Japan Airlines eyes a bigger slice of budget market

Courtesy Reuters

It is taking Japan Airlines (JAL) a long time to launch a budget subsidiary, but it’s never too late if the budget market continues to grow. One may say that the Japanese carrier is treading with extreme caution, and even if the economic arguments are no stronger now than before, there can be no better reason than the Tokyo Olympics in 2020 for the belated introduction.

At home, rival All Nippon Airways (ANA) has been operating two budget carriers, namely Peach and Vanilla (which was the rebirth of a failed joint venture with AirAsia), and has plans to merge the two carriers in preparation for medium-haul international flights.

Foreign low-cost competitors include AirAsia, Singapore Airlines’ Scoot and Hong Kong Express. And, of course, there is Jetstar, the budget arm of Qantas, in which JAL has a minority share. It is therefore not exactly correct to say that the Japanese national carrier has not tapped into the budget market earlier, though not in as big a way as the others.

The yet-to-be-named budget carrier, to be based at Narita International Airport, will commence operations with two jets in mid-2020, offering medium and long-haul flights to Asia, Europe and the Americas. It will operate to some of the destinations already served by JAL.

The timing cannot be coincidental, as this is when ANA is expanding the operations of Peach into the international market. Until then, JAL seems quite content that the competition is limited to the domestic market, but with Peach offering another option for loyal Japanese travellers besides others to fly beyond and into Japan at lower fares, it cannot be taken lightly.

The budget market in Asia is a growing business. JAL director Masaru Onishi said the airline will cater to a broad group of Japanese and foreign passengers, and will take a more experimental approach to its product than the full-service parent carrier. There will be a mix of budget and premium options for meals and seats. The airline aims to be profitable within three years.

JAL may be Johnny-come-lately, but it has ambitious plans for its budget offspring. The competition is set to intensify, not just with compatriot ANA but also with other foreign carriers.

AirAsia blames ANA for budget break-up

Courtesy Wikipedia Commons/Flickr

Courtesy Wikipedia Commons/Flickr

AirAsia chief Tony Fernandes has put the blame on All Nippon Airways (ANA) for the breakup of AirAsia Japan budget joint-venture. (See Budget business matures, Jun 12, 2013) The beef is that majority shareholder ANA as a full-service airline does not understand budget operations, giving rise to differences between the two partners in financial and management issues.

A marriage across cultures is not always an easy one, even if both partners hail from the same level. The aviation industry has seen the break-up of even the most likely partners. Ultimately it all comes down to the numbers. AirAsia Japan is not doing as well as the other budget operators, namely ANA’s other budget arm Peach Aviation with a Hong Kong partner and Jetstar Japan, a joint-venture between Qantas’ Jetstar and Japan Airlines (JAL) as major partners.

How then do you explain Peach and Jetstar being more successful? Mr Fernandes may argue that it is because Peach’s other partner is non-aviation, so is it a case of too many experts spoiling the broth? And, interestingly, Mr Fernandes said he has learnt one critical lesson from the failed tie-up; he was quoted as having allegedly said: “The lesson is I will never ever work with another airline in my life. Let me qualify that – premium airline.” That again may have also explained why he has chosen to set up AirAsia India with non-aviation partners Tata Sons and Amit Bhatia instead of with another airline or buying into an existing airline such as Kingfisher Airlines which is clutching at straws for some help.

What about Jetstar Japan, assuming it has so far not faced the kind of problems that confronted AirAsia Japan, even though JAL, like ANA, is a full-service airline and Jetstar, like AirAsia, operates the no-frills model? Or, if Qantas, instead of Jetstar, is driving the business, does it not augur ill when two full-service airlines try to operate a budget joint-venture along legacy lines? Yet the Jetstar brand has enjoyed good growth across the region.

ANA will now buy up the AirAsia stake in the joint-venture, and AirAsia Japan may then merge with Peach. Since Japan is a prized market for leisure travel, AirAsia may again seek to re-enter the market on its own. Can it do better the next time round? The longer it waits, the more it has to catch up with lost ground as the market matures.