Skymark outlines ambitious growth plans to include A380

Speaking at a Foreign Correspondents Club of Japan luncheon in Tokyo on 21-Dec-2010, Mr Nishikubo recognised that the carrier's expansion strategy is a challenging one. "Skymark is a crazy company. No one but I wants to invest massive funds in such a company," he said.

The carrier's expansion strategy is unique in that Skymark will operate two very different models. Domestic and short-haul services will be operated with economy-only B737 aircraft with no frills service. In contrast, long-haul international services will utilise A380 equipment configured in a low-density, business/premium seat configuration with full service. The CEO added that he has no problem with this potentially risky strategy.

Orders for four A380s with two options; could increase to up to 15 A380s

Mr Nishikuo confirmed the carrier's order for four A380s with two options. Skymark plans to introduce the aircraft in the fiscal year commencing Apr-2014 and will sign a purchase agreement next spring. 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 internationally to markets in Asia, Australia, Europe and the US. Mr Nishikubo added: "We can make a decision on whether to raise the total purchase to 15 [A380s] soon after we introduce our first Airbus 380s in 2014."

Mr Nishikubo declined to say how much he has agreed to pay for the A380s, but added that the manufacturer "had made a great effort on the price". 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 among either ANA or JAL or their respective LCC subsidiaries. The order is worth EUR1.39 billion at list prices.

Mr Nishikubo said the carrier has made no decision on engine choice for the A380s and stated it would seek an "explanation from Rolls-Royce" over the recent A380 engine incident. The carrier will conduct its own study and examine Rolls-Royce's findings when available prior to making a decision. However, he noted: "There is still a fair possibility that we will choose Rolls-Royce."

Skymark's A380s will be configured for business class and premium-economy class with about 400-450 seats. This would make the carrier one of the lowest density A380 operators, with the same seating guide as Korean Air. Skymark will become the first Japanese customer for the aircraft and the first LCC to order the A380.

Known A380 configurations

Airline	First	Business	Premium economy	Economy	Total
Korean Air	12	94	-	294-344	400-450
Skymark	-	-	-	-	400-450
Air Austral	0	0	0	"Around 840"	"Around 840"
Qantas	14	72	32	332	450
Singapore Airlines	12	60	-	399	471
Emirates (Ultra long range)	14	76	-	399	489
Air France	9	80	38	389	516
Emirates (Long range)	14	76	-	427	517
Lufthansa	9	98		420	526
Air France	9	80	-	499	538
Emirates (Medium range)	-	-	-	-	600

Source: Centre for Asia Pacific Aviation and airline reports

Airlines with firm A380 orders

Airline	Order
Air France	12
Air Austral	2
British Airways	12
China Southern	5
Emirates	90
Etihad	10
ILFC	10
Kingdom Holding Company	1
Kingfisher Airlines	5
Korean Airlines	10
Lufthansa	15
Malaysia Airlines	6
Qantas Airways	20
Qatar Airways	5
Singapore Airlines	19
Thai Airways	6
Virgin Atlantic	6
Total	234

Source: Centre for Asia Pacific Aviation and Airbus

London, Frankfurt and New York in targetted in first phase

The A380 aircraft are 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 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 will 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 in 2014 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."

The carrier plans to hire about 470 former Japan Airlines employees with the carrier receiving applications from more than 200 pilots. It has already hired 50 pilots and plans to add around 150 more. The carrier is also scheduled to hire 80 mechanics and 300 cabin attendants with international flight experience

B737s to remain 'core of fleet'

While the A380s will be the cornerstone of the carrier's international expansion, the B737s will remain the "core of its fleet". Skymark plans to almost triple its B737 fleet from 18 to 40-50 aircraft in four years to meet rising demand in the region.

In addition to 18 B737s in operation, the airline has 25 737-800s on order and plans another order of four aircraft in Jan-2011. The aircraft will all be leased.

No plans for share or bond issue; no alliance talks

Mr Nishikubo, who owns 49% of the airline, stated the carrier had no plan to sell shares or issue bonds to finance the expansion. He added: "I have no worries about the funds to buy A380s as Skymark's business is quite good."

The carrier has JPY8 billion in cash and the company intends to continue buying US currency. The carrier, upon the release of its financial results for the six months ended Sep-2010, stated it expects to report a 109% increase in net profit to USD68 million in FY2011 with a recurring profit of USD107 million (+194% year-on-year) and an operating profit of USD112 million (+190%) on revenues of USD698 million (+36%).

Mr Nishikubo also stated there were no immediate plan to form an alliance with other airlines and stated the carrier has no other investment partners at the moment. The carrier's shares have almost tripled this year.

Skymark Airlines share price growth: Apr-2010 to Dec-2010

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Source: Centre for Asia Pacific Aviation and Tokyo Stock Exchange

Domestic expansion to continue, centred on Narita

The carrier is expanding from Tokyo Narita. It has 32 daily services from Haneda and plans to have the same level of frequency at Narita in the next five years.

Mr Nishikubo stated he believes there would be little impact from the Kyushu Shinkansen on Skymark's Kobe-Kyushu service. The line opens fully to Kagoshima in spring 2011. He stated: "Our planes are much smaller than trains and there are people in a hurry who want the speed of air transport - and there are people who like planes. I don't think our passenger numbers will be much affected."