Dumbass.

[wuchan]

Speaking of good old Air Canada Jack, if I want to fly them home, I will have to fly Narita to Vancouver. Then Vancouver to Toronto. Then Toronto to Ottawa. Why because they have a monopoly and if I want to use them it is that or not go home. .

They won't put you on the flight from narita to pearson? I use air canada now, ANA and JAL are too expensive and air canada just bought a bunch of new planes. All the US based airlines are horrible and most of them charge five bucks for drinks.

[GuyJean]

.. All the US based airlines are horrible and most of them charge five bucks for drinks.

6 bucks or 600 yen..

GJ

[Taro Toporific]

6 bucks or 600 yen..

At Xmas it was $6.50 a drink on United, so I was passing around my $13 duty-free bottle of Appleton Estate VX Rum, which had much the same feel at the back of the night Greyhound bus going from Chicago to New Orleans for Mardi Gras.

[Kuang_Grade]

It is possible that the prices might not change that much but not for the reasons jack states...it is because there are so many other factors playing into the equation that price competition is already effectively non-existent on some routes and under a joint operation/merger nothing would really change. If things were as frictionless as jack suggests, a JFK-NRT flight flying a short route over Canada and Alaska to NRT would cost the same as a flight from JFK to NRT via London because consumers would view them as equally viable choices despite one route taking 3 times longer to fly and the airlines would have to price to match those expectations.

On some routes, say NRT-JFK there are landing slot/hours of operations that serve as constraints to limit competition as well as the specialized aircraft required for such long haul flights (ie, not every airline has them and those that do have them, typically they make a small part of their overall fleet) so there may be a natural price point/passenger level that is high enough to be profitable but not so expensive that passenger levels drop below certain level necessary to cover fixed costs and overall aircraft utilization levels.

I've noticed that in my own travels to Japan, the both ANA and JAL don't really seem to try to compete that much with US carriers...I've flown on ANA twice but those where actual code share flights with a US carrier, where the us carrier was selling tickets on ANA flights for $200-$300 cheaper than what ANA was charging themselves for the exact same ticket. In these cases, the US carrier was just matching their own pricing on their own flights to Japan on the code share tickets, but ANA was choosing not to respond to the price cuts by the US carrier. But that said, given that pretty much every flight I've taken between the US to Japan was filled with 70% or more J folks, it is pretty clear that pricing for US folks is not the primary factor for majority of the passenger traffic between the two countries, so ANA may simply not feel the need to compete with US carriers.

But to say that a merger would not have an impact on pricing in other routes/markets with fewer structural issues is extremely foolish. In the US, at secondary and smaller airports (think Fargo North Dakota) where landing slots and capacity issues are moderate to non-existent, when there are two airlines serving the market, average prices are lower and there are more total flights in and out of that market. When one airline leaves that market to only leave one remaining airline serving that town (which has happened lately in many of these smaller markets due to mergers or airlines going out of business), average prices go up and the number of flights drop as the sole remaining airline now has a high degree of pricing power over customers. Given the traffic levels for these smaller markets are already pretty low, they can easily adjust their seat counts by flying smaller aircraft so their fixed costs can be lowered to handle the lower levels of traffic.

[Jack]

Who would be the other 1%?

I know you are kidding but the motivating factor in mergers is usually cost savings (synergies) not ability to raise prices. If price increase is the reason, airlines have what they call code-share and that's basically legal collusion.

[Jack]

I'm flying back to the US (via toronto) in april and the fuel/tax charges are more than the ticket.

Yup, $452 I believe. But notice that the base fare has come down drastically so even with the fuel surcharge you are still paying no more than ju man yen.

[Jack]

Speaking of good old Air Canada Jack, if I want to fly them home, I will have to fly Narita to Vancouver. Then Vancouver to Toronto. Then Toronto to Ottawa. Why because they have a monopoly and if I want to use them it is that or not go home. So I will fly Nortworst as usual, since I only have one stop in Detroit. How does Westjet, a small regional carrier have any effect on this situation.
And yes Wuchan, my ticket price is less than the fuel surcharges plus taxes and airport fees.

See, they don't have a monopoly because you can fly home on Northwest.

[Jack]

Dumbass.

What's your point Jerk?

[omae mona]

I know you are kidding but the motivating factor in mergers is usually cost savings (synergies) not ability to raise prices. If price increase is the reason, airlines have what they call code-share and that's basically legal collusion.

Of course. That's why government watchdogs like the Federal Trade Commission in the U.S. or the Fair Trade Commission in Japan exist. They are ANTI-SYNERGY! They can't stand it when companies save money.

Jack, I am sure that even you realize a merger's intent and impact are quite different when the two companies are the only significant suppliers in a market.