Silicon Valley's airport hopes to build on new international flight to Tokyo

Jan. 23--San Jose's four-year campaign to attract an air carrier linking Silicon Valley directly to Asia picked up favorable tail wind with All Nippon Airways' recent announcement it will launch daily nonstop service between Mineta San Jose International Airport and Tokyo, which the airline aims to start this year.

Shifting flight patterns, the valley's large Asian population and the huge number of frequent-flying business travelers living in the region's ZIP codes helped city officials land the coveted contract and prevail over its chief competitor to the north -- San Francisco International Airport, which had hoped to add a second daily flight from the Japanese carrier. For San Jose, the deal, which the city estimates will generate $90 million in business for the area, represents a new era of international travel for the newly renovated airport.

"ANA kind of validated what we've been talking about: We can support (international) service down here," said Ed Nelson, director of air service development who works to convince airlines to come to San Jose. He believes the airport will be able to attract two or three more carriers with overseas service within five years.

The city offered incentives to ANA -- which are standard in the airport industry, experts say -- so the airline won't pay airport fees its first year and will get a 66 percent discount the second year and a 33 percent discount the third. The airline would pay full charges after

that.

Getting just one carrier like ANA to deplane in San Jose appeared to be a long shot, experts say.

"The reality is, San Jose has outstanding international service -- it's called SFO, and that's not going to change," said Michael Boyd, a consultant to the aviation industry. SFO has as many as 20 daily flights to Asia and 13 to Europe. It also has the high-volume domestic flights that funnel passengers from around the country onto international flights that airlines rely on to fill up their seats.

San Jose appeared to have little to offer international carriers in terms of passenger potential. After American Airlines ended its flight from San Jose to Tokyo five years ago, San Jose's airport had no direct flights to Asia. Its splashy remodeling project, on which it still owes about $1.5 billion, wrapped up amid the prolonged economic downturn that slashed a third of scheduled flights.

And though San Jose is the Bay Area's largest city, it doesn't have the kind of destination cachet San Francisco does, said Seth Kaplan, managing partner with industry publication Airline Weekly.

"It's harder to sell San Jose and Oakland flights on the East Coast -- let alone Beijing -- than it is for San Francisco," he said. "As a secondary airport, it's a challenge you face."

The lingering economic downturn, and high fuel costs, make opening up a new route a risky decision, consultant Boyd said.

"American Airlines sent out a memo to its employees saying it is going to drop service to New Delhi from Chicago, and they had 87 percent load factor -- that means you couldn't find a seat," he said. San Jose's deal with ANA "is a great grab, but it's not going to induce an American carrier to try it. There's not enough traffic (in San Jose)."

To increase its appeal for more international routes -- the city hopes to land flights to London or Frankfurt as well as ones to other Asian cities -- San Jose needs to attract more domestic flights to feed passengers on to overseas flights, said Marc Casto, president of San Jose-based Casto Travel, which annually books more than $50 million in international tickets and $30 million in domestic tickets.

"The challenge is that so much traffic from Asia here gets pushed on (to other U.S. cities), between 20 and 30 percent flows through," he said.

Despite these drawbacks, San Jose made a winning pitch to ANA.

A confluence of factors sealed the deal, including the valley's plethora of multinational companies that do business in Asia, a large Asian population and the new Boeing 787, which was designed for connecting smaller markets. And it didn't hurt that San Jose Mayor Chuck Reed, along with Silicon Valley Leadership Group CEO Carl Guardino, traveled to Tokyo to sip tea with ANA CEO Shinichiro Ito. Also playing a role in attracting the airline was Mercury News Publisher Mac Tully, chairman of the group's CEO airport task force.

"The 787 is a key piece to this," Reed said. "If you are trying to fly in a 747, you want to be in San Francisco where you can network in (passengers) from all over the country to fill up the plane. But if you are flying a (smaller) 787, you can fly it out of our market."

The 787, which is 20 percent more fuel efficient than other jetliners, is designed for 210 to 250 passengers, though ANA is outfitting its long-haul 787 with only 46 business-class and 112 economy seats to allow more open space. A Boeing 777-300, in contrast, can carry some 368.

One advantage ANA will have over American Airlines and its defunct service to Tokyo is that the Japanese carrier -- like many other Asian airlines -- has a reputation for quality service, said Alan Bender, professor of aeronautics at Embry-Riddle Aeronautical University in Daytona Beach, Fla. "Its reputation for quality is enough to almost make it a slam dunk," he said.

And as a member of the Star Alliance -- an agreement among a number of airlines -- ANA will be able to cross-book passengers from United and other member airlines. ANA was the first airline to get the 787 -- it has ordered a total of 55 -- and San Jose officials hope that as other carriers receive their 787s in coming months and years, San Jose will attract more interest for overseas routes.

Nelson said the ANA deal confirms San Jose is no ordinary secondary market.

"We did some analysis and found 13 Fortune 500 companies are near San Jose," Nelson said. "That is pretty impressive."

As they courted the Japanese airline, city officials were able to garner support for the service from 30 local chief executives, including Cisco Systems' John Chambers and Shantanu Narayen of Adobe Systems.

"It's amazing the amount of travel our companies do," Reed said. "Unfortunately, they have to drive past San Jose to go to San Francisco."

ANA spokeswoman Jean Saito said ANA is convinced that many of those who now drive past the San Jose airport will choose to fly from there if given the chance.

"We thought there was enough demand to occupy our aircraft, especially the 787," she said.

Contact John Boudreau at 408-278-3496.