Japanese Airlines Consider Low-Cost Services To Drive Post-pandemic Growth

While uncertainty remains as to when – or if – travel demand will fully recover from the coronavirus pandemic, Japan’s two major airlines are positioning themselves to profit from any recovery with a punt on services. at low price.

While leisure demand is expected to recover much faster than business travel, ANA Holdings Inc. and Japan Airlines Co. are both strengthening their ties with low-cost carriers.

But the move by the two airlines, which have established themselves as full-service carriers, could be a double-edged sword, aviation experts say.

The photo taken in April 2020 shows passenger planes at Haneda Airport in Tokyo. (Kyodo)

ANA Holdings, the parent company of All Nippon Airways Co., plans to launch a new LCC brand by March 2023 with flights connecting Japan to Southeast Asia and Oceania.

Domestic rival JAL, meanwhile, said on Friday it would make Spring Airlines Japan Co. a consolidated subsidiary in June. The unit of the main Chinese carrier LCC Spring Airlines Co. will take its place in the JAL group alongside the 100% economy airline Zipair Tokyo Inc., which started operations last year amid the pandemic.

The two low cost carriers reflect JAL’s strategic shift from what was previously seen as the Japanese airline’s cautious stance on LCCs.

“The coronavirus pandemic is dramatically changing the structure of air travel demand and consumer behavior, as well as the market environment. We will promote reforms to create a sustainable business structure,” said the president of JAL, Yuji Akasaka, during a press conference on his latest results on Friday.

“We will seriously cultivate the LCC market with growth potential,” he said as JAL also unveiled a medium-term business plan.

The decision to rethink short-term and long-term strategies comes as both carriers continue to spend money and cut costs to stay afloat.

In the fiscal year ended March 31, ANA Holdings posted a record net loss of 404.62 billion yen ($ 3.7 billion). While JAL recorded a smaller net loss of 286.69 billion yen, this was its first red ink since re-listing in 2012.

Associated coverage:

A pandemic plunges JAL into its 1st net loss since the re-enrollment in 2012

ANA, affected by pandemic, posts record loss for fiscal 2020, expects black return

JAL will make the Chinese subsidiary LCC Spring Airlines Japan a subsidiary

But Shinya Hanaoka, professor of aviation policy at the Tokyo Institute of Technology, warned that LCCs could only be a stopgap solution.

“As a secure business strategy for the immediate future, they apparently choose LCC services. But such LCCs will not be enough to become a major source of income for the respective groups,” Hanaoka said.

LCCs generally focus on short-haul flights and a high frequency of flight per day or per route to increase the efficiency of fleet use. They offer no-frills services to keep costs to a minimum. But competition has been fierce in the market, which began in Japan when Peach Aviation Ltd., now a subsidiary of ANA, began operations in 2012.

Prior to the pandemic, demand for air travel to Japan had trended upward, helped by an increase in the number of foreign visitors, mainly from China, South Korea, Taiwan, Hong Kong as well as Asia. Southeast, as part of government initiatives to boost tourism as a pillar of its growth strategy.

In this context, JAL and ANA were able to coexist with LCCs without losing much of their business as the market itself grew, according to industry observers.

Before the 2019 pandemic, LCCs held 10% of the domestic market in Japan and about a quarter of that of international flights, according to Japanese government data.

But it is still not certain that such momentum will return.

ANA President and CEO Shinya Katanozaka said ANA was getting “smaller” to overcome the current crisis, but would emerge resilient.

“When the big banks gave us subordinated loans (worth 400 billion yen last year), they did so because they were confident in our profit outlook for the next five to seven years. “said Katanozaka.

ANA has seen Peach successfully capture demand from travelers from Taiwan, which likely served as a catalyst for launching its new LCC brand to serve a growing Southeast Asian market, according to Hanaoka, an expert in LCC sector.

Last year, AirAsia Japan Co., a unit of Malaysian low-cost airline AirAsia Group, decided to cut all of its routes, shutting down operations in Japan. As JAL prepares to increase its investment in Spring Airlines Japan, the main LCCs in Japan will now belong to the JAL or ANA camp.

Hajime Tozaki, a well-versed professor of the airline industry at JF Oberlin University, said this could lead to a “proxy war” between the two groups.

“JAL and ANA are anxiously considering what the other party is aiming to do. The next step (from the initial shock of COVID-19) may be the expansion (of charter services) of business jets that have responded to strong demand. But whether it should be LCC activity is a question mark, “Tozaki said.

The one-year delay of the Tokyo Olympics and Paralympics added to the woes of domestic airlines, which anticipated a windfall of events. Japan is still striving to bring infections under control just three months away from the big sporting event, which international spectators will not be allowed to attend.

The number of foreign travelers to Japan hit a record 31.88 million in 2019, but plunged to 4.12 million last year. By 2030, the Japanese government plans to increase that number to 60 million.

JAL’s latest business plan covering the five-year period until March 2026 shows that the carrier aims to draw clear business boundaries between LCCs. Zipair will target Asia, the west coast of the United States and Hawaii, a popular tourist destination for Japanese travelers. Spring Airlines Japan will seek to launch direct flights to major Chinese cities while Jetstar Japan Co., co-invested with Australian group Qantas, will focus primarily on domestic flights from Narita Airport near Tokyo.

Riding waves of inbound tourists in recent years, Japanese airlines have had little difficulty generating profits, but a long-term growth strategy is needed, according to Tozaki of JF Oberlin University.

Air travel is expected to recover, but it will likely take years to fully return to pre-pandemic levels. The International Air Transport Association predicts that global air traffic will reach 43% of 2019 levels by 2021, down from 51% expected earlier.

Leave a Reply

Your email address will not be published.