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.

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Scoot raises fares, but Jetstar and AirAsia are not following suit

IT is only a matter of time before more airlines move to raising their fares, purportedly on the ground of rising fuel costs. The question is when is a good time, as they watch for signs of support in the market.

Courtesy Scoot

Budget carrier Scoot took the lead in announcing a 5-per cent hike in its fares from September 1. According to the airline, fuel makes up on average 32 per cent of its total operating costs and has risen by more than 30 per cent.

What is interesting is how other regional carriers are not ready to jump on the bandwagon, not yet. Jetstar said its fares will remain stable at the moment, while AirAsia said: “We have built a lot of resilience into our business by being vert disciplined about non-fuel costs, and we are confident we have sufficient latitude to manage any change in oil price.”

Has Scoot made the move a little too soon when its competitors are not ready to follow suit? History has shown that the market usually takes the cue from the leading airline. With its closest rivals holding out, one can expect the competition to intensify in a market that is driven by price more than service and brand. Higher fares may also soften the market, and this only adds to the competition. Anyway, do not bet on Jetstar and AirAsia to hold their fares steady if jet fuel costs continue to escalate, but they clearly see an advantage in moving a little slower for now.

Interestingly, Singapore Airlines, which owns Scoot, has said it is not raising its fares.

Changi Airport’s off-schedule penalty is a bitter pill

Courtesy Changi Airport Group

To cope with the growing number of flights and ease the pressure on runway capacity and other facilities, Singapore Changi Airport is introducing a penalty for airlines that misuse their alloted slots, arriving or departing outside the scheduled times. It is a fine of up to S$100,000 (US$75,798) including the risk of losing the slot.

According to the authorities, this will “allow for optimal use of airport capacity”. It is good news for air travellers since it will mean flights will arrive and depart on time. However, while known for its efficiency, Changi Airport may find this tough policy a bitter pill for the airlines to swallow if it is strictly enforced as defined.

An aircraft arriving or departing outside the scheduled times is a common occurrence, hence the reference to the ATA/ATD (actual time of arrival/departure) against the STA/STD (scheduled time of arrival/departure). It appears somewhat puzzling to treat an early arrival the same as a departure delay. Passengers generally welcome an earlier ATA to STA, but any time gained may be lost waiting for clearance for disembarkation. On the other hand, they dread a departure delay, which may be due to a host of reasons, some of which are unforeseeable.

And where the airlines are concerned, it suffices to say that no operator wants the aircraft to sit longer than necessary on the tarmac because it costs money. Some airlines are said to have expressed their concern. Budget carrier AirAsia’s CEO for Singapore Logan Velaitham said: “When you fly between airports that are not equally efficient, delays can and do occur.”

Added to that, flights that cross several time zones and calling at stops en route are more prone to delays.

Inevitably, the question of whether such a policy will hurt Changi Airport’s competitiveness arises. Has Changi reached a point where it can afford to turn away airlines until a third runway becomes operational in the 2020s? It looks like the world’s best airport is confident that the penalty, which acts as a deterrent for slot misuse, will improve efficiency and optimize the use of the airport facilities to accommodate the increase in traffic. It is believed the fine will apply only to habitual flouters which intentionally hog the facilities.

And then there are three

From four to three (if you exclude SIA Cargo which will be absorbed as a division of the parent airline in 2018), Singapore Airlines (SIA) will now have three carriers in its stable as sister budget subsidiaries Scoot and Tigerair announced the completion of their merger come July 25, 2017. SilkAir, defined as a regional carrier, makes up the trio.

Both Scoot and Tigerair will henceforth operate under the Scoot brand. It seems logical, considering the poor reputation of Tigerair and the plans to expand Scoot into the long-haul. Unlike Tigerair, Scoot was launched as a medium-haul budget carrier.

The merger was long anticipated as the operations of the two carriers began to overlap with Scoot operating the short-haul as well. At the same time, loss-making Tigerair’s days were numbered as it struggled through a period of difficult times both financially and operationally, scarred with customer complaints of poor service.

While it certainly makes sense for the two carriers to eliminate intra-competition and pool their resources, it also opens the field for Scoot to expand its network. Already it is trailing behind Malaysian budget carrier AirAsia, whose chief Tony Fernandes is known to be testing new boundaries beyond the four-to-five hour limitation of the budget model. While AirAsia is not always guaranteed success, it has enjoyed headstart advantages.

Courtesy AirAsia

Scoot has announced a service to Honolulu by the end of the year, six months after AirAsia launches its service from Kuala Lumpur. Both carriers will operate via Osaka. It will be interesting to see how the competition plays out.

Scoot may be advantaged by its hub connections at Changi Airport while AirAsia will rely on its wide regional network to take advantage of Kuala Lumpur International Airport’s lower costs in a price-sensitive leisure market.

Scoot will benefit from the reputation of the SIA brand association, but somehow that has not rubbed off on the beleaguered Tigerair.

The competition is set to redefine the budget game as Scoot and AirAsia battle it out to be the region’s leading carrier not only for the short-haul but also beyond.

AirAsia completes Asian conquest

Courtesy AirAsia

AirAsia founder Tony Fernandes said the latest agreement to set up a joint venture in China with Everbright Group “closes the loop” in the region. He added that AirAsia China “represents the final piece of the AirAsia puzzle.”

