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AIRLINE ECONOMICS IN ASIA
ADVANCES IN AIRLINE ECONOMICS
Series Editor: James Peoples

Recent Volumes:

Volume 1: Competition Policy and Anti-Trust, Darin Lee

Volume 2: The Economics of Airline Institutions, Operations and
Marketing, Darin Lee
Volume 3: Pricing Behaviour and Non-Price Characteristics in the
Airline Industry, James Peoples
Volume 4: The Economics of International Airline Transport, James
Peoples
Volume 5: Airline Efficiency, John D. Bitzan, James Peoples, and
Wesley W. Wilson
Volume 6: The Economics of Airport Operations, John D. Bitzan, and
James Peoples
 ADVANCES IN AIRLINE ECONOMICS VOLUME 7

AIRLINE ECONOMICS IN
ASIA

EDITED BY
XIAOWEN FU
The University of Sydney Business School, Australia
JAMES PEOPLES
University of Wisconsin-Milwaukee, USA
Emerald Publishing Limited
Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2019

Copyright © 2019 Emerald Publishing Limited

Reprints and permissions service

Contact: permissions@emeraldinsight.com

No part of this book may be reproduced, stored in a retrieval system,

transmitted in any form or by any means electronic, mechanical,
photocopying, recording or otherwise without either the prior written
permission of the publisher or a licence permitting restricted copying
issued in the UK by The Copyright Licensing Agency and in the USA
by The Copyright Clearance Center. Any opinions expressed in the
chapters are those of the authors. Whilst Emerald makes every effort
to ensure the quality and accuracy of its content, Emerald makes no
representation implied or otherwise, as to the chapters’ suitability
and application and disclaims any warranties, express or implied, to
their use.

British Library Cataloguing in Publication Data

A catalog record for this book is available from the British Library

ISBN: 978-1-78754-566-3 (Print)

ISBN: 978-1-78754-565-6 (Online)
ISBN: 978-1-78754-721-6 (Epub)

ISSN: 2212-1609 (Series)

CONTENTS
List of Contributors

Editorial Members

About the Editors

Chapter 1 Introduction and Overview

Xiaowen Fu and James Peoples

Chapter 2 Low-cost Carriers in the Japanese Aviation

Market
Shinya Hanaoka

Chapter 3 Strategic Response from Singapore Airlines to

the Rapid Expansion of Global, Full-service Hub Carriers in
the Middle East
Terence Ping Ching Fan

Chapter 4 Market Development and Aviation Liberalization

in Central Asia
Achim I. Czerny, Xiaowen Fu, Guowei Hua, Zheng Lei and Kun Wang

Chapter 5 Airline Deregulation, Market Competition, and

Impact of High-speed Rail on Airlines in China
Hangjun Yang, Qiong Zhang and Qiang Wang

Chapter 6 Air Transport and High-speed Rail Interactions in

China: Review on Impacts of Low-cost Carriers, Rail Speed,
and Modal Integration
Wenyi Xia, Kun Wang and Anming Zhang

Chapter 7 Regulatory Changes in International Air

Transport and Their Impact on Tourism Development in Asia
Pacific
Colin C. H. Law, Yahua Zhang and Anming Zhang

Chapter 8 The Effect of Levels of Air Service Availability on

Inbound Tourism Demand from Asia to Australia
Tay T. R. Koo, David Tan and David Timothy Duval

Chapter 9 Service Quality, Passenger Expectations and

Profitability in the Chinese Airline Industry
Clement Kong Wing Chow and Michael Ka Yiu Fung

Chapter 10 The Impact of Outsourcing on Airlines’

Performance: Empirical Evidence from Asia and Countries in
the Pacific
Muhammad Asraf Abdullah and NurulHuda Mohd Satar

Chapter 11 Total-factor Output Efficiencies of ASEAN

Airports
Jin-Li Hu, Yang Li, Hsin-Jing Tung and Jui-Ting Feng

Chapter 12 The Changing Dynamics and Roles of New

Zealand’s Airports: An Overview
Kan Wai Hong Tsui and Isaac Levi Henderson

Chapter 13 Analyses of Risk-sharing Contract of Airport

and Airline Vertical Relationship: Bargaining and Agency
Analyses
Katsuya Hihara and Naoki Makimoto

Index
LIST OF CONTRIBUTORS

Muhammad Faculty of Economics and Business, University of

Asraf Abdullah Malaysia Sarawak (UNIMAS), Malaysia
Clement Kong Department of Marketing and International Business,
Wing Chow Lingnan University, Hong Kong
Achim I. Faculty of Business, Hong Kong Polytechnic
Czerny University, Hong Kong
David Timothy Faculty of Business and Economics, University of
Duval Winnipeg, Canada
Terence Ping Lee Kong Chian School of Business, Singapore
Ching Fan Management University, Singapore
Jui-Ting Feng GMBA Program, National Chiao Tung University,
Taiwan
Xiaowen Fu Institute of Transport and Logistics Studies, The
University of Sydney Business School, Australia
Michael Ka Yiu Department of Decision Science and Managerial
Fung Economics, The Chinese University of Hong Kong,
Hong Kong and Aviation Policy and Research Center,
The Chinese University of Hong Kong, Hong Kong
Shinya Department of Transdisciplinary Science and
Hanaoka Engineering, Tokyo Institute of Technology, Japan
Isaac Levi School of Aviation, Massey University, New Zealand
Henderson
Katsuya The University of Tokyo, Japan and Tokyo
Hihara Metropolitan University, Japan
Kan Wai Hong School of Aviation, Massey University, New Zealand
Tsui
Jin-Li Hu Institute of Business and Management, National
Chiao Tung University, Taiwan
Guowei Hua School of Economics and Management, Beijing
Jiaotong University, China
Tay T.R. Koo University of New South Wales, Australia
Colin C.H. Law School of Commerce, University of Southern
Queensland, Australia and Faculty of Business and
Technology, Stamford International University,
Thailand
Zheng Lei Institute of Aviation Research, UK
Yang Li Newhuadu Business School, Minjiang University, P.R.
China
Naoki University of Tsukuba, Japan
Makimoto
NurulHuda Department of Economics, Faculty of Economics and
Mohd Satar Administration, University of Malaya, Malaysia
James Peoples Department of Economics, University of Wisconsin-
Milwaukee, USA
David Tan School of Aviation, University of New South Wales,
Australia
Hsin-Jing Tung Institute of Business and Management, National
Chiao Tung University, Taiwan and Ministry of
Transportation and Communications, Republic of
China
Kun Wang Sauder School of Business, The University of British
Columbia, Canada
Qiang Wang School of International Trade and Economics,
University of International Business and Economics,
China
Hangjun Yang School of International Trade and Economics,
University of International Business and Economics,
China
Wenyi Xia Sauder School of Business, University of British
Columbia, Canada
Anming Zhang Sauder School of Business, University of British
Columbia, Canada
Qiong Zhang School of Economics and Management, Anhui
Normal University, China
Yahua Zhang School of Commerce, University of Southern
Queensland, Australia
EDITORIAL MEMBERS

SERIES EDITOR
James Peoples
University of Wisconsin-Milwaukee, USA

ASSOCIATE EDITORS

John Bitzan Xiaowen Fu

North Dakota State University, The University of Sydney,
USA Australia

Kevin Cullinane
University of Gothenburg, Sweden

BOARD OF EDITORS
Volodymyr Bilotkach B. Starr McMullen
Newcastle University, UK Oregon State University,
USA

Jan K. Brueckner Steven Morrison

University of California, Irvine, USA Northeastern University,
USA

Martin Dresner Claudio Piga

University of Maryland, College Park, Keele University, UK
USA

David Gillen Nicholas G. Rupp

University of British Columbia, Canada East Carolina University,
USA

Ian Savage
Northwestern University,
USA

Timothy J. Hazledine Wayne Talley

University of Auckland, New Zealand Old Dominion University,
USA

Marc Ivaldi Wesley W. Wilson

Université Toulouse 1 Capitole, France University of Oregon, USA

Theodore E. Keeler
University of California, Berkeley, USA
ABOUT THE EDITORS
James Peoples is Professor of Economics at the University of
Wisconsin-Milwaukee. His research includes analysis of production
efficiency for different modes of freight transportation, as well as
analysis of labor market activity in transportation industries. He has
served as President of the Transportation and Public Utilities Group.
He is also the Series Editor of Advances in Airline Economics and
Editorial Board Member of the journal Transport Policy.

