Japan Airlines rejects Delta, stays with American

(AP) — Japan Airlines, wooed for months by Delta Air Lines with promises of cash and global reach, spurned the world's biggest carrier and opted to keep its alliance with American Airlines.

The Japanese carrier said Tuesday it will strengthen its partnership with American. The two airlines will jointly seek government approval to work closer together to coordinate schedules on trans-Pacific flights, share revenue and carry each other's passengers — all moves that can boost profits.

The decision brings to an end a fierce tug-of-war over Japan's ailing flagship carrier, which is restructuring under bankruptcy.

The prize: JAL's Asian routes and the premium passengers that come with them. For American, that means a potentially bigger revenue stream, more power to help shape overseas customer options and the potential to one day fly its own aircraft and passengers on JAL's routes.

A joint venture — for which JAL and American must secure antitrust immunity — allows airlines to share costs and revenue on certain flights regardless of which airline owns or flies the aircraft. It differs from a codesharing agreement where one airline bears all the costs but another airline might get a share of the revenue for booking a customer on a flight.

Delta has a joint venture with Air France-KLM across the Atlantic. It wanted to complement that with a similar venture with Japan Airlines across the Pacific.

But the regional dominance of a JAL-Delta tie-up would likely have raised concerns among antitrust regulators about unfair competition and made approval of a venture difficult.

Delta, based in Atlanta, and its SkyTeam alliance currently control 30 percent of U.S.-Japan market share. That would have increased to 54 percent if JAL joined SkyTeam. American and its oneworld alliance partners would have seen their share drop from 35 percent to 6 percent without JAL. The Star alliance, which includes United Airlines, Continental Airlines and All Nippon Airways, has 31 percent of U.S.-Japan market share.

Delta and its partners offered JAL $1 billion to leave oneworld. American and its partners offered JAL as much as $1.4 billion to stay. JAL decided not to accept any cash.

American, based in Fort Worth, Texas, and its oneworld partners plan to deliver to JAL roughly $2 billion in ongoing and incremental revenue over three years.

Delta asserted it remains a big player in Asia.

The Centre for Asia Pacific Aviation, a Sydney-based aviation research group, said American stood to lose more than Delta, which already has a significant presence at Narita Airport outside Tokyo. American never estimated the income it would have lost without JAL and Delta never said how much it would have gained. But American transfers roughly 400,000 passengers annually to Japan Airlines at Narita.

In U.S. trading, shares of AMR rose$1.01, or 13.8 percent, to close at $8.33. Shares of Delta rose $1.14, or 10.1 percent, to close at $12.39.

Observers expect Delta to still strengthen its presence in Tokyo and expand in other Asian markets through its ties with SkyTeam members Korean Air and China Southern Airlines.

A Japan Airlines-Delta alliance would not have changed anything for passengers initially. And neither will JAL's decision to stick with American.

American will be looking to expand its JAL relationship. That could mean more flight options for travelers. Ticket prices are unlikely to change much because the agreement maintains the status quo.

That could change if the two airlines get antitrust immunity, which isn't guaranteed. But with the U.S. economy only recently showing signs of a rebound after a deep recession, the airlines would risk losing customers by hiking prices. The recent U.S.-Japan Open Skies agreement means new airlines could enter the market in the future, keeping prices in check.

American's victory seemed improbable just a few weeks ago when Japanese officials, convinced of the long-term revenue benefits, were pushing JAL toward Delta. But after taking over last month, new JAL chairman Kazuo Inamori insisted management would re-evaluate both proposals from scratch.

JAL felt the process of shifting partners would have confused customers at a time when JAL needs to focus on recovery.

"If we don't survive the first two years, there will be no future for JAL after the third year of restructuring," said Daiji Nagai, senior vice president of corporate planning. "We decided that we can minimize risk by staying with American."

Weber reported from Atlanta. AP Writer Mari Yamaguchi contributed to this report.