AirAsia has started domestic air business in Japan
Hideo Inagaki, Senior Consultant
Japan Aviation Management Research
Although it has already been announced in news, the re-newal AirAsia Japan started domestic flight operations in Japan on 29th October. They have two round trip flight a day between Nagoya (Chubu International Airport) and Sapporo (New Chitose Airport). The reason why I pick up this theme is what Airasia start domestic business in Japan may be energizing of stagnant domestic air business in Japan.
One of the world's leading independent low cost carriers will enter the oligopolistic market where the two major Japanese airlines, All Nippon Airways(ANA) and Japan Airlines(JAL), provide expensive fares. The AirAsia Group based in Malaysia is the top LCC (low cost carrier) group in Asia. Although we remember, AirAsia group established AirAsia Japan in 2011, pioneer LCC in Japan, cooperated with ANA, and it had started domestic flight services, for example Narita = Fukuoka route in August 2012. 「＠However, they ended partnership with ANA in 2013 in less than a year, and once the name of AirAsia disappeared from Japanese domestic air business. Tony Fernandez, CEO AirAsia Group, immediately announced the re-entry into Japan and got fund from Rakuten, Japanese e-commerce company, and other investors in order to establishing of renewal AirAsia Japan. Two third of whole stock must be owned by Japanese investors in order to manage domestic flight company by Japanese air law. It seems so hard to prepare of opening routes in this time, they spent four years(!!!) and finally standing on the start line of the business.
Looking at the homepage, AirAsia has saled air tickets with just JPY 5 per one way between Nagoya and Sapporo, but this is special price for opening campaign. As a comprehensive fare including the airport fee, called all-in-fair, it seems to be set up as usual fare from JPY 4,500 to JPY 5,400 for one way, and set up as limitted basis peak fare about JPY 20,000 maximum.
They have totally 17 round flights a day by all airlines to operate Nagoya = Sapporo Route in early December . In addition to 2 round trips by AirAsia Japan, ANA will operate 6 round trips, JAL 5, Sky Mark 2, and Jetstar Japan 2 round trips.
By comparing of weekdays one way airfare among airlines, JAL set a normal fare at JPY 43,210, and also set a special discount fare at JPY 13,610 for flights to same time zone flight near Air Asia flights. ANA also sets a special discount rate at JPY 13,610 and normal fare at JPY 43,210 same as JAL. Skymark gives special fare at JPY 8,310 ~ 9,910, and at JPY 22,210 for ordinary freight. Jet Star Japan which is the only LCC competitor set at JPY 4,680 as ordinary price. All airlines seems to set the airfare conscious of opening of air Asia. However, the results show only Jetstar Japan is the price competitor as AirAsia Japan.
AirAsia Japan is in the starting phase now and the business size of Nagoya = Sapporo flight is small, so it must not impact to the management, ANA and JAL in this phase. However, Japan is important market as domestic air business for AirAsia. Because there is more established dominant domestic air demand rather than other deployment Asian countries at present, so AirAsia must promote rapid business expansion in Japan with top priority in their whole business. So, Airasia business seems to be starting of gradually influence to the management, ANA and JAL in near future.
AirAsia has not disclosed the future route network plan in Japan. Generally thinking ,in addition to increasing route frequency, Nagoya - Sapporo , they should develop Nagoya-based network, such as from Nagoya to Fukuoka and Okinawa as domestic main routes, and to Sendai, Kagoshima and Kanazawa as high-demand regional routes, and also to Seoul, Taipei, Beijing, Shanghai and Hong Kong as high-demand short-range international routes. AirAsia's low fare will growing market demand of Nagoya city and the area, and also they may get dominant market share in Nagoya.
After building network of Nagoya hub, they may expand their network hub in Japan as next step, such as considering of 2020 Tokyo Olympic Games. In the timing of Tokyo Olympic, Japan Civil Aviation Bureau will expand runway slots in Haneda airport and in Narita airport which locate in Tokyo area. Also, they have other projects in Japan in near future, for example, extra run way construction project in 2024 Fukuoka and in 2020 Okinawa. Those must be big chance for airlines to get new landing slots for their business in Tokyo, Fukuoka and Okinawa. They have super biggest demand in Tokyo in Japanese domestic air market. Also Fukuoka and Okinawa is located near China. Fukuoka is one of the major cities in Japan, and Okinawa must be far east Hawaii, the resort destination not only from Japan cities but also from Chinese cities by enrichment of Okinawa hub network.
As shown in the graph, the first advantage of AirAsia is fare competition ability, which the unit air fare of AirAsia is around one third of unit air are of Japanese major airlines. AirAsia has also the second advantage. That is the scale of business. AirAsia has currently following figures. They are consist of 10 airlines in the group, 6 hub airport, 204 owned aircraft, 637 ordered aircraft, and 26 million carried passengers a year. Generally there are three troubling issue in air business expansion. First issue is the ensuring pilots. Big business size of AirAsia can be available of ensuring of pilots. Second issue is the procuring aircraft. Ordered aircraft number 637 must enable to meet future business expansion. Third issue is the ensuring of landing slots in congested airport. AirAsia should have business plan according to release of landing slots in congested airport.
Someone says, high-quality services can compete with low fares. But, my opinion is in opposite side, in the macro airline business, only low fair is the weapon to defeat competitors in current airline business. Many Europe legacy airlines such as Air France has suffered from competition with standalone LCCs. Also, legacy Asian airlines has same experience. Because, 90% of the world air passengers are person who are sitting on economy seats. Please read Michael Porter's theory of business competition again.
Currently, air demand is rapidly expanding worldwide. The background of expansion is as follows. Timing of productivity improving in aviation business such as the appearance of LCC, has matched economic growth in emerging countries. As a result of growing of passenger demand and the expansion of the route network, they circulated virtually. Those change may promote competition in Japanese domestic air services, and also big air demand growing must come. I'd like to watch further AirAsia expansion in Japanese air market.