Xiaowen Fu is Associate Professor in the Institute of Transport and

Logistics Studies, the University of Sydney. His main research area is
transport economics, which covers issues such as competition policy
and government regulation, efficiency benchmarking, transport
demand modeling, and industrial organization. He is on the editorial
boards of three journals including Transportation Research – Part B
and Part E, and is an editor of the journal Transport Policy and
Associate Editor of the book series Advances in Airlines Economics.
Dr Fu is Vice President (Research) of the Air Transport Research
Society (ATRS), Vice President (Research) of the Institute for
Aviation (UK), Founding Chair of the Maritime Economy and Policy
stream of the World Transport Convention.
CHAPTER 1

INTRODUCTION AND OVERVIEW

Xiaowen Fu and James Peoples

Keywords: Regulatory reform; airline competition; passenger

satisfaction; airline performance; airport performance;
airport–airline interdependence

JEL classification: L93; L98

Air transport service has become an indispensable source of long-

distance transport for businesses and leisure travelers and for high-
value, low-volume products. The significance of this transport service
as a driver of economic growth is made abundantly apparent when
examining the interdependence of business and air transport growth
in Asia. Business activity in Asia ranks as the highest worldwide with
Asia-Pacific attaining a 40 percent share of the global exports
(APTIR, 2016). While loosening of restrictions on international
investment and ratification of the WTO Trade Facilitation Agreement
by many of the region’s economies have contributed to their trade
dominance, access to affordable air transport service has also played
a vital role in the region’s economic development. Indeed, just for
the month of July in 2017 Asian air carriers transported 20 million
tons of cargo, representing two-fifths of world air cargo traffic
(Association of Asia-Pacific Airlines (AAPA, 2017).
The significance of Asia as a source of potential passengers is
obvious when noting the residents in Asia account for 60 percent of
the world’s population as nearly 4.5 billion people live and work in
this region (World Population Review, 2017). Furthermore, a growing
share of this population is entering the middle class, which is a prime
demographic group that air companies serve as tourist as well as
business travelers. Airlines in this region have taken advantage of
their proximity to this large population of regional customers and
have also taken competitive steps to meet the growing demand from
foreign tourists. In July 2017, carriers in the Asia-Pacific transported
1,214 million passengers which accounted for one-third of the
world’s passenger traffic (AAPA, 2017).
The Asian market also has some distinctive features in terms of
infrastructure availability, competition from other transport mode,
passenger income and purpose composition, regulatory framework,
and airlines’ business strategy. For example, compared to the
aviation market in Europe and North American, a smaller number of
cities have secondary airports; high-speed rail (HSR) networks are
much more extensive in China and Japan, which put significant
competitive pressure to airlines on routes of short-medium
distances; in some emerging economies, aviation is still consumed
by a small percentage of the population with business travel
accounting for a significant share of the aviation market; some
mega-carriers, notably those in China, remain majority state owned;
the airline-in-airline strategy, which failed repeatedly in North
America and Europe, has been adopted by an increasing number of
airlines throughout Asia (Adler, Fu, Oum, & Yu, 2014; Fu, Lei, Wang,
& Yan, 2015; Fu, Oum, & Yan, 2014; Homsombat, Lei, & Fu, 2014;
Li, & Shen, 2016; Wang, Xia, & Zhang, 2017; Zhang, Yang, & Wang,
2017; Zhang, 2010).
Given the key role this region plays as a contributor to growth in
the global airline transport service sector and the distinctive features
of the aviation market observed, it is important to understand the
economics of this sector in Asia. This volume contributes to the
understanding of air transport services in Asia by presenting new
research in the following four key areas in airline economics:
competition and regulatory change, passenger demand and
satisfaction, industry performance, and the interdependence of
airlines companies and airports. The remainder of this chapter
presents a brief overview of this volume’s chapter contributions.

1. COMPETITION AND REGULATORY CHANGE

In concert with global aviation policy trends, many Asian
governments have relaxed regulation on market entry restrictions
both domestically and internationally. This shift in policy is intended
to promote a competitive business environment that facilitates airline
companies charging lower fares and expanding their operations;
thus, that the affordability and accessibility of aviation services can
be enhanced. The entry of low-cost carriers (LCCs) following the
enactment of regulatory reform has been key to achieving these
consumer welfare enhancing outcomes. The first chapter by Shinya
Hanaoka contributes to the analysis of industry development and
consumer welfare by examining the influence of LCCs and HSR
services in Japan. His analysis includes an overview of open skies
policies in this nation as well as focusing on the market influence of
“genuine” LCCs, such as Peach Aviation and Jetstar Japan, which
began their operations in 2012. His findings reveal passenger
volumes quickly returning to pre-2007 recession levels following the
entry of these “genuine” LCCs. This group of carriers’ share of
passengers increased markedly from 2012 to 2016, indicating full-
service carriers (FSCs) faced increased competition from these low-
fare carriers. Hanaoka’s findings also reveal that competition was not
limited to LCCs as HSR carriers increased their share of domestic
passenger service for the years from 2012 to 2016 on the large
island of Kyushu. He concludes by observing that findings from these
early stages of enhanced competition from “genuine” LCCs and HSR
present the potential for continued consumer welfare gains for
domestic and international travelers in the Japanese market.
Regulatory reform that encourages competitive entry requires
incumbent FSCs to adapt to this new business environment or face
the possibility of market share erosion. In the succeeding chapter,
Terence Fan examines the response of the FSC Singapore Airlines to
the competitive threat arising from the dramatic growth of Emirates,
Etihad, and Qatar Airways in the Middle East (collectively referred to
as “ME3”). Fan observes that the entry of the ME3 has contributed
to a significant loss of market share for FSCs operating in Europe
and Asia. He attributes part of the ascent of the ME3 to improved
service quality and rapid capacity expansion. In response to the
competitive entry of these three carriers, Fan reveals that Singapore
Airlines stayed true to its niche as a premium carrier and refrained
from tit-for-tat type competition. He reveals that while this decision
allowed Singapore Airlines the latitude to command high prices in
selective markets, the carrier’s growth in passenger volume
remained stagnant over the last decade and a half. The analysis of
this chapter offers valuable lessons for other FSCs facing enhanced
competition from foreign carriers.
The potential gains to passengers arising from liberalization
polices have been well documented in the previous two chapters.
Despite such evidence, several governments in Asia, especially those
in developing countries, have maintained legislation regulating air
transport services. The next chapter by Achim Czerny, Xiaowen Fu,
Guowei Hua, Zheng Lei, and Kun Wang examines the performance
and development of air transport services in Central Asian countries
that continue to impose restrictive regulations on operations in this
service sector. This chapter focuses on the five countries in Central
Asia, namely Uzbekistan, Kazakhstan, Turkmenistan, Tajikistan, and
Kyrgyzstan, which are landlocked and therefore rely critically on air
transport services for passenger travel and express cargo logistics.
Air fare and consumer demand estimations suggest passenger
demand in this region is highly price-elastic, indicating that
enhanced competition and fare reduction have the potential to
promote significant market growth in this sector. The authors also
observe that international air transport routes in this region have
been significantly influenced by noneconomic determinants such as
political, cultural, and historical associations among countries. For
instance, routes connecting Central Asia and Russia developed faster
than routes to other regions with weaker political cultural and
historical ties. This observation reveals the importance of considering
sociopolitical factors when examining specific markets and when
designing industrial policy for the transport services sector. The
authors conclude that while there has been notable market growth
in this region when serving routes to selected countries such as
Turkey and the UAE, further liberalization is needed for the region to
achieve better connectivity with major trade partners and aviation
markets.
The final two chapters in this section examine intermodal
competition among airline companies and HSR in China, the Asian
region’s most heavily populated country. The following chapter by
Hangjun Yang, Qiong Zhang, and Qiang Wang reviews market
development in China’s air transport sector with emphasis on
regulatory reform and government investment in HSR, which often
serves as a substitute service for long-distance domestic transport.
The authors reveal that after 20 years of airline deregulation and
privatization, China’s airline transport industry has experienced
significant liberalization. They show Chinese airline companies are
able to set fares freely with minimal restrictions. Restrictions on
route entry have also eased. Excluding the 15 busiest domestic air
routes and routes connecting the eight busiest airports in China,
carriers are allowed to enter and exit markets without prior approval
from the Civil Aviation Administration of China. The authors also
reveal that procompetitive policy in this sector is not limited to entry
from other air carriers, and the Chinese government has invested
heavily in the developing of HSR. The promotion of this alternative
transport service has served to suppress airfares as well as constrain
demand for transport by air carrier in China. The authors argue that
Chinese air carriers should improve operating efficiency and lower
costs to support lower fares in this more competitive domestic
market. They also suggest avoidance of direct competition with HSR
and instead focusing on niche markets that cannot be served by
HSR. They additionally prescribe the three major Chinese air carriers
marshal their resources to compete more aggressively on
international routes.
Chapter 6 contributes to further analysis on the interaction of
airline transport service and HSR in China by examining three critical
interactions between air transport and HSR in China, namely the
interaction between LCCs and HSR, HSR speed change’s effect on
airlines, and air-HSR integration. In this review chapter, Wenyi Xia,
Kun Wang, and Anming Zhang report that compared to FSCs, LCCs
face more intense competition from HSR. They also observe that a
reduction in HSR speed contributes to greater demand for long-
distance domestic air transport services. In contrast, slower HSR
speed contributes to lower air transport demand due to an improved
perception on HSR safety. HSR service, however, doesn’t have to
depict a source of competition to air carriers as the authors of this
chapter report that air-HSR integration can be implemented through
cooperation between airlines and HSR operators and through co-
location of airports and HSR stations. These cooperative strategies
have the potential to enhance consumer welfare by improving the
overall quality of transport service and reducing transport fare for
long-distance commutes in China.

