The Wind of Liberalization — Deregulation and Competition

Beyond the deep sorrow and reflection of the previous chapter, Japan’s skies were entering a phase that would change their very structure.

The 45/47 system, settled in the early 1970s, was a mechanism in which the state defined the roles of Japan Airlines, All Nippon Airways, and Toa Domestic Airlines, and kept each one’s domain separate. Japan Airlines on international routes and the domestic trunk lines, All Nippon Airways on domestic routes and short-haul international ones — within such boundaries, each company had grown while being protected.

But entering the 1980s, this framework grew out of step with the times. People were traveling more and more, and the services they sought grew more diverse. From the airlines, voices began to rise that under a fixed division of roles they could not fully meet ever-growing demand. State protection brought stability, but it had also become something that bound the free expansion of business.

A Wind Blowing in From Across the Sea

What pushed the change forward was a movement from across the Pacific.

In the United States, deregulation of aviation had advanced from the late 1970s, and airlines had come to compete freely with one another. Competition pushed fares down, and travelers could use the skies more cheaply — that phenomenon came to be widely known in Japan as well. Perhaps leaving matters to the power of the market would produce better results for travelers. Such thinking was becoming the trend of aviation policy around the world.

In Japan too, momentum grew to review the state’s role. In 1985, the Ministry of Transport decided to review the 45/47 system. And the following year, in 1986, a report by the Transport Policy Council effectively abandoned the division of roles among the carriers based on that system. Aviation policy turned sharply, from a way of thinking in which the state finely coordinated the industry toward one of easing regulation and promoting competition.

Behind this shift lay a change in travelers’ awareness as well. Using the skies for business or travel was no longer something special, and people had come to want to compare fares and service in choosing their flights. A state in which one company held a route to itself, leaving travelers almost no room to choose, no longer suited an age of ever-growing demand. What the state should protect was not the position of a particular company, but the interests of the people who use the skies — such a re-questioning was advancing at the root of policy.

It was the end of a long-lasting order, and the beginning of a new era.

Several Wings on a Single Route

What showed this shift most visibly to travelers was the mechanism known as double tracking and triple tracking.

Until then, many routes were in a state close to monopoly by a single company. Even at the start of 1986, for example, it was not unusual for a route to have many round trips a day, all of them on the same company’s flights. Travelers had almost no room to choose.

So a new approach was introduced: bringing multiple companies onto routes with large demand. Two companies competing to operate a single route was called double tracking, and three companies operating it, triple tracking. The mechanism allowed multiple companies to enter, in stages, starting from routes whose annual passenger numbers exceeded a certain threshold. The threshold of passenger numbers was set comparatively high at first, and through subsequent reviews it was gradually lowered, so that the range of eligible routes widened.

As several wings came to line up on the same route, the companies began to compete in their efforts to be chosen by travelers. In fares and in service alike, movements arose such as had not been seen before. Reorganizing flight times to be easier to use, giving the in-flight hospitality its own character — each company came to think, in its own way, about the reasons to be chosen. For All Nippon Airways, the late-coming challenger that had grown its domestic routes, and for Japan Airlines, which had carried the international routes, competition became a new reality. Scenes increased in which the very capability of each company, unseen in the protected era, was put to the test.

On routes where entry by multiple companies advanced, a tendency for passenger numbers to grow was also observed, it is said. As choices increased and movement appeared in fares and service, air travel grew more familiar. Deregulation worked not merely to make companies compete, but also in the direction of broadening the very base of people who use the skies.

The Privatization of the National Flag

In this era, there was another major event: the full privatization of Japan Airlines.

Japan Airlines had long existed as a special company in which the state held a stake — a half-public, half-private national flag carrier, so to speak. In exchange for bearing the nation’s prestige, it also stood subject to the state’s involvement. But within the flow of deregulation, that special status, too, came up for review. In November 1987, Japan Airlines was fully privatized, and as a single private enterprise, it would face competition by its own power.

Privatization broadened the freedom of management, while also increasing the weight of responsibility. Once it left the backing of the state, the good or ill of its results would return directly as the outcome of its own judgment and effort. Around the same time, All Nippon Airways, too, was seeking to broaden the scope of its activities into short-haul international routes, building on the strength it had cultivated on domestic ones. The two companies had each begun to draw their own picture of the future under the new rules.

The wind of liberalization brought travelers more choices and more affordable fares. For the airlines, on the other hand, it was also the opening of an era in which they let go of their protected position and sought survival by their own judgment. Competition is a possibility and, at the same time, a trial. This double nature would run through the later story of Japan’s skies.

With the end of the convoy system, Japan’s airlines each began to draw the future with their own strategies. And their gaze would, before long, turn not only within the country but toward the skies of the world. In the next chapter, I would like to look at the story of the battle and cooperation that the two companies spread across the borders.