Staff writer

Offering discount fares and focusing on the popular Tokyo-Fukuoka route, Skymark Airlines appeared to be off to a flying start a year ago. But in recent months, the no-frills carrier has been defending its skies from Japan's major players -- Japan Airlines, All Nippon Airways and Japan Air System.

"Our company contributed to bringing air travel closer to consumers by setting lower fares, the only sales point that we can offer to consumers in competing with the major airlines," said Takashi Ide, president of Skymark, which was established in 1996 mainly by discount air ticket seller H.I.S. Co. and major leasing firm Orix Corp.

Ide said Skymark will forge on despite the counteroffensive its bigger rivals have launched. "I always tell my employees that as our company struggles to earn profits, so do the major airlines."

Last September, Skymark became the first new airline to enter the domestic market in 35 years, offering three flights daily between Tokyo and Fukuoka for a one-way fare of 13,700 yen, half that charged by the big carriers.

It cut costs, for example, by doing away with wet towels, newspapers and magazines as part of its in-flight service and increasing the number of seats by making them narrower.

For the first seven months, Skymark enjoyed strong passenger demand, with its occupancy rate ranging from 70 percent to over 85 percent.

Then came the counteroffensive.

After seeing the number of passengers drop by 10 percent on the Tokyo-Fukuoka route, JAL, operating 12 flights daily on the route, matched Skymark's fare in March. ANA followed suit on its 12 flights, as JAS did with its 10, threatening to deprive Skymark of its advantage.

Soon passengers were lured back to the major airlines, which offer better in-flight service and other benefits, including mileage. Skymark's seat occupancy rate dropped to about 50 percent between April and June.

In April, Skymark began a new Osaka-Sapporo route for 21,000 yen for a one-way fare, and Osaka-Fukuoka for 10,000 yen, equivalent to about 70 percent of the fares offered by the other carriers.

The major carriers lowered their own fares at the same time, however, and Skymark's occupancy rate on the two new routes remained sluggish at between 10 percent and 40 percent for the first three months.

During the busy summer season, the three major airlines suspended their discount campaigns, allowing Skymark to recapture some of its lost customers, bringing the Tokyo-Fukuoka seat occupancy rate to an average 85 percent for July and August and that for the other routes to about 50 percent.

But a year after its launch, Skymark remains a fledging airline, operating only six flights a day. It holds a mere 4 percent share of the Tokyo-Fukuoka market.

Deregulation in the domestic aviation market, aimed at encouraging competition and reducing the nation's notoriously high air fares, accelerated in the mid-1990s. It enabled new companies to enter the market as strict requirements for new entrants and tight regulations on air fares were eased.

The entry of Skymark and Air Do, which launched services between Tokyo and Sapporo in December, severely affected JAL, ANA and JAS at a time when the major carriers were restructuring and transferring part of their flight operations to low-cost affiliates.

They could not afford to ignore the discount campaign by the fledging rivals. And once the discount war started, everybody jumped in.

"Because we have many more passengers than Skymark has, we could have ignored it. But we had to lower the fares because JAL lowered theirs," said Hiroyuki Miyagawa, a spokesman for ANA, which dominates 50 percent of the domestic aviation market.

The competition is taking its toll. By lowering the fare for the Tokyo-Fukuoka route, ANA's sales in March declined by 1 billion yen from the same month a year ago, Miyagawa said.

Some industry officials suggest that behind the fare-cutting battle, JAL, which leads its two major rivals in terms of international flights, may be trying to exhaust ANA in the domestic market.

However, JAL denies such speculation. "Competition among international airlines is more severe than in the domestic market," said Yasuhiro Takebayashi, a spokesman for JAL, which accounts for 25 percent of the domestic market.

Still, JAL admitted it takes the fledging airlines seriously. "Skymark can grow and become a threat to our company if we let it keep making profits (by undercutting JAL's fares)," the spokesman said.

Currently, ANA is under contract to perform aircraft maintenance for Skymark, and JAL does likewise for Air Do. This has enabled the startup carriers to enjoy low-cost operations. But ANA and JAL are beginning to criticize the practice, saying airlines should look after the safety of their own fleets.

Competition in the domestic market is expected to intensify when air fares are completely liberalized in February. Additional slots at Haneda airport, the key domestic hub serving the Tokyo area, will be allocated to airlines next summer, and a few more new carriers plan to enter the market.

Satoshi Iwamura, director general of the Transport Ministry's Civil Aviation Bureau, said the discount-fare competition brought on by the new airlines is beneficial for consumers and made the three major carriers aware of the need for efficient management.

"Although the major carriers are making efforts to reduce management costs, they have more things to do," he said. "They can become more competitive through further restructuring.

"The new airlines need to stand up to the major carriers' counterattacks under deregulation," Iwamura said, adding that they would be given priority in the distribution of additional Haneda slots.

Skymark raised its fare for Tokyo-Fukuoka flights to 16,000 yen in July and plans to reduce the Osaka-Sapporo fare to 18,000 yen next month. It is trying to be the most competitive by offering coupons for further discounts, Skymark President Ide said.

If it succeeds in gaining additional slots at Haneda, Skymark wants to increase the number of flights between Tokyo and Fukuoka and launch a Tokyo-Osaka service, he said.

"With the size of our company and the limited capacity at major airports in Japan like Haneda, we cannot catch up with the major carriers," Ide said. "To survive, we must find a way into the international market in the future."