2. PASSENGER DEMAND AND SATISFACTION

The preceding chapter reveals the potential gains to carriers
associated with providing safer transport service. The significance of
providing high-quality and affordable service as an approach for
increasing passenger demand is critical to airlines’ survival in an
increasingly competitive business environment. In the initial chapters
of this section, Colin C.H. Law, Yahua Zhang, and Anming Zhang
review the history of regulation and deregulation in international air
transport and present the benefits associated with the policy
implementation of deregulation and open skies on tourism in the
Asia-Pacific region. Their analysis focuses on the Hong Kong–
Bangkok market. Such market focus allows for examining the
potential consumer welfare gains derived from granting the right of
air carriers to transport passengers (or cargo) to countries other
than that carriers’ home country as long as the service starts or ends
in its home country. Such freedom allows carriers to compete on
international routes without transporting all passengers to or from
the carrier’s home country. The authors report that granting fifth
freedom rights on the Hong Kong–Bangkok route has enhanced air
transport service to these cities and that additional route competition
has contributed to increased tourism for both locations.
In Chapter 8, Tay Koo, David Tan, and David Timothy Duval
examine the interrelationships between air transport service and
Asian inbound tourism demand to Australia. The authors justified
this investigation by observing the reliance of Australia on foreign
airlift to maintain adequate seat capacity for the growing number of
tourists visiting this country. Using a generalized method of moments
(GMM) approach, this chapter accounts for the endogenous
relationship between the levels of international air service availability
and tourism demand. The empirical findings suggest a positive but
relatively small causal influence of air transport service on inbound
tourism demand emanating from Asia to Australia. The authors
interpret these results to suggest that the lack of airlift supply is
probably not a hindrance to the continual growth of Asian inbound
tourism to Australia.
The following chapter co-authored by Clement Chow and Michael
Fung contributes further to this volume’s analysis on tourist demand
for air transport services in Asia by examining the significance of
service quality and its influence on the financial performances of
Chinese airlines. This empirical analysis is conducted in three stages.
Initially, the authors estimate the expectation of service quality,
which was included as a determinant in a customer complaint
equation in the subsequent stage. In the final stage, the fitted
values derived from estimating the customer complaint equation are
included in the specification of a carrier revenue and two carrier
profit equations. Their findings reveal that an increase in actual on-
time performance by carriers is associated with reduced customer
complaints. In contrast, and somewhat surprisingly, an increase in
expected on-time performance is associated with increasing
customer complaints. The authors explain that if customers have a
high expectation of the service quality of carriers, a slight reduction
in actual service quality that not meeting customer expectation may
contribute to more customer complaints. Carrier performance
findings reveal that an increase in customer complaints reduces
yield, does not have a measurable effect on operating margins and
has a relatively weak and negative effect on pretax margins. These
findings support the authors’ hypothesis on customer satisfaction
and carrier profitability. The authors suggest that carriers invest
resources to improve service quality as a management approach to
improve their financial performance.

3. INDUSTRY PERFORMANCE
While maintaining high customer satisfaction is critical to generating
revenue, airlines and airports in Asia must also maintain efficient
operations to avoid high costs that erode profitability. The two
chapters in the following section contribute to our understanding of
industry performance by empirically examining the efficiency of
airlines and airport s in Asia. In Chapter 10, Muhammad Asraf
Abdullah and NurulHuda Satar use a nonparametric empirical
technique to examine productivity growth and relative technical
efficiency of airlines operating in the Asia-Pacific region. Their
findings suggest downward trends of both technical efficiency and
productivity for the 2003 to 2011 sample period. While they observe
that these trends are largely associated with the global economic
crises starting in 2007, such findings motivate the question asking
how airline management in this region can mitigate the lack of a
significant performance gain. In response to this question, these
authors test whether outsourcing is a viable management decision
for enhancing productivity gains and technical efficiency. Their
findings suggest that outsourcing is not associated with enhanced
technical efficiency or productivity growth for airlines with a home
base in the Asia-Pacific. They argue, based on these findings, that
carriers in this region should take advantage of low-wage labor in
their region to enhance productivity gains and attain higher levels of
technical efficiency.
A competitive aviation sector in Asia is also dependent on the
performance of airports located in this region. In the succeeding
chapter, the analysis of carrier performance is expanded to include
the examination of efficiency for airports operating in the Association
of Southeast Asian Nations (ASEAN). Consistent with the empirical
approach used in the previous chapter, Jin-Li Hu, Yang Li, Hsin-Jing
Tung, and Jui-Ting Feng apply the DEA method to compare
operating efficiencies of airports located in Singapore and six other
ASEAN countries. The six non-Singapore countries have a mix of
regional and international airports. Making this distinction is
significant, as the authors observe regional airports are usually less
busy and hence have a lower utilization rate compared to
international airports. Hence, Singapore’s international airport is
likely to record a higher efficiency score compared to those of other
ASEAN countries where a mix of regional and international airports
operates. Their findings also reveal that international airports located
in the seven ASEAN countries under analysis attain significantly
better output efficiency for passenger and aircraft movement than
regional airports. In contrast, cargo efficiency performance of
regional airports mirrors that of international airports among these
ASEAN countries, even though international airports have much
more resources, facilities, and capacity compared to regional
airports. Based on this finding, the authors suggest that international
airports in this region should focus on finding ways to more
effectively use their resources to enhance efficient cargo operations.
 4. INTERDEPENDENCE OF AIRPORTS AND
AIRLINES
The analysis of airport operations is continued in the final set of
chapters presented in this volume. In Chapter 12, Kan Tsui and Isaac
Levi Henderson examine the role of New Zealand’s airport system in
promoting the growth of tourism, which is a key sector in New
Zealand’s economy. The authors observe that New Zealand’s airport
system has significantly contributed to the country’s tourism sector,
due in large part to the fact that the system is well developed and
allows for easy accessibility for passengers and freight shippers. The
authors underscore the significance of investing in an extensive
network of airports that provides tourists access to geographically
disperse destinations by noting that tourism is the largest contributor
to New Zealand’s economy. The economic benefits of such an
extensive system, however, is not limited to tourism as Tsui and
Henderson report that 22.2 percent of exports and 15.5 percent of
imports by value were transported by air transport service in 2016.
The authors point to their findings as justification for enhanced
investment in airport infrastructure and capacity to meet the tourism
industry’s goal of increasing international revenue at an annual rate
of 6 percent.
While airports are critical to the development of local economies
as well as playing an important role promoting passenger demand
for airline services, both airlines and airports face economic risks
associated with economic downturns and stepped-up competition
from LLCs. In the final chapter of this volume, Katsuya Hihara and
Naoki Makimoto observe that given the rise in economic uncertainty
in the aviation sector in Asia, a significant number of airports and
airlines have negotiated risk-sharing arrangements to mitigate the
effects of such uncertainty. The authors construct a two-stage game
with the objective of deriving condition under which airports and
airlines negotiate an agreement that enhances both entities’
satisfaction with risk protection. The findings show that the two
parties can negotiate greater risk protection without making the
other party worse off. This is achieved through bargaining a simple
linear risk-sharing contact based on the equilibrium effort levels of
the two parties. These findings are significant in part because they
show how risk-sharing arrangements between airlines and airports in
Asia can be mutually beneficial to both parties.

5. CONCLUDING COMMENTS
The rising global economic influence of Asian countries highlights the
significance of their aviation industry’s ability to efficiently transport
goods and services as well as to meet the demands of a growing
number of passengers in the region. In lockstep with this industry’s
significance to economies in this region, policy-makers in Asia have
in general enacted policies that encourage international and
domestic competition in their airline transport industry. Findings from
the chapters in this volume reveal how passengers and shippers
have benefited from procompetitive policies and enhanced
investments in aviation infrastructure and capacity. Compared to the
past, individuals using air transport service in Asia enjoy greater
access to more locations in this region and worldwide. Competition
in this sector has placed a premium on the quality of air transport
service and has presented users a greater choice of airline company
types such as full-service or LLCs, which provide differentiated
services (Fu, Dresner, & Oum, 2011; Murakaimi, Amano, & Asahi,
2015). Competition between intramodal (LCC versus FSC) and
intermodel (airlines versus HSR) has also placed a premium on
efficiency, as chapters in this volume identify efficiency gains by
airlines and airports in this region. However, authors of these
chapters argue that there is still significant room for greater
efficiency gain. These same authors present policy prescriptions to
achieve such gains. Making needed adjustments to efficiently satisfy
the growing demand for air transport is vital for a region where a
significant percentage of the world’s population resides and where a
nontrivial share of world trade occurs.

