Haggling for Haneda, Clashing over China

Drama is unfolding in the battle for highly coveted route authorities. US airlines took to the Department of Transportation’s slot allocation proceedings to battle over expectations for the next round of access to Tokyo’s Haneda Airport, with the arguments spilling over to restricted Chinese allocations as well. While most of the airlines involved want more flexibility United Airlines is fighting that push, with a suggestion that it is not in passengers’ best interests.

Access to Haneda has proven a ripe battleground in recent years. It is significantly closer to Tokyo than Narita Airport and delivers a much improved passenger experience on nearly every level. With the 2020 Tokyo Olympics approaching the Japanese government intends to expand access at the airport for foreign airlines and the US carriers are all anxious to score more slots.

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Delta Air Lines is particularly interested, reasoning that it has no local partner in Japan so it needs better access to the Tokyo market directly. But the DoT traditionally treated the limited access as something to be rationed based on value to passengers, not to the airlines. Applications and grants focused on local traffic and easier connections. Delta’s Minneapolis-Haneda service won a slot in 2016 for its ability to easily serve a large swath of New England, the Mid-Atlantic and the Midwest USA with a single connection. American Airlines, Hawaiian Airlines and United also won slot allocations in the 2016 proceeding.

But now Delta wants full flexibility on those slots. Rather than seeing service tied to a single US gateway it wants to fly from whichever airports give it the best chance to make money. After all, that’s what businesses do. Both American Airlines and Hawaiian support Delta’s push while United hopes to squash that plan.

The support

American’s support appears genuine on the surface. The carrier’s filing notes that demand shifts and that the DoT allocation process is time consuming and can further delay already marginal value operations.

Demand for international services is rarely static except in the most mature markets. When carriers cannot respond effectively to market changes, consumers suffer. Routes with rising demand may go underserved, while declining demand on other routes may force carriers to operate suboptimal services or return their frequencies. Returned frequencies may go unused for prolonged periods during reallocation proceedings, while demand in other markets remains unmet. With route flexibility, however, carriers can adjust their services to address market changes and thus meet the evolving demands of their passengers.

But there’s a catch. American also wants similar flexibility applied to some of the route authorities it holds for operation into China’s “Zone 1” cities (Beijing and Shanghai). Specifically, American wants the option to move the authorities it currently holds for service to those cities from Chicago, routes that were suspended in 2018 with the carrier claiming “we very often don’t earn enough cash to cover the price of fuel” on the service. American is willing to trade its support for Delta’s slot flexibility at Haneda if it receives similar in China. It is unclear which gateway airport(s) the carrier would move the China service to.

Hawaiian’s position is a similar one. It recently dropped service to China and its pair of Haneda slots are tied to Honolulu and Kona.

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The opposition

United Airlines did not mince words in objecting to the requests and mutual support the competition mustered. The company calls out the requests as self-serving rather than focused on consumers, financially motivated rather than beneficial to passengers

Access to limited entry route rights should be about consumers and communities and if one route falters, the Department should have discretion in determining when and how the public benefits should be rebalanced. American, Delta, and Hawaiian have it wrong – these carriers seek gateway flexibility for the betterment of their financial performance and give little or no attention to the consumers and communities that win or lose in limited entry route right proceedings. In this light, the Department should reject the requests for gateway flexibility at Tokyo Haneda and China – just as the Department did in reviewing the Havana gateway flexibility request – and continue its long-standing policy of allocating rights based upon its unbiased assessment of public benefits.

United uses the Havana route example further in its claim, noting that the DoT just months ago cited its own public interest goals in denying efforts to move some of the Cuba flight allocations, “[a]llowing carriers to now select at their discretion a different U.S. gateway would defeat the Department’s rationale for selection of the existing carriers and gateways over other competing applicants, and would undermine the Department’s public interest determinations.”

They’re both right

Ultimately the arguments from both sides hold value. Developing international markets is an expensive and complex process and does not always work financially where it is deemed best for the public interest. The real question is how many airlines will give up on those development efforts, delivering an even worse consumer offering in the form of fewer flights to the restricted markets. We’ve already seen cuts to China that cannot be rebuilt quickly. United and Delta want American’s slots from the Chicago cuts but only if they get 18+ months to plan and launch the new routes. In the interim that’s a hundreds of thousands of seats that will not fly between the two countries.

But allowing the airlines to cherry-pick slots based on diversity of service, only to kill off that diversity at the first available chance also does little to benefit consumers. Delta proved this with its actions operating flights from Miami and Philadelphia to London for a couple years so it could acquire Heathrow slots cheaper than on the open market.

United’s position is skewed by its strength into China and its strong partnership with ANA in Japan. The others are all playing catch up in the Trans-Pacific market. But if the DoT holds to precedent expect United’s argument to win this time around.