The Chinese joint venture came on the heels of the agreement with Gumin Company Limited, businessman Tran Trong Kien and Hai Au Aviation Joint Stock Company to set up AirAsia Vietnam, which is expected to commence operations in the first half of 2018.

These two ventures add to an impressive list that already includes Thai AirAsia, Indonesia AirAsia, Philippines AirAsia and AirAsia India, giving the Malaysian budget carrier a base in almost every major country in the region from India and across Southeast Asia to China. The exception is Japan when an earlier joint venture with All Nippon Airways – AirAsia Japan – was disbanded just over a year after it commenced operations in August 2012.

Notwithstanding that, AirAsia’s ambition to be the region’s main player remains unthwarted, capitalising on Asia’s growing middle class and its propensity for air travel, particularly in populous China, India and Indonesia. Headquartered in Kulala Lumpur, it is now larger than flag carrier Malaysia Airlines and is Asia’ largest budget carrier.

But Mr Fernandes enjoys wrestling with the big boys. AirAsia’s strategy is not confined to the domestic market, which will place it in good stead to compete beyond the borders in time. Not content to be just Asia’s largest budget carrier, AirAsia is once again trying to prove sceptics wrong about the viability of the long haul as it launches flights from Kuala Lumpur to Honolulu in June – this, despite its failure to sustain services to Paris and London five years ago. If success seemed elusive in the past – the same fate that had dealt similar blows to others such as Hong Kong’s Oasis Airlines who dare go where others fear to tread – Mr Fernandes deserves credit at least for trying.

AirAsia to launch Honolulu services: Revisiting the sustainability of budget long haul

Courtesy AirAsia

Courtesy AirAsia

Malaysian carrier AirAsia will be introducing four weekly services from Kuala Lumpur to Honolulu in June, becoming the first budget airline approved for operations between the United States and Asia. Flight time is anything from 16 to 18 hours.

This is yet another attempt by founder Tony Fernandes to launch a budget long haul, despite the failure to sustain earlier operations under the AirAsia X banner to London in 2009 and Paris in 2011, which were suspended in 2012. However, Mr Fernandes said operations to London will resume in 2018 when the airline receives its new more economical long-range Airbus A330-900neo jets.

Although sceptics continue to doubt the viability of budget long hauls and there have been many who tried and failed, the entrepreneurial spirit to push the boundary is still very much alive. The current slate includes Norwegian Air Shuttle which commenced services from Oslo to New York and to Bangkok in 2013, and Lufthansa’s Eurowings which and operates nonstop from Cologne and Bonn to US destinations such as Seattle, Orlando, Miami and Las Vegas. Budget doyen Ryanair is also looking at crossing the Atlantic. Singapore Airlines’ budget offshoot Scoot has announced plans to connect Singapore and Athens in June.

A number of factors have contributed to the trend.Bu dget carriers are beginning to eye distant destinations dominated by legacy airlines as they expand, and this is now made possible by technologically advanced and more fuel efficient aircraft. The budget model is changing, and the line between budget and full-service carriers is increasingly blurring as the former upgrades customer service and facilities and the latter adopting some of the practices such as product unbundling and charging for add-ons. Legacy airlines no longer view budget carriers as operating in their own niche markets but a real threat. (See Ultra-long flights: The competition heats up, Feb 7, 2017)

Whether Mr Fernandes’ Honolulu venture is sustainable or not in the long run, he has earned his feather. As a stand-alone, it will be a challenge for AirAsia, which will have to tap feeds from its regional connections – as will Scoot when it commences services to Athens. It will be a test, considering the nature of the leisure traffic and the competition posed by several airlines in the region that are already plying the route direct form their home bases or in code-share arrangements.

Garuda Indonesia poised to expand

IT came so timely that following the opening of the new Terminal 3 at Jakarta’s Soekarno-Hatta International Airport and its declared ambition to rival Singapore Changi Airport and Kuala Lumpur International Airport in attracting international traffic, Indonesian carriers have been cleared to resume flights to the United States after an absence of nine years.

The Federal Aviation Administration (FAA) is satisfied that Indonesia is complying with International Civil Aviation Civil Organization (ICAO) safety standards. Formal final approval from Department of Transport (DOT) and FAA is expected soon.

Indonesia has been plagued by a number of air mishaps involving home-based airlines Lion Air, Mandala Airlines and Garuda, particularly in the years before 2007 when the US imposed a ban on its operations on its soil. More recently in 2014, Indonesia AirAsia crashed into the Java Sea, killing all 162 people on board.

The US lift of the ban came after the European Union had lifted its ban on three other Indonesia airlines – Lion Air, Batik Air and Citilink – in June this year.

Garuda AFP

With the US and Europe open, Garuda for one, if not the other Indonesian carriers as yet, is poised to expand. The Indonesian flag carrier has launched direct services to London (Gatwick) and is planning to launch services to New York (JFK) and Los Angeles next year. And if the Sytrax survey for the last two years (2014 and 2015) is anything to go by for its success, the airline was ranked among the world`s top ten airlines which include other Asian airlines namely Singapore Airlines, Cathay Pacific and EVA Air.