REFERENCES
AAPA. (2017). Retrieved from https://www.brookfieldav.com/single-
post/2017/08/11/Asia-Pacific-The-Worlds-Strongest-Aviation-
Market
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CHAPTER 2

LOW-COST CARRIERS IN THE JAPANESE

AVIATION MARKET
Shinya Hanaoka

ABSTRACT
This chapter examines the issues of the low-cost carriers
(LCCs) in Japan and their impact on the domestic and
international aviation markets. “Genuine” LCCs, such as Peach
Aviation and Jetstar Japan, began their operations in 2012 to
follow the new movement of low-cost and low-fare airlines,
which are different from the “new emerging” airlines, such as
Skymark and AIRDO that appeared in the late 1990s. We
discuss the recent history of LCCs in Japan, the characteristics
of each LCC, the competitiveness of the high-speed railway in
the domestic market, the impact of open sky policies, and the
contribution of inbound foreign visitors to the international
passenger volume increase. As LCCs in Japan have recently
begun operations, they can continue to play a significant role
in the Japanese aviation market.
 Keywords: Air transportation; transportation analysis;
regional studies

JEL classification: L93; L51

1. INTRODUCTION
The passenger volume of domestic air transport in Japan makes it
the third-ranked globally, after the United States of America (the US)
and China (ACI, 2016). The historical trend of passenger volume for
the last 30 years is presented in Fig. 1. Japan has eight hub airports:
Sapporo, Tokyo/Haneda, Tokyo/Narita, Nagoya/Centrair,
Osaka/Itami, Osaka/Kansai, Fukuoka, and Naha from north to south
as shown in Fig. 2.1 The Ministry of Land, Infrastructure, Transport,
and Tourism (MLIT) defines trunk routes between seven of the eight
hub airports excluding Centrair.2 The many other routes from hub to
regional/local airports and between regional/local airports are
defined as local routes. The first peak of the passenger volume was
in the year 2003 and 2006, 96.68 and 96.34 million, respectively.
The total domestic passenger volume started to decrease from 2007
onward because some of the routes between hubs and regional/local
airports, as well as those between regional/local airports that were
operated by Japan Airlines (JAL) and All Nippon Airways (ANA), were
suspended due to low demand (Hashimoto, Yai, & Ito, 2014). In
addition, the period between bankruptcy and business reconstruction
of JAL – 2009 to 2011 – led to a significant decrease in passenger
volume on both trunk and local routes.3 The service level of high-
speed rail (HSR) in terms of higher frequency of trains and
punctuality may also be affected by the competitiveness of domestic
air transport. However, as shown in Fig. 1, the passenger volume
again started to increase from 2012, owing to “genuine” low-cost
carriers (LCCs) that finally appeared in the domestic market in
Japan. The passenger volume in 2016 was 97.20 million, which was
more than previous peak in the year 2003.

Fig. 1. Trend of Passenger Volume in the Domestic Market in Japan.

Source: Made by the author based on the database of MLIT.
 Fig. 2. Location of Major Airports in Japan. Source: Made by the
author.

Based on this background, this chapter aims to examine the

issues of the LCCs in Japan and its impact on the domestic and
international aviation markets. Murakami (2009, 2011) and
Murakami, Amano, and Asahi (2015) discuss the LCCs in Japan and
clarify the impact on the airfare of domestic market; however, the
target airlines of these papers are not the LCCs, but “new emerging”
low-fare airlines. This chapter is the first study to show the impact of
“genuine” LCCs in Japan. In this chapter, we discuss the recent
history of LCCs in Japan, the characteristics of each LCC, competition
between LCCs and HSR in the domestic market, the impact of open
sky policies and inbound foreign visitors on the passenger increase
in the international market, and finally the existing barriers to LCCs’
expansion.

2. RECENT HISTORY OF JAPANESE DOMESTIC

MARKET RELATED TO LOW-COST CARRIERS
In the last two decades, the Japanese domestic aviation market has
changed drastically twice, owing to the entry of new airlines. The
first change was in 1998, when Skymark Airlines (renamed as
Skymark in 2006) and Hokkaido International Airlines (renamed as
AIRDO in 2012) commenced their operations on the two busiest
domestic routes, Haneda–Fukuoka and Haneda–Sapporo,
respectively, in 1998.4 Skymark was the first new independent airline
set up after 1963, subsequent to the enforcement of the protected
“45-47 Regime” in 1972. This was based on the notification of the
Minister of Transportation, which protected JAL, ANA, and Japan Air
Service (JAS)5 (renamed in 1998; previously named as Toa Domestic
Airlines) to manage their flight operations on their own, in order to
monopolistically follow the regulations and to avoid competition with
each other.6 Skynet Asia Airways (renamed as Solaseed Air in 2015)
and Star Flyer started their operations in 2002 and 2006,
respectively, after the revision in the Japanese Civil Aeronautics Act
in the year 2000, which deregulated the market entry of airlines and
airfares. These new four airlines mainly entered the domestic trunk
routes from/to Haneda Airport, the primary hub airport in the
Japanese domestic market, and their entry routes showed the
impact of lower airfares and increased passenger demand.
Therefore, these four new airlines were referred to as LCCs,
particularly in non-Japanese literature (Murakami, 2009; Murakami,
2011; Zhang, Hanaoka, Inamura, & Ishikura, 2008).
 However, in Japan, these four airlines continue to be called “new
emerging” airlines, despite the fact that several years have passed
since they started their operations. One of the main reasons for this
is that the cost structures of these airlines are different from those of
LCCs in other countries, although they have features in common
with those of the LCCs of other countries in terms of their services
and low airfares (Murakami et al., 2015). The cost structure of the
four “new emerging” airlines is similar to those of full-service carriers
(FSCs) except their labor costs. At times, the maintenance costs of
“new emerging” airlines can be higher than those of FSCs as the
former do not have their own maintenance subsidiary, company, or
divisions, and thus have to outsource their maintenance to the FSCs.
The average costs of “new emerging” airlines do not differ
significantly from those of FSCs, and in fact, those of AIRDO,
Solaseed Air, and Star Flyer are even higher than those of FSCs
(Murakami et al., 2015). Their business model is a hybrid of LCCs
and FSCs.7
AIRDO, Solaseed Air, and Star Flyer are currently part of the ANA
group through the codeshare operations of all flights. This is
because of their weak competitiveness caused by a smaller network
than the two FSCs, JAL and ANA. ANA is the top shareholder in Star
Flyer and the primary shareholder of AIRDO and Solaseed Air.
AIRDO and Solaseed Air also received financial support from ANA
when they faced financial crises in the past. In this situation, AIRDO,
Solaseed Air, and Star Flyer can be regarded as a group company
under ANA. Only Skymark has no codeshare operation with the two
FSCs, although Skymark also received financial support from ANA
during a bankruptcy situation in 2015.
The Japanese domestic market has witnessed a substantial and
stepwise deregulation of the operating licensing system, fare
approval system, and other regulatory provisions under the new Civil
Aeronautics Act that came into force in 2000. However, most of the
trunk routes of the domestic market appear to be under an oligopoly
owing to the two FSCs, although Skymark plays the role of LCC,
considering its low-airfare services on limited number of routes. The
Japanese domestic aviation market was still lucrative for the FSCs in
the 2000s.

3. MOVEMENT OF LOW-COST CARRIERS

LCCs in Asia, such as AirAsia in Malaysia and IndiGo in India,
emerged in the 2000s and became significant players in the
domestic and regional aviation markets of Southeast and South Asia.
In Northeast Asia, Spring Airlines in China, and Jeju Air and other
LCCs in South Korea also started their operations in and around
2005. However, there continues to be no “genuine” LCC in Japan,
although four “new emerging” airlines were termed as LCCs by those
outside Japan. However, ANA and JAL prepared for LCC business
entry in the late 2000s as they could not ignore the LCCs’ boom in
Asia. Finally, the wave of LCCs came to Japan in 2012 and it was the
second significant change in the Japanese domestic market. Why
was the “genuine” LCC born in Japan in 2012? There are mainly four
reasons: (1) ANA has established Asia Strategy Office at Hong Kong
in 2008 for researching Asian aviation market, especially LCCs, to
launch the subsidiary LCCs and the opening timing of new exclusive
LCC terminal was in 2012 at Kansai Airport; (2) JAL included the plan
to initiate LCC services in the report of the business reconstruction
plan submitted to the Tokyo District Court in 2010, following the
recommendation by the Enterprise Turnaround Initiative Corporation
of Japan; (3) AirAsia considered entering the Japanese domestic
market in 2011; and (4) MLIT published the Growth Strategy of
MLIT (MLIT, 2010), which includes six strategies related to the
aviation sector and one of them is “Expanding passenger benefits by
promoting LCC entry.” Further, many pilots were available for LCCs
because they had been laid off by JAL in 2010 and 2011 due to its
bankruptcy.
MLIT has policies to support the sustainable growth of LCCs,
such as open sky bilateral agreements from 2010, fare deregulations
of international flights (abolishing the lower limit of 70% IATA PEX
tariff in 2008), possible fueling during passenger boarding in 2012,
discount of landing charges for an aircraft less than 100 tons at
national ownership airports from 2013, and a subsidy on landing
charges for local government ownership airport (MLIT, 2017).
PRILIT (2014) reports the first impact of LCC entry in the
Japanese domestic market based on OAG traffic data. Table 1 shows
the impact of LCC entry on the number of passengers on the major
trunk routes from/to Tokyo and Osaka – multiple-airport
metropolitan cities. Comparing “Tokyo/Narita or Osaka/Kansai
from/to Sapporo or Fukuoka or Naha” and their competitive routes in
the same metropolitan area but not the same airports such as
“Tokyo/Haneda or Osaka/Itami + Kobe from/to Sapporo or Fukuoka
or Naha” provides one of the interesting results of PRILIT (2014).8
All LCCs started their operation during 2012, and thus, the number
of total passengers in 2013 was more than that in 2012 in four
among six routes. However, except Osaka from/to Fukuoka, the
number of passengers carried by FSCs decreased in 2013 due to the
shift to LCCs. It greatly increased in both FSCs and LCCs in Osaka
from/to Fukuoka due to the shift from HSR because of the higher
share of HSR between two cities in the past (as also shown in Fig.
4(c) later). PRILIT explained that the value of Tokyo from/to Naha
seems to be odd as it shows a decrease in the total number of
passengers; this might be an error in OAG traffic data since the
tourism data show an increase in traffic between the two prefectures
(Tokyo and Okinawa) 2013 over 2012.

