Japan LCC overview
THE COMPETITIVE ENVIRONMENT IN JAPAN, THE WORLD'S THIRD LARGEST AVIATION MARKET, has witnessed some notable changes in recent months with some fascinating dynamics at play. Japan’s most exciting growth area is the flurry of LCC activity and new entries in the high-potential sector. ANA and JAL have jumped on the LCC bandwagon with ANA to have not one but two LCC subsidiary offerings in the form of Peach Aviation and AirAsia Japan by the end of the year and JAL establishing Jetstar Japan with oneworld partner Qantas’ subsidiary Jetstar. These start-ups promise radical change, even if their initial projected fleet sizes are modest. As a majority shareholder in both AirAsia Japan and Peach, ANA is taking the lead role in the LCC ventures, with ANA’s president and CEO Shinichiro Ito believing the time is now ripe to launch a series of new products into the market. “Japan’s aviation industry is now entering a period of rapid change. For some time, ANA has been considering carefully what action needs to be taken at this stage. One of our responses has been to invest in Peach and to establish AirAsia Japan,” he has said. However, signs are already emerging that the LCCs will have a direct impact on their parents’ operations.
There are a number of factors driving the sudden entry of LCC subsidiaries in the Japanese market, most of which reflect the changing attitude of the Government as it seeks to stimulate the domestic air travel market by rectifying some of the structural challenges to growth in what is the most regulated market in the region. In addition to demographic changes in the market, an increase in international slots at the traditionally capacity-challenged Tokyo-area airports and the construction of LCCTs in the high-cost market are aiding the development of LCCs. Terminal and slot expansions are further facilitating growth across all airline models, which will be supported by an increasing number of open skies agreements being signed by the Japanese Government. Further deregulation of the sector and the market entry of international LCCs is also behind the trend, with the bankruptcy of JAL in 2010 also freeing up much-needed landing slots. The Government now also sees LCCs as a way for the nation to reach its target of 25 million inbound tourists by 2019 (and 30 million in the future), up from less than 10 million at present.
The changes happening in Japan regarding LCC adoption, accompanied as they are by a much more enlightened market access regulatory posture, will inevitably create even more powerful agents for change regionally, including in China, which has been reluctant to allow local establishment of LCCs – even though foreign branded LCCs now operate actively into the Chinese market. The development in this key market also heralds a new era of competition and the prospect of a welcome boost to the country’s recovering tourism industry 12 months after the devastating Mar-2011 earthquake and tsunami.
With the influx of new entrants, it is easy to overlook the incumbents, including Haneda-based Skymark and Hokkaido-based Air Do, which have operated in recent years in the high-cost market. It is not the first time the nation’s flag carriers have been involved in the LCC model. In 2004, ANA launched Air Next, a 100%-owned subsidiary operating from Fukuoka which was subsequently dissolved in 2010 and merged with regional operators Air Central and ANA Network to create ANA Wings. StarFlyer also operates in the market although, like Skymark, its model is not traditionally low-cost.
China’s Spring Airlines also plans to launch a carrier in Japan and is seeking a local partner as foreign investors can hold no more than a one-third stake in a Japanese airline. The group is planning to commence operations in the country in 2013 with five narrowbodies as it looks to gain a foothold in the Japanese travel market. AirAsia Japan
Base: Tokyo Narita
Launch date: Aug-2012 but could be earlier subject to aircraft availability
Parent: ANA 67%, AirAsia 33% (voting-right share basis). ANA 51%, AirAsia 49% (capital basis)
Capital: JPY5 billion (paid in) with initial capitalisation of JPY1 billion
Existing fleet: Planned initial fleet of five A320 aircraft
Fleet orders: None at present, but the carrier can tap into AirAsia’s large order book
Capacity deployment: n/a
Japan capacity share: n/a
Network: To cover Fukuoka, Sapporo and Naha from Aug-2012 and Busan and Incheon from 01-Oct-2012
CEO: Kazuyuki Iwakata
The formation of AirAsia Japan, announced in Jul-2011, marks the joining of AirAsia, Southeast Asia’s largest LCC, and ANA, Asia’s largest listed carrier and the world’s 10th largest airline by passengers. The carrier, which will be AirAsia’s first venture outside Southeast Asia, is targeting profitability within its first fiscal year of operation and annual sales of JPY150-200 billion in five years from launch (compared with JPY58 billion achieved by Skymark in the year to Mar-2011). The carrier will significantly entrench AirAsia’s brand in North Asia, while ensuring connectivity to AirAsia Group’s strong network in ASEAN and beyond and marking another step in AirAsia’s goal of becoming one the world’s largest LCC groups by 2020. For ANA, the agreement will further its efforts to be the dominant player in Japan, both in the full service and LCC arenas. AirAsia Japan, which expects to offer fares about half or a third of ANA levels, will have costs which are “less than half” of its full-service parent but more than double those of AirAsia’s Malaysian operations. The carrier is targeting a mixed fleet of 30 aircraft by FY2016 with the addition of five or six aircraft p/a.
