Battle Is On for Air Routes in Pacific Trade War : Aviation: At issue is whether current bilateral agreements give U.S.-based carriers unfair advantages over Asian airlines.

Access to airline routes could become the next battle in ongoing trade disputes between the United States and Pacific Rim nations.

At issue is whether current bilateral agreements give U.S.-based carriers unfair advantages in competing with Asian airlines within the Asian market.

The 15-member Orient Airlines Assn., including Japan Air Lines and Cathay Pacific, recently declared it would press Asian governments to renegotiate their agreements with the United States that permit U.S. carriers to fly certain lucrative, intra-Asia routes, such as the Hong Kong to Tokyo route.

The American airline industry, backed by U.S. Secretary of Transportation Frederico Pena, is adamantly opposed to wholesale renegotiations.

“Our (transportation) secretary has taken the view that if we have agreements with a foreign country, we expect them to be honored,” says Pat Murphy, acting assistant secretary for policy and international affairs at the Department of Transportation. “The idea that an association of airlines can get together and gang up on the United States to keep the United States out of Asia we find offensive.”

Representatives of Asian carriers said in recent interviews that they don’t want to shut U.S. airlines out of Asia but want a “level playing field.” They say the agreements should be rewritten to either cut the number of routes U.S.-based carriers can fly within Asia or give Asian carriers a greater share of transpacific routes from the United States.

The transpacific air travel market is currently larger than the intra-Asia market, but the latter is growing faster.

“I don’t think it’s a question of monopoly,” says Chatrachai Bunya-Ananta, chairman of the association of Asian carriers and the president of Thai Airways International.

American airline executives and some analysts counter that the Asian carriers are motivated purely by economics, not trade equity. The issue is being raised now, they argue, because the worldwide economic slowdown has severely hurt the profits of several carriers, including the once high-flying Asia-based airlines.

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The Asian airlines association says many of the treaties giving U.S. companies broad rights in Asia were first drafted in the 1940s and 1950s at a time when Asian airlines were barely in existence. Now that there is a viable Asian industry, Asian-based carriers should have more rights on their home turf, the association argues.

Geoffrey Tudor, a spokesman for Japan Air Lines, says the American carriers are in some cases operating in Asia below costs and have an advantage “because they have the support of these ancient air rights which they wrote themselves in the 1940s and ‘50s.”

Murphy and representatives of American companies deny allegations of predatory pricing, saying the real problem is that Asian carriers have higher costs because they are not as efficient as U.S. carriers.

Additionally, they argue that treaties are not as outdated as the Asian carriers claim. Many of the pacts were revised in the 1970s, ‘80s and ‘90s, Murphy says.

U.S. airline executives also say Asian carriers already have the majority of the Asian routes. U.S. companies have less than 20% of market share on the routes that they are allowed to fly, says a United Airlines representative.

The Asian companies are throwing up a smoke screen to try to gain more market share in any way possible, says Elliot Seiden, vice president for law and government affairs at Northwest Airlines, which recently was embroiled in a dispute over its competition with Australia’s Qantas Airlines. “It has nothing to do with unbalanced treaties; it has to do with hard (economic) times,” Seiden said.

“It’s clear that we are talking about a very lucrative market and the fastest-growing market (within Asia),” says Paul Dempsey, head of the transportation law program at the University of Denver. “The fact that the economic condition of the industry worldwide is so poor will undoubtedly lead to protectionism by the governments of (Asian) airlines,” Dempsey said.

The Asian airline association has gotten a sympathetic hearing in some Asian capitals.

The Japanese government does not plan to try to restrict access for U.S. carriers, says Ryuhi Maeda, first secretary at the Japanese embassy in Washington, but will seek “proper systems to avoid excessive competition” when Japan and the United States begin Tuesday the first round of negotiations on revising their bilateral treaty.

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Japan’s Nihon Keizai newspaper reported last week that the Transport Ministry will urge U.S. officials to restrict U.S. airlines’ flights from Japan to third countries because too many Japanese passengers are on those flights.

“We have to protect Japanese carriers,” Maeda says, adding that “the problem is the very low fares in the Pacific route . . . caused by excess capacity offered by carriers of both countries.”

The Japanese government, analysts say, may not press too hard on the airline issue--perhaps deciding that the issue is not worth further aggravating a United States already upset over Japan’s huge trade surplus.

Other Asian governments might find themselves in the same uncomfortable positions of having to justify their trade surpluses if they press on the airline issue, the analysts say.

“You’d lose more than you’d gain by picking a fight with the U.S.,” says Glenn Engel, an analyst with Goldman Sachs. The Australian government took an aggressive stance in the recent controversy over Northwest’s New York-Osaka-Sydney route. The dispute erupted because Australia claimed Northwest was violating an agreement to have at least 50% of passengers on the route originating in the United States. Instead, Australia claimed that Northwest consistently picked up more passengers in Osaka for the leg to Sydney, in competition with Qantas.

During the height of that dispute, Australia threatened to cancel three U.S. carrier flights to Australia, and the American government retaliated by saying it would eliminate three of Qantas’ flights between Los Angeles and Australia.

But in June, the two governments tentatively resolved their differences and on Aug. 23 will begin negotiations to revise their treaty.

Analysts say the United States also took a firm stand in the Northwest case, illustrating that the Clinton Administration will strongly defend existing airline rights if they are again challenged.

“Secretary Pena has proven that he is perfectly capable and willing to play hardball,” Dempsey said.

Asian Air Travel

Air traffic between North America and Asia represents a bigger market than intra-Asia travel, but travel within Asia is growing faster.

Transpacific travel in revenue passenger miles*. 1993*: 80.08 billion

Intra-Asia travel in revenue passenger miles. 1993*: 51.05 billion

* A revenue passenger mile represents one passenger carried one mile.

** Estimate

Source: Boeing Co. market research