Table 1. First Impact of Low-cost Carriers (LCCs) Entry in Japanese

Domestic Market.
 As shown in Table 2, there were five LCCs in Japan in December
2017. Table 2 includes the main shareholders, base airport, and
domestic and international operating flights. Peach Aviation started
its operation in March 2012 as the first “genuine” LCC in Japan. It
uses Kansai Airport as its primary base airport and also uses
Terminal 2, which is the new and exclusive LCC terminal that opened
in October 2012. Selecting Terminal 2 as a hub is one of the reasons
behind Peach Aviation recording an increase in the number of
passengers and earning profits from fiscal 2014 onward. Kansai
Airport has 24-hour operation and sufficient slot capacity in
comparison with Narita Airport. It has the second-largest population
as the hinterland (Osaka and Kyoto) and is closer to other Asian
countries than Tokyo. Most LCCs use narrow-body aircraft, such as
A320; thus, their flight distances are limited, in comparison with
wide-body aircraft. The distance between Kansai and Narita Airports
is approximately 600 km, which may affect the possible coverage of
the market in Southeast Asian countries. Peach Aviation has several
international routes that cover neighboring Asian countries because
its target market is Asia.

Table 2. List of Low-cost Carriers (LCCs) in Japan (as of December

2017).
 As presented on its website, Peach Aviation has “Five Promises”
that emphasize its service: (1) Uncompromising Safety, (2)
Unbeatable Value, (3) Caring People, (4) Japan Quality, and (5)
Bridging Asia. These promises are unique features of LCCs in Japan.
For example, “Caring People” highlights that “Peach frontline
personnel deliver warm and caring service with our signature Kansai
humor and charm.” Kansai refers to the Western region in Japan that
covers Osaka, Kyoto, and Kobe, among others, and it has a
traditional culture that is different from that in Tokyo and in its
surrounding areas. Kansai humor and charm attracts the mind of the
people in Kansai region. Another example is “Japan Quality,” which
states that “As the first true low-cost airline brand from Japan, Peach
will stay true to the highest standards of quality and consistently
pursue excellence in all services and products.” This could be
impressive for passengers of other Asian countries. ANA is the
primary shareholder of Peach Aviation with a 38.7% stake, as of
April 2017,9 though Peach Aviation pursues a business policy that is
independent from that of ANA.
In 2012, Jetstar Japan and AirAsia Japan also launched their
operations as a joint venture and a big name LCC in Asia and the
Pacific, which is the typical LCC model in Asia under the “not fully
liberalized” market (Hanaoka, Takebayashi, Ishikura, & Saraswati,
2014). The shareholders of Jetstar Japan are Qantas Airways and
JAL, each with a 33% stake,10 along with Mitsubishi Corporation
(16.7%) and Century Tokyo Leasing Corporation (16.7%). The
primary base airport of Jetstar Japan is Narita Airport, while Kansai
Airport is designated as the second base, although Jetstar Japan
does not use the Terminal 2. Jetstar Japan has the largest domestic
network among Japanese LCCs. From 2015, Jetstar Japan started to
expand its international routes to Hong Kong, Taipei Taoyuan,
Manila, and Shanghai Pudong.
“First” AirAsia Japan started its operation from August 2012, in
partnership with ANA. Narita Airport was their base, and they had
five domestic and four international routes in 2013. However, in
October 2013, AirAsia exited its investment in AirAsia Japan and
ended its partnership with ANA owing to disagreements over how to
run it as a “low-cost” carrier. ANA established Vanilla Air in December
2013, immediately after terminating AirAsia Japan’s operations.
Vanilla Air’s flight network focused on the tourism routes, with
Narita Airport as the base. It started operating the Narita–Amami
route from July 2014, with Amami Airport being located on Amami
O-shima island in the Sothern Archipelago area between Kyushu
Island and Okinawa Islands. Though Amami O-shima island is a
small island, it is one of the popular tourist places with beautiful
beaches and natural surroundings. It was a challenge to select a
new entry route for the LCC as this route did not have significant
demand owing to the annual passenger volume of Haneda–Amami
being only approximately 80,000 in 2013. Subsequent to the entry of
Vanilla Air, passenger volume drastically increased to reach
approximately 160,000 from/to two Tokyo airports, which was an
increment of almost 100% in 2015, as compared to the 2013 data
(MLIT, 2017). Considering the route breakdown, the number of
passengers in Haneda-Amami by JAL was 60,000, which was a
reduction of 20,000 passengers, but that of Narita–Amami by Vanilla
Air was 100,000, which was more than double the number of the
JAL-operated Haneda–Amami route. Considering the distance from
the city center, Narita Airport was located farther than Haneda
Airport; however, the low fares offered by Vanilla Air attracted
several tourists to visit Amami O-shima.
“New” AirAsia Japan reentered the Japanese market with a new
partner Rakuten, the largest electronic commerce and Internet
company in Japan, and started its operation on one domestic route
in October 2017. New AirAsia Japan selected Centrair Airport as its
base airport; it is located near Nagoya city, which is the third largest
metropolitan area in Japan. Centrair Airport has conditions similar to
Kansai Airport, such as 24-hour operation and slot availability; thus,
new AirAsia Japan is expected to grow in the Japanese market. The
network strategy of Spring Airlines Japan is connected with that of
Spring Airlines, its major shareholder; thus, limited routes are
provided in both domestic and international markets. However, the
domestic routes have a role of feeder and this contributes to
maintaining a high load factor. Most passengers are Chinese, while
there are also a few Japanese and passengers from other countries.
LCCs impact on passenger demand in the Japanese aviation
market. Fig. 3 shows the passenger flows in both domestic and
international markets and the share of FSCs and LCCs in Japan from
2011. Non-Japanese LCC passengers are included as international
passengers; thus, Jetstar Airways has few international LCC
passengers in 2011. In 2016, the total number of domestic and
international LCCs passengers was 9.16 million (9.7% share) and
15.06 million (18.9% share), respectively. The domestic share of
LCCs remains limited as the market of growth for the LCCs is the
Asian market rather than the domestic one. Inbound passengers
from foreign countries have been drastically increasing from 2014
(as described in detail later), particularly from China, South Korea,
and Taiwan. This is the differentiating strategy of the “new
emerging” airlines, which operate only domestic flights, while the
strategy of LCCs is to shift their capacity from the domestic to
international market (CAPA, 2017). Therefore, international
passengers of LCCs increased drastically in 2016.
 Fig. 3. Annual Passenger Volume and Share of Full-service Carrier
(FSC) and Low-cost Carrier (LCC) in Japan. Source: MLIT
(2017).Note: Left: Domestic, Right: International.

Considering the domestic market, the total number of passengers

of the four LCCs excluding new AirAsia and four “new emerging”
airlines was approximately 20% in 2016. The domestic traffic of the
four “new emerging” airlines has almost plateaued with
approximately 11 million annual passengers (CAPA, 2017). Although
only Skymark, AirAsia Japan, and Spring Airlines Japan are
independent of both ANA and JAL among the four “new emerging”
airlines and the five LCCs, domestic passengers are increasing owing
to the attractive fares offered to them by the LCCs. Table 3 shows
the yield and unit cost of Japanese FSCs, Skymark, and LCCs in the
fiscal year 2015.11 It is clear that the level of yield and unit cost of
FSCs and LCCs are very different, which is the reason why LCCs can
provide a reasonable airfare. Why did Skymark go bankrupt in 2015?
There are several reasons, but one of them is that it lost its brand
positioning in Japanese domestic market after “genuine” LCCs
appeared in 2012. Skymark was neither an FSC nor an LCC at that
time; thus those who preferred low fares shifted to Peach Aviation
and/or Jetstar Japan. Skymark currently provides lower fare than
FSCs; however, it also provides good service such as punctuality.
LCCs have operated in the domestic market in Japan for 5 years,
starting in 2012; thus, they have been around for far less time than
the “new emerging” airlines. Despite their shorter existence, they
have rapidly gained domestic passengers by offering lower fares and
the network expansion by Peach Aviation and Jetstar Japan.

Table 3. Yield and Unit Cost of Full-service Carriers (FSCs) and Low-
cost Carriers (LCCs) in Japan (FY2015).

Airlines-within-airlines (AWA), which involves establishing a low-

cost subsidiary, is one of the strategies available for responding to
LCC competition by FSCs (Homsombat, Lei, & Fu, 2014; Pearson &
Merkert, 2014). Homsombat et al. (2014) investigate airline pricing
and route entry patterns of parent FSC (Qantas Airways) and
subsidiary LCC (Jetstar) in the Australian domestic market by
conducting the structural model analysis. Pearson and Merkert
(2014) analyze the past, present, and proposed AWA, and Whyte
and Lohmann (2015) also analyze the case of Jetstar. Pearson and
Merkert (2014) state that AWA should avoid the excessive
management control and insufficient dissimilarity from the parent
airline. In this context, the three Japanese LCCs – Peach Aviation,
Jetstar Japan, and Vanilla Air – are in different situations. One of the
reasons for Peach Aviation’s success was that it was independent of
ANA, at least until April 2017. For example, their network expansion
strategy is independent; this may sometimes lead to market
cannibalization when both operated in the same high demand
routes. Mr. Shinichi Inoue, CEO of Peach Aviation and Chief of Asia
Strategy Office in the past, always emphasizes “The mindset of
Peach Aviation is different from ANA.” However, ANA became the
main shareholder of Peach Aviation after April 2017; thus, we should
watch whether Peach Aviation is able to keep the independent
mindset in the future. Jetstar Japan has a different difficulty because
it has two parent airlines: Qantas Airways and JAL, with the same
shareholding ratio, as shown in Table 2. Although Jetstar Japan has
more aircraft and more domestic network routes than Peach
Aviation, the level of profit is lower than that of Peach Aviation. This
might be because JAL would like to have management control over
Jetstar Japan. Vanilla Air is a 100% subsidiary LCC controlled by
ANA; thus, it has no independent mindset. ANA has a plan to merge
Vanilla Air with Peach Aviation and operate one LCC company by
fiscal 2019.