Air Do
Base: Tokyo Haneda
Launch date: Dec-1998
Parent: Fully privately owned, listed. Development Bank of Japan (32.49%), ANA (13.61%) and Sojitsu Trading (10%) are the largest shareholders
Capital: Initial capital of JPY14 million in Nov-1996. JPY2325 million in capital as at 31-Mar-2012
Existing fleet: Seven Boeing 737-500s, three 767-300/ERs
Fleet orders: None directly with manufacturer
Capacity deployment: 100% domestic
Japan capacity share: 2.1% domestic share
Network: Asahikawa, Fukushima, Hakodate, Komatsu, Memanbetsu, Niigata, Obihiro, Sapporo Chitose, Sendai, Tokyo Haneda, Toyama
President and CEO: Sadao Saito
Air Do (Hokkaido International Airlines) was established in Nov-1996 and commenced operations in Dec-1998 on the Sapporo-Tokyo sector. The carrier witnessed great success upon launch due to its low-fare model, but felt the strain amid intense competition and in the aftermath of September 11. This situation was further exacerbated after the carrier was denied additional financing from the Hokkaido prefectural Government, with Air Do entering corporate restructuring procedures in Jun-2002. The airline received new equity capital from a tokumei kumiai investment fund arranged by the Development Bank of Japan, in which ANA was a key investor. This began a number of business relationships between Air Do and ANA, including codesharing and leasing 767s and 737s from ANA. When the fund was dissolved in Sep-2008, DBJ, ANA and other investors became direct shareholders in Air Do. Air Do is expanding its fleet in 2012, adding 10% seat capacity, with the addition of the first of four 767-300 aircraft in Mar-2012, followed by two 144-seat 737-700s in 2H2012 to replace existing 126-seat 737-500s.
Jetstar Japan
Base: Tokyo Narita
Launch date: Jul-2012 (founded Sep-2011)
Parent: Japan Airlines (33.3%), Jetstar Airways (33.3%), Mitsubishi Corp (16.7%), Century Tokyo Leasing (16.7%). Including non-voting shares: Japan Airlines (41.7%), Jetstar Airways (41.7%), Mitsubishi Corp (8.3%), Century Tokyo Leasing (8.3%)
Capital: JPY4800 million (Registered capital)
Existing fleet: Launch with four 180-seat A320s
Fleet orders: None directly with manufacturer but can pull from the Jetstar order book
Capacity deployment: n/a
Japan capacity share: n/a
Network: Launch routes: Tokyo Narita, Fukuoka, Sapporo, Osaka Kansai, Okinawa Naha
President and CEO: Miyuki Suzuki
Jetstar Japan is ramping up preparation for its 03-Jul-2012 debut after moving forward its initial planned launch from Dec-2012 as it seeks to gain a competitive edge in the timing of its market entry compared with rival AirAsia Japan. Jetstar Japan’s launch is more aggressive than that of competitor Peach, reflecting not only a market that will see tremendous and competitive growth in a very short period of time, but also the greater freedom enjoyed by the country’s second wave of LCCs. While Jetstar Asia will launch operations with service to Tokyo Narita, Osaka, Sapporo, Fukuoka and Okinawa with an initial fleet of three 180-seat A320 aircraft, there are potentially big plans afoot. The carrier plans to grow its fleet size to 24 aircraft “within the first few years”, with this to potentially expand to 100 aircraft by the end of the decade. In driving future growth, the airline has taken advantage of its strong brand name – the Jetstar name has gained remarkable brand recognition in Japan in the relatively short time the Australian-based parent has been operating to the country. Short-haul international services are expected to commence during 2013.
Peach
Base: Kansai
Launch date: Mar-2012
Parent: All Nippon Airways: 38.67% (prior to capital increase: 33.34%); First Eastern Aviation Holdings Limited: 33.33% (prior to capital increase: 33.33%); Japanese Investment Group - Innovation Network Corp: 28.00% (prior to capital increase: 33.33%)
Capital: JPY30.1 million before capital increase. JPY15 billion after a JPY7.52 billion capital increase in Nov-2011
Existing fleet: Three A320s
Fleet orders: Current plan for 10 leased A320s
Capacity deployment: 100% domestic with plans to expand internationally
Japan capacity share: Under 1.7%
Network: Fukuoka, Kagoshima, Nagasaki, Osaka Kansai, Sapporo, Hong Kong, Taipei, Seoul
CEO: Shinichi Inoue
01-Mar-2012 marked a landmark date for Japan’s aviation sector, with Peach launching operations from its Osaka Kansai base to Sapporo, an event the carrier said “opens a new era of the Japanese airline industry”. Peach, which labels itself as the first “genuine LCC” in Japan despite Skymark’s presence, intends to carry 6 million passengers p/a within five years of launch. It is offering fares for less than a third of the price offered by FSCs. The airline, which transported 67,000 passengers with an average load factor of 83% during its first month of operations, is expected to go public after three years. Peach has no intention to operate long-haul routes, but instead operate short-haul international services within four hours’ flight time of Japan. The carrier is operating 180-seat A320s configured with four more seats than ANA’s A320s, with its first phase of operations covering services from Osaka to Sapporo and Fukuoka, following by the addition of Nagasaki, Kagoshima, Okinawa Naha, Hong Kong and Taipei Taoyuan in the summer 2012 schedule.
