New Pilots

Low-Cost Airlines Take Hold in Japan

2016 02 11

In comparison to the wider Asian region, airline liberalization, both domestically and internationally, has come relatively slowly to Japan, especially in adopting the low-cost carrier (LCC) model. It wasn’t until 2012 that the government truly began breaking down barriers, paving the way for greater market freedom.

Since then, four new LCCs have cropped up in the hotly contested Japanese airline sector. A fifth, AirAsia Japan, is slated to re-commence operations in March-April from Nagoya Chubu International Airport.

AirAsia Japan is the second attempt for the AirAsia Group to gain a foothold in the Japanese market. In 2013, a first joint venture (JV) with All Nippon Airways collapsed due to management differences. AirAsia sold its stakes to ANA Holdings–parent of All Nippon Airways–which used the remains of the partnership to launch its own LCC: Vanilla Air.

AirAsia Japan’s current owners include the AirAsia Group, which holds a 49 percent stake with four local investors holding the balance. The airline has an initial capital investment of about $69 million and will start with a fleet of two Airbus A320-200s. By year-end, AirAsia Japan plans to operate a fleet of six A320s, adding five aircraft each additional year through 2018 when it expects to operate a total of 16 twinjets.

AirAsia Japan’s initial destinations include Sapporo and Fukuoka in Japan and Seoul in Korea, with plans to add Sendai and Taipei later. By 2018, the airline hopes to move into Nagoya’s purpose-built low-cost carrier terminal (LCCT), which is slated to be open in two- to- three years. The LCCT will cost up to $165 million and is expected to accommodate 3-to-5 million passengers per year.

Initially, AirAsia Japan will be the only locally based budget carrier at Nagoya, although Jetstar Japan operates a mini hub there. Rather, Tokyo’s Narita International Airport has become a major base for Japan’s four LCCs–Spring Airlines Japan, Jetstar Japan, Vanilla Air and Peach Aviation. Last April, Narita became the third Japanese airport to open an LCCT, after Osaka Kansai and Okinawa Naha. Of the four Japanese LCCs at Narita, Peach is the only airline that has opted against moving to the new terminal.

Unlike other Japanese LCCs, both AirAsia Japan and Spring Airlines Japan defy the status quo by not being affiliated with ANA or Japan Airlines (JAL). Spring Japan is also uniquely positioned as being the first Japanese subsidiary for a Chinese carrier. The LCC is 33 percent owned by Shanghai-based Spring Airlines, with the remainder held by various Japanese investors.

Since its launch in 2014, Spring Airlines Japan has been restricted to flying domestically with an under-utilized fleet, leading to an accumulation of losses. Spring is hoping to turn this around after recently securing approval to fly internationally. Starting this month (February), the airline will launch flights from Narita to the Chinese cities of Wuhan and Chongqing, effectively becoming the first Japanese LCC to enter the Chinese market.

            Peach and Vanilla

Meanwhile, Japan’s Vanilla Air is one of 10 airlines actively being courted by the Filipino government in a bid to attract more visitors to the island nation.  ANA Holdings CEO Shinya Katanozak has hinted at the possibility of Vanilla adding more destinations in 2016, but as yet there has not been any definite announcement.

Overall, Vanilla has been rather conservative when it comes to expansion. The LCC has two international markets–Hong Kong and Taipei, Taiwan–and operates service on four domestic routes. Over the next two years, Vanilla plans to double its fleet, from its existing eight A320s to more than 16 of the single-aisle airliners, while also looking at the possibility of acquiring widebody aircraft for future long-haul destinations.

In contrast, Jetstar Japan has expanded aggressively since launching in 2012. While it has the largest domestic network among its peers, such tactics have come at a cost. Last August, the loss-making carrier received a cash injection of $57.8 million from major shareholders JAL and Australia’s Qantas Airways group. Qantas expects Jetstar Japan to be profitable in the 2016-17 financial year.

Out of the four LCCs, Peach is the only one known to be profitable and the largest Japanese LCC with international seat capacity. According to OAG, Peach also surpasses both ANA and JAL in seat capacity from its main international hub at Kansai. Peach has a second base at Okinawa, a third at Narita and it is vying to make Sendai Airport its fourth hub by 2017.

Over the last year, Peach has concentrated on expanding its international market by launching new routes and adding more flights. This trend is set to continue this year with new service from Haneda to Seoul beginning February 6. The growing LCC will also expand service between Okinawa to Seoul, and Naha to Taipei.

Peach operates a fleet of 17 aircraft in the Airbus A320 family and the carrier plans to have a fleet of 20 A320s by April 2017.