4. COMPETITION BETWEEN LCCS AND HIGH-

SPEED RAIL
Japan has a dense network of HSR called Shinkansen. As Sun,
Zhang, and Wandelt (2017) summarized, air transport and HSR
compete with each other in many countries, such as Japan, China,
South Korea, France, Germany, Italy, and Spain. Jiang and Li (2016)
conducted a macroeconomic comparison between LCCs and HSR in
Japan and Western Europe and observed that the Japanese LCCs
appear to be lagging behind their European counterparts and that
Shinkansen has a strong dominance since it covers most large-sized
cities in Japan with its dense network.
In recent years, three new Shinkansen routes have opened:
Kyushu Shinkansen between Fukuoka and Kagoshima in March
2011; Hokuriku Shinkansen between Tokyo and Kanazawa in March
2015; and Hokkaido Shinkansen between Aomori and Hakodate in
March 2016.12 Thus, Shinkansen runs from Hakodate, Hokkaido
Island to Kagoshima, Kyushu Island through the Honshu mainland,
covering a distance of about 2,150 km, although four different
railway companies operate the routes in the Shinkansen network. In
the past, airlines have stopped operating their scheduled flights on
routes where new Shinkansen lines opened; however, a certain
minimum number of flights continued to operate despite the
competitive situation.
Shinkansen connects Osaka and Kagoshima – about 800 km –
after the opening of the Kyushu Shinkansen, and its travel time is
much shorter: 3 hours and 40 minutes, from the 5 hours and 30
minutes earlier. Hayashi (2016) shows that the new LCCs’ flights
compete with the Kyushu Shinkansen. It finds that Shinkansen has
been successful in capturing a considerable portion of travel
demand, while the new LCC operation helps to prevent or mitigate
the decrease in the passenger volume of air transport. Figs. 4(a)–(c)
show the passenger volume of air transport and Shinkansen (HSR)
between Osaka metropolitan area13 and the three prefectures of
Kyushu Island. In Fig. 4(a), the passenger volume of Shinkansen in
2011 increased drastically from 170 thousand to 551 thousand owing
to the opening of Kyushu Shinkansen. However, the passenger
volume of air transport has again increased from 1,009 thousand in
2011 to 1,160 thousand in 2012 since Peach Aviation initiated the
flight between Kansai Airport to Kagoshima Airport from April 2012
with more reasonable fare, compared with those of non-LCCs
operating on the other two airports in Osaka metropolitan area, that
is, Itami and Kobe Airports by JAL and Skymark, respectively. The
share of both transport modes after 2012 is almost unchanged. It
should be noted that the decline in the passenger volume in 2009
and 2010 occurred because of the ceasing of operations by JAL
to/from Itami Airport due to its bankruptcy.
Another random document with
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 Propelling Charges. Up to the present time nitrocellulose powder
has complied better with the requirements of a suitable, smokeless
powder than any other that has been proposed and is used in our
service for propelling charges in guns. The danger of manufacture is
also less than that of nitroglycerine powders. Moreover the latter,
which was formerly used in our service and still is in the British and
some others, causes too much erosion of the tubes due to the
greater heat of explosion. It has the advantage of requiring a smaller
charge for the same muzzle velocity and therefore a smaller powder
space and consequent lighter weight of gun.
Shell Fillers. High explosives for shell fillers. Up to the present
explosive “D,” trinitrotoluol and picric acid are the principal high
explosives which fulfill the requirements as shell fillers. Explosive “D”
on account of its great insensitiveness to shock is used in armor
piercing projectiles and also in field gun and howitzer shell. It is
detonated by a fuze. Trinitrotoluol is used in submarine mines and in
general demolition work as it is much easier to explode than
explosive “D.”
Table of Explosives. The following table gives a good idea of the
principal explosives in use in our service and the characteristics of
each:
High or
Purpose. Name.
Low.
Propelling charge in
L Nitrocellulose, smokeless powder.
guns.
Bursting charge, Picric acid, explosive “D” (powder
H
projectiles. form) Trinitrotoluol.
Blank, saluting
L Black Powder.
charges.
Re-inforce charges,
L Black Powder.
primers.
Base charge,
L Black Powder.
shrapnel.
Time trains, fuzes. L Black Powder.
Igniting charges, L Black Powder.
 cannon.
Charges, submarine
H Trinitrotoluol wet guncotton.
mines.
Igniting elements,
Fulminate of mercury, chlorate of
fuzes and H
potash (potassium chlorate).
primers.

High Explosives. The principal high explosives used as shell

fillers in our service are: picric acid, explosive “D” and trinitrotoluol, or
more popularly known at TNT. The picric acid and picrates used as
shell fillers are secret compositions. Mellinite, essentially picric acid
alone or with some other substance is used as a shell filler by the
French. It is poured into the shell in a fused state and allowed to
harden, thus giving a very compact charge and one easily handled. It
has the disadvantage however of forming unstable compounds with
the metal of the shell and great care must be exercised in coating
the interior of the shell with a protective coat before pouring in the
fused mellinite. Lyddite is the English equivalent of mellinite. Picric
acid was also used by the Japanese or it may be a mixture of picric
acid and some nitro compound. The most successful explosive of
this type is explosive “D” invented by Colonel Dunn of our Ordnance
Department and sometimes known as “Dunnite.” It is not fusible and
must be compressed for use as a shell filler, being forced into the
shell by compression. This is a disadvantage as compared to
mellinite as the density of loading is less and weight for weight
therefore less efficient. It is little sensitive to shock and therefore not
very dangerous to load even under great pressure. Trinitrotoluol is
also used as a shell filler but its chief use is in demolition work and
as the charge for submarine mines.
Nitrogen Compounds. It may be interesting to note that all of the
principal explosives with which we have been dealing are
compounds containing nitrogen. In fact the war has been fought with
fixed nitrogen which explains the great interest taken in the various
attempts to fix the free nitrogen of the air which is the world’s great
storehouse of free nitrogen. As nitrogen is also a necessary
ingredient in the various fertilizers, the result to the world of a
commercial process for speeding up the cycle of changes through
which nitrogen passes in its life giving mission from free nitrogen in
the air to its various compounds in the nitrogeneous animal and
vegetable tissues is almost limitless and as usual war has been the
incentive to speed up a process which will result in incalculable value
to mankind.
Classification. Guns are loaded with three kinds of ammunition:
fixed, semi-fixed and separate loading ammunition. In fixed
ammunition the round is complete and projectile and powder loaded
into the chamber at the same time. In semi-fixed the projectile is
separate from the powder charge, which however is put up and
loaded into the chamber in a container. In separate loading
ammunition the powder is loaded into the chamber in bags. In the
first two cases the cartridge case furnishes the means for sealing the
rear of the powder chamber against escape to the rear of the powder
gases. In the last case some form of obturating device is made a
part of the breechblock furnishing a gas check to seal the rear of the
powder chamber.
Fixed Ammunition. All of our field guns below 5 inches in calibre
use fixed ammunition. The powder is placed loose in the cartridge
case, the space not filled with powder being stuffed with packing
paper, excelsior, or felt wadding next to the projectile so as to hold
the powder in contact with the primer, in some fixed ammunition a
brass diaphragm is soldered to the inside of the case for the same
purpose and to keep out moisture, (4.7” Gun). An igniting charge of
black powder is a part of the primer and in some cases an additional
charge is placed at the forward end of the powder space in the
cartridge case to insure rapid ignition of the smokeless powder. In
this case it is held in place between two quilted disks of crinoline.
Semi-fixed ammunition is employed in our 6” and 4.7” field
howitzers. The cartridge case contains three weights of propelling
charge for firing in the three zones designed to give a high angle of
all with these weapons. Access to the charge is had by tearing off
the brass diaphragm closing the forward end of the cartridge case.
By removing the first charge the remaining charge is that prescribed
for the second zone, and by removing the top two charges the
remaining charge is that of the first zone. The three charges are tied
together and the middle charge has an igniting charge of black
powder attached. The removal of charges is facilitated by the
separate container for the powder charge and the round is more
easily handled in the two parts especially in the case of the six-inch
howitzer, where the projectile weighs 120 lbs. The same primer is
used as in fixed ammunition, the cartridge case performing the
function of an obturator.
 BREECH MECHANISM OF 155 GUN SHOWING
DE BANGE OBTURATOR.

