Japanese National Interest/Comparisons January 28, 2010

American-oneworld

Delta-SkyTeam Japan as Asia gateway • oneworld/AA ensures that JAL continues

to be a leading carrier and Japan remains a gateway for Asia – JAL will not have to share traffic with other north Asia carriers – like Korean Air, which already has immunity with Delta. Solidifying Japan as a gateway, JAL can help prevent Japan from becoming marginalized by another carrier that already possesses antitrust immunity with Delta.

Competition with Korea/Incheon • 19 common points served from

Tokyo/Narita and Seoul/Incheon • Significant overlap of JAL routes with

Delta and Korean Air • Delta already has immunity with Korean

Air, which uses its Seoul hub to compete directly with JAL at Narita on many U.S.-Asia routings.

• Delta’s and JAL’s hubs independently serve the same customers – with approximately 10 million U.S.-to-Asia passengers being served by either JAL at Narita or Korean Air at Incheon. Only about 400,000 passengers could be served exclusively by Tokyo and not by Korean Air.

Economic benefits of a strong Asia gateway • Preserving Japan as the premier Asia

gateway ensures greater stability in businesses and employment associated with the travel and tourism industry in Japan. JAL’s importance to the Japanese economy is well documented as an engine driving travel and tourism. With the new administration and political party in place, JAL could be an important example of successful reform in Japan.

Business/job losses if Incheon dominates • Loss of air traffic connecting to Korea vs.

Japan will have a significant negative economic impact in terms of businesses that support the travel and tourism industry. With a new administration and political party in place, JAL could be an important example of successful reform in Japan. But it won’t be considered a success if it comes at the expense of competition or with limited upside for JAL.

British Airways support • Relocation of JAL’s Narita flights to T5: BA

will facilitate JAL’s move from T3 to the new state-of-the-art T5 at Heathrow effective April 2011, a move that will significantly improve the ease and convenience of connections for JAL passengers.

• Relocation of BA’s Narita flights to T2: BA will transfer its Narita operations from T1 to

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T2 effective October 2010, which is expected to greatly improve convenience for passengers connecting to JAL flights beyond Narita.

• Double European codeshare points: Effective April 2010, BA will more than double the number of European points JAL codeshares with BA.

• Joint Business Agreement: BA will seek, effective April 2011, to enter with JAL into a joint European-Japan business venture underpinned by antitrust immunity, which would permit BA to place its code on all of JAL’s European services and JAL to place its code on all of BA’s Japan services.

• Haneda to Heathrow service: If and when JAL decides to operate from Tokyo Haneda to Heathrow, BA will look to support and facilitate the start of this service in terms of airport infrastructure and slots, including occupancy in T5, as part of any joint business venture.

• In total, it is estimated that these commercial enhancements will equate to up to JPY 18 Billion ($200 Million) in value to JAL over a three-year period.

Premium passengers & key U.S. markets • oneworld airlines carry far more premium

(First and Business Class) passengers than SkyTeam in the New York-JFK, Los Angeles, San Francisco, Chicago O’Hare and Dallas-Fort Worth markets – important business centers with demand for global connectivity by high-value business travelers.

• Head to head, American’s premium market share is six times greater in the Japan - North America market than Delta’s, while American generates six percent more revenue per available seat mile than Delta on trans-Pacific service.

• AA’s hub cities in the U.S. service the most important business centers in the US – New York, Chicago, Dallas-Fort Worth, Los Angeles and Miami.

• The United Kingdom is the largest European market for Japanese investments with some $6 billion in 2008,

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and remains the largest European market for Japanese business.

• Twice as many Japanese residents live in London as in all the other major cities of Europe combined.

• The Tokyo-London market represents the largest overall origin and destination market in Europe. In fact, more passengers travel out of London to Japan than any other European market.

• More importantly, the business and premium traveler market out of London is twice the size of any other city in Europe.

