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Skymark Airlines increases A380s orders to six as part of ambitious growth plans

27-Jun-2011

Skymark Airlines placed an order for two more A380 aircraft at the Paris Air Show, bringing to six the number of A380s ordered by the Japanese LCC. The aircraft forms part of the carrier’s ambitious growth plans over the next few years which will move it away from the small domestic LCC model to a long-haul international carrier operating A380 equipment.

Skymark Airlines, Japan’s third largest airline, placed the order, worth USD750 million at list prices, on 23-Jun-2011, the same day Airbus received a commitment from an unidentified customer for 10 A380s. (It has been speculated the order was from Hong Kong Airlines.) Skymark Airlines gave no indication of which engines it has selected. Skymark is the first Japanese airline to order A380 equipment although Singapore Airlines, Lufthansa, Air France, and Korean Air operate the aircraft on daily services to Narita Airport.

Skymark Airlines to become dual-model airline

The carrier’s expansion strategy is unique in that Skymark will operate two very different models. Long-haul international services will utilise A380 equipment configured in a low-density, business/premium seat configuration with full service. Skymark plans to start operations with the A380 on international routes linking Tokyo Narita to destinations in Europe and the US. President Shinichi Nishikubo stated the company believes the A380 will give the carrier “strong competitive advantages in the international market”.

In contrast, domestic and short-haul services will be operated with economy-only B737 aircraft with no frills service although Mr Nishikubo at the Paris Air Show stated that if the airline planned to acquire smaller aircraft in the future, the A320neo "would be a very good candidate".

As part of its domestic low-cost model, the carrier announced plans on 12-Apr-2011 to launch an LCC operation called the "Narita Shuttle". Skymark will become the first LCC to open a hub at Narita with the launch expected several months ahead of All Nippon Airways' planned LCC JV Peach Aviation at Kansai. Skymark plans to expand its fleet of B737s from 18 to 27 by Mar-2013 to support the new routes.

“We want to try something that no one has ever done,” Mr Nishikubo said. The Shuttle will operate to up to six cities with twice daily frequency to destinations which could include Hokkaido's Sapporo (Shin Chitose Airport), Asahikawa - also in Hokkaido - from Nov-2011 and Naha (Okinawa) and Fukuoka from Feb-2012. The airline plans to expand to operate 25 daily services by Sep-2014 to nine domestic destinations, including Asahikawa, Fukuoka and Sapporo. Skymark selected Narita citing higher operating costs at the downtown Tokyo Haneda Airport. Narita and Haneda have busy schedules and some of the most expensive landing fees on the planet, let alone in Japan.

To receive first A380 in Apr-2014 

Skymark initially announced plans to purchase four A380s with two options in Dec-2010. The carrier plans to introduce the aircraft in the fiscal year commencing Apr-2014. Of the initial order, two aircraft will be delivered in 2015 followed by two in 2016. The A380 will be the first widebody aircraft to join the carrier’s fleet.

The carrier could potentially add up to 15 A380s as it expands to markets in Asia, Australia, Europe and the US. Mr Nishikubo previous noted: "We can make a decision on whether to raise the total purchase to 15 [A380s] soon after we introduce our first Airbus A380s in 2014." Skymark’s A380s will be configured for business class and premium economy with about 400-450 seats. This would make the carrier one of the lowest density A380 operators.

Known A380 configurations  

Airline

First

Business

Premium economy

Economy

Total

Korean Air

12

94

0

301

407

Skymark

-

-

-

-

400-450

Singapore Airlines (new deliveries) 12 86 - 311 409

Qantas^

14

72

32

332

450^

Singapore Airlines

12

60

0

399

471

Emirates (Ultra long range)

14

76

0

399

489

China Southern

8

70

0

428

506

Thai Airways

12

60

0

435

507

Malaysia Airlines

8

54

26

420

508

Air France

9

80

38

389

516

Emirates (long range)

14

76

-

427

517

Lufthansa

8

98

 0

420

526

Air France

9

80

-

499

538

Air Austral

0

0

0

Around 840

Around 840

Skymark will become the first Japanese customer for the aircraft and the first LCC to order the A380. Boeing has long had a near-monopoly in the Japanese market with a market share of around 95%. Airbus will obviously be hoping that this order will stimulate more activity in the Japanese market. Airbus has announced a target of winning more than 20% of orders for commercial aircraft in Japan from 2011.

