TOKYO -- Japan's competition watchdog said Friday Japan Airlines Co. Ltd. (JAL) and Japan Air System Co. Ltd. (JAS) would review a planned merger because it could hurt competition.

The Fair Trade Commission (FTC) said Asia's top carrier and its largely domestic counterpart would submit a response after studying the watchdog's concerns.

However, the airlines said apart from providing clarifications, they had no intention of revising their merger proposal.

The FTC believes the merger, due to take place in October, would hurt competition in the domestic market and would also reduce the choice of airfares available to travellers.

"If this merger plan is executed it is possible that it would essentially limit competition in the domestic airlines business," the FTC said in a statement after meeting officials from JAL and JAS.

The government body stopped short of ordering the pair to revise their plans but said the two carriers had agreed to make changes.

"What they will do in response to this is up to the companies," Masaru Matsuo, director of merger and acquisitions at the FTC, said at a news conference.

"The companies have told us that they will formulate new measures in response to these points," he said, adding they would be submitted quickly.

But JAL and JAS insisted they had no intention of revising their plans.

"The FTC has pointed out some issues where they require further clarification," JAL spokesman Geoffrey Tudor said.

"We have no plans to make a revised merger proposal," he said.

The pair had planned to merge operations in October to boost business amid a worldwide slump in demand for flights.

"The FTC will continue to study our planned integration, taking our additional proposals into account," the two carriers said in a joint statement, without elaborating further.

"Since November 2001 the JAL-JAS merger team has been explaining the necessity to establish a stronger business base to compete successfully in the global airline market," it said.

Analysts had anticipated a negative reaction from the government to the plan as JAL and JAS together would control some 48 percent of the domestic airline market and more than 75 percent of Japan's international flights.

"We had guessed the FTC would impose certain conditions to allow the merger," said Akira Suzuki, aviation analyst at Tokai Tokyo securities.

"If the FTC are satisfied by minor revisions to their plan, it would not affect JAL or JAS by that much," he said.

"But if the FTC completely refuses the merger plan, it would be a blow to the domestic operations of JAL and JAS, which were really the key point of their merger," he said. ---------