Qantas to support a JAL LCC • Qantas is committed to sharing its

experience with JAL in having launched Jetstar, its own low-cost operator and having successfully managed a dual brand strategy.

• Since the launch of Jetstar and development of the two-brand strategy in 2004, Qantas has clearly proven that the coordinated operation of a premium brand, and a low-cost brand delivers higher profits than either model in isolation.

• Within the two-brand framework, Jetstar has become the only successful LCC operated within a mainline airline group. The Jetstar operation has grown over the past five years to reach close to AU$ 2 billion in revenues, AU$150 million in profits and a total fleet of 46 A320 narrow body aircraft and 7 A330-200 wide body aircraft.

• The transfer of flying to Jetstar by Qantas on the Japan route resulted in a significant profit turnaround.

• Qantas’ expertise in managing a dual brand strategy and Jetstar’s expertise in the development and operation of an LCC business model, combined with JAL’s access to infrastructure, provides a unique opportunity for JAL to develop a successful LCC to operate in conjunction with its mainline operation.

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Open Skies Agreement/U.S. Antitrust Immunity • Japan-U.S. Open Skies Agreement opens

the door for increased flights and collaboration, but only for carriers that have been granted antitrust approval.

• Antitrust approval (ATI) is granted to carriers by the U.S. Department of Transportation (DOT) with consultation from the U.S. Department of Justice – ATI is only awarded if the airlines promote competition and consumer choice.

• It would likely take 6 to 9 months for JAL to implement its enhanced partnership with AA and the other oneworld carriers.

Significant delays to obtain ATI • Delta and JAL cannot begin to engage in

full negotiations on critical issues, such as routes, schedule optimization, and slot transfers, unless they receive immunity from the U.S. government. Again, based on the U.S. Department of Transportation’s (DOT) strict, legal guidelines that immunity applications must enhance – not reduce – consumer choice, immunity will not be granted.

• A Delta-JAL application for immunity would present the most anti-competitive alliance ever presented to the U.S. Department of Transportation by:

o Combining the two largest competitors on routes between the U.S. and Japan

o Eliminating competition on non-stop routes serving millions of passengers each year, often leaving only one or two remaining competitors

o Destroying a U.S.-Japan competitive landscape in which three global alliances each have competitive positions, and replace it with a lopsided duopoly with SkyTeam twice the size of Star and oneworld left with no meaningful position at all

o Reducing competition on thousands of other U.S. to Asia routes by consolidating three North Asia hubs into SkyTeam and by eliminating oneworld’s ability to serve these routings

• It must also be remembered that, in addition to the monetary cost of switching alliances, considerable management time and effort needs to be expended to accomplish the many changes that are necessary. This burden is difficult to quantify in monetary terms but should not be underestimated.

• It could take up to 3 years for JAL to formally partner with JAL/SkyTeam with no chance of receiving antitrust immunity approval from U.S. DOT

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The value of three strong trans-Pacific alliances • JAL’s alliance choice should be pro-

competitive; Japanese consumers benefit from an aviation market where all major alliances have a competitive presence, in terms of lower fares and more travel choices.

Two trans-Pacific alliances is anti-competitive, as this would: • Combine the two largest competitors on

routes between the U.S. and Japan. • Eliminate competition on non-stop routes

serving millions of passengers each year, often leaving only one or two remaining competitors.

• Destroy U.S.-to-Japan competitive landscape in which three global alliances each have competitive positions and replace it with a lopsided duopoly, with SkyTeam twice the size of Star and oneworld without a meaningful position.

• Reduce competition on thousands of other U.S.-to-Asia routes by consolidating three North Asia hubs into SkyTeam and by eliminating oneworld’s ability to serve these routings.

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• JAL is AA’s exclusive partner for traffic into northeast Asia • Delta has ATI with Korean Air; it can send Asia passengers through Incheon or Tokyo • JAL needs ATI to grow its business to North America and maintain its position as a premier

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Narita International Airport – Terminal 2

London Heathrow Airport – Terminal 5