Budget business matures

anaLESS than a year into its operations, AirAsia Japan – a low-cost budget joint venture between All Nippon Airways (ANA) and AirAsia – is facing a possible dissolution. Majority shareholder ANA with a 67-per-cent stake is considering buying up the AirAsia stake.

The discount carrier has not done as well as its rivals in the business. During the peak Golden Week holiday in Japan, AirAsia Japan managed a load of 67.6 per cent compared to Peach Aviation’s 91.3 per cent and Jetstar Japan’s 78.8 per cent. Peach is a joint venture between ANA and a Hong Kong partner and is based in Osaka’s Kansai Airport; Jetstar Japan is a joint venture between rival Japan Airlines and Qantas.

It is likely that following the dissolution, AirAsia Japan will continue to operate out of Tokyo’s Narita Airport but under the Peach brand.

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

While Asia has been experiencing quantum leaps in the growth of budget traffic in recent years – resulting in many more upstarts joining the competition – AirAsia Japan’s performance may be a forewarning of this business sector maturing even as analysts pointed out much has to do with a failed marketing strategy. The budget model was an initiative in its early years to generate growth in air travel which would not have otherwise materialised if not for its affordable fares, but many legacy airlines have also in their frenzy to prevent an outflow from their traditional markets set up budget offshoots.

Meantime AirAsia X – the long haul budget arm of AirAsia – is looking at the possibility of reinstating flights from Kuala Lumpur to destinations such as London and Paris which were suspended since early last year. The airline hopes to raise US$370 million in a share sale to repay debt and fund expansion plans. But the jury is still out as to whether the long-haul budget is a viable proposition, with many people inclined to think not so, as some airlines had tried and failed.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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