London, Frankfurt and New York in targetted in first phase

As previously reported by CAPA, the A380 is intended for long-haul international routes and will initially operate on Japan-Europe routes in 2014 with destinations including London and Frankfurt, followed by services to North America, initially to New York. Fares would be half those charged by Japan Airlines and All Nippon Airways. If the airline succeeds in its international business, it will aim to expand services to cities such as Los Angeles, Sydney, Melbourne and Singapore.

Mr Nishikubo stated he was confident of gaining the necessary approvals previously stating: "The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has expressed a very favourable view towards our plan. We have spoken to the British and French embassies and we have not encountered any problems."

The carrier added that international A380 services would operate from Tokyo Narita due to MLIT restrictions on operation of the aircraft at Tokyo Haneda due to turbulent wake fears, which are denied by Airbus.

Skymark will be hiring pilots from Japan Airlines and although the supply of Airbus-trained pilots in Japan is limited, the CEO stated he does not expect to experience any difficulties in having cockpit crew ready for A380 services when the first two aircraft are due to be delivered in Jun-2014 and Nov-2014. Airbus had proposed a flight crew training programme and Skymark intended to follow it, Mr Nishikubo added.

The airline is also ordering an A380 simulator from CAE which is due for installation in spring 2012. Mr Nishikubo continued: “We need a team of 12 pilots for each aircraft and for the first year we’ll need 24. We have enough time to train that number and in addition to the simulator we’ll have the first aircraft for actual flight training from June until September 2014 when we plan to launch commercial flights.”

In May-2011, Skymark stated it planned to raise JPY21.29 billion (USD261 million) through public shares to help finance the purchase of Airbus A380 aircraft and other equipment. The company planned to issue 17.3 million new shares to the public and plans an additional IPO of up to 207 million new shares under an over-allotment arrangement.  This month, the carrier announced the completion of the third party allocation of its newly issued 2.7 million shares. The price was JPY914.94 (USD11.40) per share and the total amount to be paid is JPY2.5 billion (USD30.8 million).

Skymark Airlines expects profits to continue to rise in FY2012

Meanwhile, Skymark Airlines expects to report an operating profit of USD174 million in FY2012, a 25.9% year-on-year increase, with a net profit of USD95.1 million (+21.7%). Revenues are expected to increase 37.9% to USD987.5 million.

The LCC reported an operating profit of USD138.2 million in the 12 months ended 31-Mar-2011 (FY2011), a 256% year-on-year increase, with a 141% improvement at the net profit level to USD78.1 million. Revenues increased 40% to USD716.3 million, outpacing a 22.6% increase in operating costs to USD543.8 million, despite a 39% increase in fuel costs (to USD155.4 million). The carrier’s asset base increased 82.4% to USD461.1 million and cash and cash equivalents increased 119% to USD202.6 million. Total liabilities also increased, by 120% to USD246.9 million. The carrier now operates around 4.4 million passengers p/a across a network of 21 routes with 65 daily services.

The carrier separately stated its unit cost (CASK) was JPY8.2 (USD 9.80 cents) in Mar-2011, down from JPY10.62 (USD 12.69 cents) in Mar-2009 and JPY9.5 (USD 11.35 cents) in Mar-2010. Expansion of the number of aircraft contributed to improve productivity. This makes Skymark's unit costs around 30-40% lower than major Japanese airlines.

Seeking to create competitive environment in Japan air market

Having lower unit costs is part of the carrier’s objective to maintain a low-cost and low fare operating structure.  The carrier stated that its objective in entering the domestic market in Sep-1998 was to break the oligopoly in the domestic Japanese market.

“In Japan, since the aviation industry resumed all of operations after the war, there have been a great number of mergers consolidating the airlines into two distinct structure (except affiliate companies), resulting in a lack of adequate competition and oligopoly in the domestic flight market. There has been a remarkable slashing of prices in the international flight market, which is locked in fierce competition, and benefactors have been the customers. On the other hand, fares in the domestic market have been generally set at a high level, with customers' dissatisfaction constantly increasing. Our company was founded to enter this domestic flight market, create a competitive environment, and contribute to enhancing customer satisfaction,” Mr Nishikubo said on the carrier’s website.  


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