Skymark Airlines
Base: Tokyo Haneda
Launch date: Sep-1998
Parent: Fully privately owned, listed
Capital: JPY14.17 billion
Existing fleet: 26 Boeing 737-800s
Fleet orders: Six A380s and six A330-300s on firm order
Capacity deployment: 100% domestic
Japan capacity share: 5.3% domestic capacity share
Network: Asahikawa, Fukuoka, Ibaraki, Kagoshima, Kita Kyushu Kokura, Kobe, Kumamoto, Miyako Hirara, Nagasaki, Nagoya Chubu Centrair, Okinawa Naha, Osaka Kansai, Sapporo Chitose, Tokyo Haneda, Tokyo Narita
President and CEO: Shinichi Nishikubo
2011 was a busy year for Skymark and the years to come will likely be no different for the homegrown independent carrier. The LCC in 2011 made a landmark order for six A380s as part of its ambitious growth plans, moving it away from the small (and successful) domestic quasi-LCC model to a long-haul international carrier. The carrier’s expansion strategy is unique in that Skymark will operate two very different models. Long-haul international services will utilise A380 equipment configured in a low-density, business/premium seat configuration. Domestic and short-haul services will continue to be operated with economy-only 737 aircraft and no-frills service, with its ‘Narita Shuttle’ service being launched as part of its domestic expansion. The profitable carrier stated that its objective in launching services in Sep-1998 was to break the oligopoly in the domestic Japanese market. However, the carrier will face intense competition from the launch of three new LCCs in 2012. The ANA-AirAsia agreement is particularly painful for Skymark, as AirAsia was initially intending to tie-up with Skymark instead of ANA, a move which would have aided Skymark’s pretensions of becoming a force in the market.
Solaseed Air
Base: Tokyo Haneda with headquarters in Miyazaki
Launch date: Jul-2002
Parent: Fully privately owned, not listed. Major shareholders include (not in any order): Development Bank of Japan, Miyako Air Grand Service, All Nippon Airways Co, Mera Electric Industrial Co, Investment Limited Partnership, Sojitz Corporation, Service Co Ltd, Kyushu Electric Power Co, Oita Bank
Capital: JPY2.3 billion
Existing fleet: 10 Boeing 737-400s and four 737-800s
Fleet orders: One 737-800 on direct order from Boeing
Capacity deployment: 100% domestic
Japan capacity share: Less than 1.7%
Network: Kagoshima, Kumamoto, Miyazaki, Nagasaki, Oita, Okinawa Naha, Tokyo Haneda
President and CEO: Hiroshi Takahashi
Skynet Asia Airways, established on 03-Jul-2002, was rebranded as Solaseed Air on 01-Jul-2011, coinciding with the delivery of its first 737-800 aircraft from AWAS. Solaseed Air, which is transitioning out of its 737-400 fleet to an all-new 737-800 fleet, currently operates 13 aircraft to five destinations in Japan. The rebranding exercise was designed to increase the profitable carrier’s brand in the domestic Japanese market outside of Kyushu. The carrier, which handled 300,515 passengers in the three months to 31-Dec-2011 with an average load factor of 63%, plans to operate 10 aircraft by Jun-2014. Skynet Asia was formerly Pan Asia Airlines, entering the market as the fourth new airline after deregulation in 1998.
Starflyer
Base: Kitakyushu
Launch date: Established in Dec-2002 and commenced operations in Mar-2006
Parent: Fully privately owned, listed. Largest investors include DCM (17.26%), Toto Co (5.08%) and Yasukawa Electric (3.29%)
Capital: n/a
Existing fleet: Six A320s
Fleet orders: Three A320s
Capacity deployment: 100% domestic
Japan capacity share: Less than 1.7%
Network: Fukuoka, Kita Kyushu Kokura, Osaka Kansai, Tokyo Haneda
President and CEO: Shinichi Yonehara
Starflyer, based in Kitakyushu, is a smaller operator in the domestic Japanese market, although it is planning an expansion to its fleet, network size and scope. From 12-Jul-2012, StarFlyer will be launching service from Kitakyushu to Busan, marking the start of its cautious international expansion to other Asian countries. The carrier plans to expand its international services from major domestic airports in Japan from 2014, when it will see eight international round-trip services, increasing to 11 in 2015. The carrier, which officially listed on the second section of the Tokyo Stock Exchange on 21-Dec-2011, expects a reduced operating profit of JPY1022 million (USD12.9 million) for an operating profit margin of 4.4% and a net profit margin of 3.9% in the 12 months to Mar-2012. The small airline, which has never handled more than 100,000 passengers on a monthly basis, currently operates a fleet of six A320-200s, with a further six on firm order. StarFlyer foresees continued yet modest growth in the market, with plans to end 2012 with nine aircraft, increasing to 12 at the end of 2015 to support its expanded network. Starflyer has a close relationship with ANA. Starflyer uses ANA systems and facilities, including its reservation platform, and ANA codeshares extensively on Starflyer’s network, a move that has significantly helped the LCC.