US and Japan expand air services pact

( FT ) The US and Japan have agreed to expand their air services agreement for the first time in a decade in a move that provides additional access for direct passenger and cargo flights and connecting services to other parts of Asia.

The first amendment to the landmark US-Japan deal reached in 1998 offers additional opportunities for cargo carriers in the fast-growing transpacific market, as well as limited expansion for the passenger airline alliances which now dominate the industry.UPS, the world's largest package freight operator, will be able to add six daily flights to Nagoya to its existing daily services to Tokyo and Osaka, and connect these to its regional hub in Shanghai. Polar Air Cargo, another freight operator, is being allowed to start services to Osaka.

The US-Japan bilateral remains one of the most restrictive in the complex web of deals governing the global aviation industry, despite recent moves to liberalise the sector such as this year's accord between the US and the European Union.

Japan has long resisted US efforts to press for an "open skies" agreement which would allow carriers from either country to fly to any point in the other - and onwards to other countries - without limits on capacity, fares and alliance deals.

The US transportation department said more talks aimed at further liberalisation are slated for no later than next summer, and some observers believe Japan faces more pressure to consider an open skies-type deal.

The emergence of competing airports in China and South Korea which could capture some of the transpacific traffic now traveling through Tokyo, while new longer-range aircraft can also fly more direct services between North America and Asia.

"The two sides agreed to resume negotiations no later than the summer of 2008 to look at additional ways to expand air service between the US and Japan," said the Department of Transport.

The Japanese transporation ministry said America should not expect anything "too dramatic". Japan is likely to reject demands for more access to Tokyo's Haneda airport until at least 2010, when a new runway is completed at what is now a mostly domestic hub, he said.

In addition to its negotiations with the US, Japan has signaled its intention to expand access for Asian carriers to regional airports outside Tokyo, under its Asian Gateway Plan to increase tourist and business links with the region, though there has been little progress so far.

The open-skies approach has been pushed by the US in negotiations with a variety of countries since 1993, though critics maintain it is imbalanced as Congressional resistance continues to prevent overseas carriers from flying within the large US domestic market.

The liberalisation of cargo services has often served as a template for more comprehensive reform of air transport agreements. Many industry experts believe opening the freight sector offers an opportunity to push for comprehensive reform of the industry's bilateral-based system by providing a multilateral platform which countries could sign up to.

The US signed a new aviation deal with China earlier this year which will more than double the number of passenger flights by 2012, and the awarding of routes and access to new entrants will be accelerated. Beijing also agreed to an open skies deal for cargo from 2011, but would discuss a similar deal for passenger services only from March 25 2011.

The gains for passenger flights in the US-Japan agreement reached on Thursday are more modest than in the cargo arena, and retains the current level of scheduled departures, which are constrained by congestion at Tokyo's Narita airport, the country's main international gateway. However, carriers will be able to offer more code-share services through their alliance partners, and there is also provision for more flexible fares.

A ceiling on charter flights has also been increased.

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