Separate Ammunition.—Obturation. The 155-mm Filloux gun

and 155-mm howitzer use separate ammunition. In such guns there
must be provided some form of a gas check which will prevent the
powder gases from rushing to the rear into the threaded portion of
the breechblock, as this would soon erode the thread sectors and
render the gun useless beside losing a large amount of pressure in
the bore. The device used as a gas check is called an obturator.
There are two systems of obturation in use, named after their
inventors:
The DeBange and the Freyre. The former is used in the 155’s. It
consists of a steel mushroom head closing the rear of the powder
chamber, the spindle of which passes through a central hole in the
breechblock. Between the mushroom head and the face of the
breechblock is a pad of asbestos, paraffine and tallow, pressed into
shape by a hydraulic press and covered by canvas or asbestos
wirecloth. Split rings having hardened outer surfaces are fitted, one
just behind the mushroom head and one just in front of the face of
the breechblock. Their diameter is slightly greater in the free state
than the conical surface of the bore where they bear when the
breech is closed so that they always close the rear of the powder
chamber. The pressure of the powder gases forces the mushroom
head to the rear and this compresses the asbestos pad which in turn
forces the split rings to bear with greater force against the walls of
the powder chamber thus securely closing the rear opening of the
powder chamber. For more details of this device see pages 302 to
306 Tschappat’s O & G.
Powder Bags. Cartridge bags for separate loading are made of
raw silk, and are sewed with silk thread. Other materials are apt to
produce flare-backs or premature explosions because they are not
entirely consumed in the bore or continue to burn if not consumed.
The raw silk however either is entirely consumed or if not, the parts
ignited immediately go out as soon as the flame is removed and do
not smoulder. Specially treated cotton fibre bags have been tried but
so far as I know have not as yet superseded the raw silk for the
purpose. The gases remaining in the bore after the discharge of a
charge of smokeless powder are explosive and with air form an
explosive mixture, hence the danger upon opening the breech if any
smouldering particles remain in the bore.
 21 GRAIN PERCUSSION PRIMER MARK II-A

Primers. The devices for initiating explosions of propelling

charges in military guns are called primers. With fixed and semi-fixed
ammunition the primers are seated in the base of the cartridge case.
In the case of separate loading ammunition the primers are inserted
separately in the breechblock, the expanding gases of the detonated
primer forcing the walls of the primer case tightly against the bore
through the breechblock and thus sealing this channel of escape for
the gases from the powder chamber. This necessitates a much
larger and stronger case for separate loading primers than for those
inserted in the base of a cartridge case.
Classes of primers. Primers are divided into three classes
according to the method by which they are fired: (a) friction primers,
(2) electric primers, (3) percussion primers. Combination primers are
made which may be fired by any two of these methods, usually
electric and one of the others. The characteristics of a good primer
are, certainty of action, safety in handling, no deterioration in
storage, simplicity in construction and be cheap to manufacture.
They are also divided into obturating and non-obturating depending
upon whether they close the vent during discharge or not.
 Primer pressing. Primers for fixed ammunition are inserted in the
base of the cartridge cases by means of a special press for this
purpose. The primer body is a trifle larger than the seat in the
cartridge case provided. This seat is rough bored to a diameter less
than the finished size and then mandreled to finished dimensions
with a steel tapered plug. This process toughens the material of the
case around the primer seat and prevents the expansion of the
primer seat under pressure of the expanding gases.
Percussion primers. Except for very heavy siege guns and
railroad artillery the guns handled by the Field Artillery use
percussion primers. The 110-grain percussion primer is the one in
use in our service and as typical will be described. The charge
consisting of 110 grains of compressed black powder makes the
charge burn like a torch rather than explode, which facilitates the
ignition of the charge of smokeless powder, with which the flame
comes in contact. The diametral holes spray the flame in several
directions thus insuring ignition at many points simultaneously. The
percussion element consists of a percussion primer cup, the
percussion composition and an anvil, all of which are assembled
together in a cup in the rear face of the primer case. The percussion
composition is made up of chlorate of potash, sulphide of antimony,
ground glass and sulphur. A blow upon the cap by the firing pin
detonates the percussion composition and the flame from this
detonation ignites the black powder which in turn explodes the
charge of smokeless powder.

The General Shape and Nomenclature of

Projectiles.
The reason for the particular shape of shells may not be clear to
all. In the first place all matter has the property known as inertia,
which we may define as that tendency of matter to remain in a state
of rest or to continue at a uniform velocity if in motion. It offers a
resistance to any change in the state of either rest or motion whether
of amount or direction. Consequently when we apply a sudden and
tremendous force to the base of a projectile by means of the
expansive force of exploding powder gases, there will be set up in
the metal a resistance to this force in which every particle of the
projectile will resist by an amount proportional to the mass of
particles beyond the point of application of the force to itself. The
actual force will be proportional to the weight and acceleration
produced by the applied force in the projectile. This explains the
reason why the walls of the projectile are thicker near the base. It
also explains the method of calculating the thickness of walls, for if
we know the weight at any cross section and the co-efficient of
strength of the metal we may calculate the thickness of walls
necessary to withstand the pressure for any given muzzle velocity
which is fixed by other considerations. It explains also the preference
for steel in projectiles as for the same weight the steel is much
stronger making it possible to throw a greater amount of shrapnel or
high explosives in shell.

155-MM COMMON STEEL SHELL MK IV

The necessity for compact loading, especially in the case of high

explosive shell is also noted as otherwise the shock due to inertia
would break up the charge and perhaps cause a premature
explosion. Hence it is very necessary to guard against airholes in
filling shell cavities.
In order to secure regular and uninterrupted movement of the
projectile through the bore it is necessary that the projectile and bore
have the same geometric axis. Also the projectile must be seated
exactly and uniformly for succeeding rounds in its seating in the
bore. This latter is necessary in order that the powder chamber may
not vary as this would give irregular pressures. The liability of
strapping the rotating bands or setting off the fuze in certain kinds of
fuzes are also explained by inertia. It might even cause sufficient
shock to detonate the charge in the shell. The remedy is accurate
seating of each projectile by reason of trained gun crews using the
same amount of force at each ramming. The first condition,
coincidence of axes, is obtained by means of the ogival head which
has a diameter some tenths of a millimeter smaller than the diameter
of the bore, and serves as a front support for the projectile while the
rotating bands center it in rear. Were it not for the bell the projectile,
held only by the soft material of the rotating band, would wabble in
its travel through the bore and tumble soon after leaving it. It is also
necessary that the center of gravity of the projectile be on its
geometric axis. Otherwise it will travel on a spiral of the same pitch
as the grooves and knock the tube walls as it travels through the
bore and without the support of the bell might cause a premature
explosion by actuating the fuze.

155m/m SHRAPNEL—95 LBS.—MARK-I.

 COMMON STEEL SHELL MARK I.
COMMON STEEL SHELL MODEL OF 1905.
SHRAPNEL.
CARTRIDGE CASE.
4.7” Gun Ammunition.

Three-inch Ammunition.
Fixed ammunition is used in the 3” field guns, and is made up
with either common shrapnel, high explosive shrapnel, or common
steel shell. The rounds as made up vary in length with the type of
projectile used. The ammunition chests of the battery are of sufficient
size to take any one of the rounds furnished, so that the number of
each kind to be carried is a matter for regulation by proper authority.
Each round is issued with projectile filled and fused. The weight of
the projectile is 15 pounds, and the total weight of one round is 18.75
pounds. The components of one round are the cartridge case with
primer, the powder charge, igniter, projectile and fuze.
The cartridge case.—The cartridge case is a solid drawn-brass
case 10.8 inches long; it has a capacity of 66.5 cubic inches, and
weighs, with primer, 2.25 pounds. A circular groove is cut in the base
of the cartridge case and the groove is painted red for high explosive
shrapnel, yellow for common shrapnel, and black for high explosive
shell.
The primer.—The percussion primer, known as the “110-grain
percussion primer,” contains an igniting charge of 110 grains of black
powder in addition to the essential elements of a percussion primer.
The purpose of the black powder is to insure the ignition of the
smokeless powder charge in cartridge case.
 Common Steel Shell.
Common Shrapnel.
Cartridge Case.
Semple Tracer.
High Explosive Shrapnel.
3” AMMUNITION

