American proposes JAL as exclusive NE Asia partner

AP News
Posted: Dec 16, 2009 10:00 AM

American Airlines has proposed making JAL its exclusive northeast Asian partner to keep it from Delta's clutches.

American Chief Executive Gerard Arpey said Wednesday he told Japan Airlines that American will not compete for connecting passengers to other points in northeast Asia if the Japanese carrier remains American's partner in the oneworld alliance.

Delta and its SkyTeam partners have offered $1 billion to lure JAL from American. American has countered with a $1.1 billion offer to struggling JAL to remain its partner. Executives from both Delta and American have suggested they might boost their financial offers.

Arpey said after a meeting with Japanese officials in Tokyo that the exclusivity offer would involve American feeding traffic between the U.S. and Japan but not elsewhere in northeast Asia where Japan Airlines has its hub of operations. Cathay Pacific and Qantas, which are part of American's oneworld alliance, also serve parts of Asia.

Arpey said Delta, which has a Tokyo hub, might siphon JAL's Asian customers if they team up.

"We don't intend to try to connect traffic in an immunized way with any other partner in this part of the world," Arpey said.

He provided few other details about the proposed arrangement.

JAL declined to comment.

Glen Hauenstein, Delta's executive vice president of network planning and revenue management, was expected to be in Tokyo around the same time as Arpey. Delta declined to make him available for comment. In a statement, Delta said Japan Airlines would benefit from an alliance with Delta. The airline said it could provide far more passengers to JAL than American currently does.

On Friday, the U.S. and Japan reached a landmark agreement to relax limits on flights between the two countries. That could open up the possibility of broader cross-border airline alliances and more options for air travelers.

United Airlines plans to soon file an antitrust immunity application for a trans-Pacific joint venture with All Nippon Airways and Continental Airlines. The U.S.-Japan agreement likely will also prompt Japan Airlines to seek a joint venture with a U.S. carrier.

A joint venture allows airlines to share costs and revenue on certain flights regardless of which airline owns or flies the aircraft. It differs from a simple codesharing agreement in which one airline bears all the cost but another airline might get a share of the revenue for booking a customer on a flight.

Japan Airlines has been teetering for years, hammered by surging fuel prices, global competition and an image problem caused by a series of safety lapses. It lost $1.5 billion in the first half ended September and has obtained approval for government loans in recent weeks to avoid grounding flights. The airline remains attractive as a partner because of its extensive routes in Japan and other important markets in Asia.

JAL President Haruka Nishimatsu has said he would make a decision about the offers by the end of the year, but recent comments from executives at American and Delta have cast doubt on whether that timetable will be met.

Arpey noted Wednesday the involvement of the Japanese government in helping shape JAL's future course.

"The situation has become much more complicated by the fact the government of Japan has either directly invested or through guarantees is a party to JAL's financial future," he said. "You have another very important voice at the table that you have to deal with."

Delta has expressed confidence that if it forms an alliance with Japan Airlines the tie-up will get clearance from regulators. American has repeatedly challenged that assertion.

"I think there is zero possibility that that application would be approved," Arpey said Wednesday.

American is a unit of AMR Corp., based in Fort Worth, Texas. Delta Air Lines Inc., the world's biggest carrier, is based in Atlanta.