The powder charge.—The powder is a nitrocellulose powder

composed of multiperforated (7 perforations) cylindrical grains, each
0.35” long and 0.195” in diameter. The charge varies slightly for
different lots of powder, but is approximately 24 ounces. The charge
gives a muzzle velocity for shrapnel of 1,700 feet per second (1600
f/s for shell) with a maximum pressure in the bore not exceeding
33,000 pounds per square inch. At the front end of the cartridge case
there is an igniter of black powder weighing about ¼ oz. which
assists in the uniform ignition of the smokeless powder charge.
The projectiles.—All projectiles have a copper rotating band 1.2”
from the base. This band engages in the rifling of the bore of the
piece, and gives the projectile a rapid rotation about its long axis
during flight. This causes it to travel straight, point on, without
tumbling.
Common shrapnel.—The common shrapnel is a base-charged
shrapnel fitted with a combination fuze. The case is of steel with
solid base. The shrapnel filling is composed of 252 balls, each
approximately 167 grains in weight (42 to the pound). The balls are
approximately 0.5” in diameter. The balls are poured around a
central tube and rest upon a steel diaphragm, the interstices
containing a smoke-producing matrix. The bursting charge consisting
of 2¾ oz. of black powder is in the base and is covered by the
diaphragm which supports the central tube, affording a conduit to the
flame leading from the fuze to the bursting charge.
In action the case is not ruptured upon the explosion of the
bursting charge; the head is stripped and the balls are shot out of the
case with an increase of velocity of about 274 feet per second. The
remaining velocity of the shrapnel at 6,500 yards is approximately
724 feet per second and the time of flight 22 seconds, so that at that
extreme range, with the increase of velocity due to the bursting
charge, this shrapnel with 21-second fuze will be effective. The
weight of the shrapnel with fuze is 15 pounds.
Shrapnel is a projectile containing a great number of hardened
steel balls, each approximately ½” diameter, which may be projected
from a point in the air (called the point of burst) close to but short of
the target. Each ball is capable of killing a man or horse at a distance
up to 250 or 300 yards from the point of burst. Taken collectively, the
paths of these balls form a cone, called the cone of dispersion. The
ground section of this cone is elliptical in shape with its longer axis
approximately in the plane of fire. At mid-range when burst at normal
height of burst (H. B. = 3 mils), the dimensions of this area are
approximately 20 yards wide by 250 yards deep. These dimensions
will however vary with the angle of fall, the height of burst, the slope
of the ground at the target, and the relation between the linear and
the rotational velocities of the shrapnel at instant of burst in the air. A
3-mil H. B. is chosen because this gives an average density of 1 hit
per square yard of vertical target area. An infantry skirmisher
(standing) with his interval occupies approximately 1 square yard.
Shrapnel has very little effect upon material objects. It is very
effective against personnel not protected by cover, or to search an
area which is known to be occupied, or which must be traversed, by
hostile troops.
Ehrhardt High-explosive shrapnel.—The Ehrhardt high-explosive
shrapnel is fitted with a combination fuze and a high explosive head.
The case is drawn steel with solid base. The shrapnel filling is
composed of 285 balls, each approximately 138 grains in weight (50
to the pound). The balls are poured around the central tube and rest
upon the steel diaphragm, the interstices containing a matrix of high
explosive.
In time action (burst in air), the case is not ruptured upon the
explosion of the bursting charge, but the head is forced out and the
balls are shot out of the case with an increase of velocity of from 250
to 300 feet per second. In the meantime the head continues its flight,
detonating on impact.
If the fuze be set at “safety” or for a time greater than the actual
time of flight, this shrapnel may be used in lieu of high-explosive
shell. Upon impact a high-explosive shrapnel is detonated by means
of the percussion element of the combination fuze, the head being
detonated first, which detonation causes the sympathetic detonation
of high-explosive matrix surrounding the balls.
Common steel shell.—This steel shell is high-explosive and fitted
with a base detonating fuze. The case is hollow and made of drawn
steel. It is provided with an ogival head. The steel shell contains a
bursting charge of 13.12 ounces of Explosive D. The weight of the
shell with bursting charge and fuze is 15 pounds. The shell is always
issued filled and fuzed.
This shell bursts on impact and with great force exerted in all
directions. It is a powerful instrument for the destruction of material
objects such as guns, intrenchments, houses, stone walls, etc. The
effect, however, is very local.
Frankford Arsenal combination fuzes.—These fuzes are point
fuzes with combination time and percussion elements for use with
common shrapnel. They are of the type known as the ring or “dial”
fuze, in which the time train is set by turning a graduated ring which
carries part of the train. These fuzes may be reset as often as
desired.
Ehrhardt combination fuze for high explosive shrapnel.—This
fuze is similar to the Frankford Arsenal Combination time and
percussion fuze but in addition contains a high explosive head and
detonating element. Due to this arrangement, both the projectile and
the high explosive head have a high-explosive shell effect when
striking on impact.
The service base detonating fuze.—The details of the
detonating fuze and the composition of the detonator are kept secret.
A detonating fuze is necessary in order to produce a higher order of
explosion by causing an instantaneous conversion of the high
explosive compound called “Explosive D” with which the shell is
charged. If an ordinary percussion fuze were used only an ordinary
explosion would be produced as in the explosion of black powder.
Preparation of blank metallic ammunition.—Blank metallic
ammunition will always be assembled under the personal
supervision of a commissioned officer, who will be held responsible
that it is prepared in the manner prescribed. (G. O. 9, War Dept.,
Jan. 11, 1908.)
For this purpose there are issued blank-cartridge cases, black
powder in bulk, tight-fitting felt wads, rubberine, or other quick-drying
paint, primers, etc.
Before assembling, the cartridge cases should be carefully
inspected to see that they are in sound condition and thoroughly
clean and dry. They should also be tested by trying them in the gun,
to determine whether they have become deformed. Any cases that
do not readily enter the chamber in the gun or that are otherwise
seriously deformed should be laid aside for resizing. After inspecting
the cartridge cases the blank ammunition should be prepared as
follows:
(a) Insert the primers with the primer-inserting press.
(b) Pour into the cartridge case the proper weight of black powder
and shake it down well.
(c) Insert the felt wad and press it down hard until it rests squarely
on the powder charge.
(d) Give the upper surface of the felt wad and the inside of the
cartridge case just above the wad a good coat of the rubberine or
other quick-drying paint furnished for the purpose, using a brush,
and allow the case to stand until this coat is dry. Then apply another
coat of rubberine paint in a similar manner. The object of using
rubberine paint, which is strongly adhesive, is to thoroughly seal the
joint between the wad and the case to prevent any powder grains
from leaking out, and at the same time to firmly hold the wad in
place.
 The reloading and cleaning outfit.—This outfit consists of the
following parts, and is furnished to each battery:
Primer-inserting press, small
Bushing
Powder measure, saluting
Decapping tool, with guide
Cleaning brush
Hammer
Case holder
Case-holder stand
Storage chest

The bushing is used in the primer-inserting press for the insertion

of new primers.
The decapping tool and case holder and stand are used for
removing exploded primers from the cartridge cases. A light blow on
the rod with a piece of wood or the bronze hammer generally
removes the primer.
A powder measure to suit the saluting charge for the gun is
furnished, and when level full holds the required charge.
The cleaning brush is furnished for cleaning the cartridge cases
after they have been used and should be ordered to suit the size of
case for which intended.
Care of Cartridge Cases.—As soon after firing as practicable the
exploded primers should be removed from the cartridge case by
means of the decapping tools furnished with the reloading outfit. The
case should then be thoroughly washed in a strong solution of soft
soap and soda to remove all powder residue. It should then be
thoroughly dried.
If the cartridge cases are carefully cleaned and washed
immediately after firing, not only will less labor be required but the
life of the cartridge case will be greatly prolonged.
A good solution for washing cartridge cases may be prepared by
using ingredients in the following proportions: 1 gallon of water, 2½
ounces of soft soap, 5½ ounces soda. The mixture should be boiled
and stirred until the ingredients are entirely dissolved.
In washing cartridge cases this solution should be used hot and in
sufficient quantity to completely immerse the cases.
Neither acids nor solutions of acids will be used for cleaning
cartridge cases.

Precautions to be Observed with Fixed

Ammunition.
(a) Do not unnecessarily expose ammunition to the sun or load it
into a warm gun before time for firing; if this is done, erratic shooting
will result.
(b) Handle carefully, otherwise cartridges may become deformed
and cause jams.
(c) Never use force or any implements on the base of the cartridge
in loading.
(d) See that fuzes set at safety or are provided with waterproof
brass cover for transport.
(e) Do not fire ammunition which has been under water with the
waterproof brass cover removed.
(f) Both service and blank ammunition should never be carried in
the battery at the same time. If conditions are such that both may be
used in exercises, only one kind should be in the firing battery; the
other should be under lock and key outside the firing position.
(g) Misfires and hangfires are of exceedingly rare occurrence. In
case of a failure to fire, the firing handle should be pulled again in
order to snap the trigger. If this fails to fire, the breech should not be
opened until after the expiration of at least one minute, when the
round or cartridge should be removed and placed to one side.
Defective ammunition, cartridges and primers should be reported.
 With Blank Ammunition.
Firing with blank ammunition will be greatly facilitated by a careful
observance of the following:
(a) Before firing, a careful examination should be made of the
assembled rounds to see that the felt wads have not become
displaced or the cartridge cases dented or deformed by careless
handling. If the cartridge cases have been properly resized and are
clean, no difficulty should be experienced in inserting them in the
gun, provided the chamber of the latter is clean. The continued
insertion of cartridge cases that are not clean causes an
accumulation in the gun chamber which may make the insertion of
subsequent rounds difficult or impossible.
(b) In firing blank ammunition the gun chamber will be sponged
after each round with a damp sponge, to extinguish sparks and
remove powder residue resulting from the previous round, before the
insertion of another round.
(c) Care will be taken to see that the sponges are not worn and
that they thoroughly fit the chamber. The interval between rounds in
firing blank ammunition should be sufficient to allow thorough
sponging of the chamber and examination to ascertain that all sparks
have been extinguished.
(d) Wads for the preparation of blank metallic ammunition are
made to tightly fit in the cartridge case. No wads should be used that
are not a tight fit in the case.

FUZES.
Principle of operation.—We have just learned something of the
force of inertia in connection with a projectile. Most fuzes are
actuated by this force. From our knowledge of the trajectory we know
that usually a projectile does not strike on its nose. Therefore we
cannot devise our fuzes to work like the driving of a nail into a board.
The striking element is the anvil and is a fixed pointed spur against