Japan LCC era yet to enter full swing, but route cannibalisation starts

Such route cannibalisation is unsurprising. Not only has history showed that legacy carriers retreat under LCCs, but JAL has been planning for that outcome. Its corporate plan expects that by FY2016 domestic available seat kilometres (ASKs) will be 3% below FY2011 levels while international ASKs will be up 25%, a deliberate strategy deploy capacity where LCCs - part-owned like in Jetstar Japan, but complete competitors in other cases - cannot reach.

See related article: Japan Airlines plans for future: more regional & long-haul flights as LCCs swallow short-haul market

What is perhaps surprising is how quickly this cannibalisation is occurring, although Tokyo Narita-Osaka Kansai is an outlier. While traffic between Tokyo and Osaka makes the route the ninth largest in the world, almost all capacity is deployed between the downtown airports: Tokyo Haneda and Osaka Itami. Those are primarily domestic airports whereas Narita and Kansai handle international traffic. While there is room for transfer traffic, the downtown airports are the preferred points.

JAL only has a single daily Osaka Kansai-Tokyo Narita service whereas there are two daily Osaka Kansai-Tokyo Haneda and two daily Tokyo Narita-Osaka Itami services (and 15 daily between Osaka Itami and Tokyo Haneda). The services to Japan's downtown airports are timed to connect from long-haul flights, and one Tokyo Narita-Osaka Itami service is even operated by a Boeing 777-300 whereas Tokyo Narita-Osaka Kansai is operated by 737-800s.

The flight connecting Japan's two main international airports pulls limited traffic and would face competition from far more cost-effective Jetstar Japan as well as the existing - and expensive - shinkansen bullet train. It is one of the world's busiest train routes, with express trains departing every few minutes on the 2hr 30min trip linking downtown Tokyo with downtown Osaka.

But that does not preclude LCCs from entering the Tokyo-Osaka market, even if they serve the farther-out international airports. The one-way Tokyo-Osaka fare is JPY14,000 (USD173) with Japan Railways conducting no revenue management for discounts on tickets booked early (or charging more for fares booked last minute). Jetstar Japan in comparison is offering a lead-in tax-inclusive fare of JPY3990 (USD49). That fare is still available for purchase on many days while other days have fares upwards of JPY5390 (USD67) - still a significant discount over the shinkansen.

Additionally, selected frequencies of Jetstar Japan's Tokyo Narita-Osaka Kansai services will be within two hours of JAL's service.

JAL and Jetstar Japan Tokyo Narita-Osaka Kansai services: Jul-2012

Source: CAPA - Centre for Aviation & airlines
Note: Includes most common departure and arrival times

Peach, the LCC fully-owned by All Nippon Airways (ANA) and based at Osaka Kansai, has not entered the Tokyo-Osaka market, and neither has Narita-based AirAsia Japan (launched in partnership with ANA). All of the LCCs have significant overlap with their parent Japanese carrier, although ANA and JAL primarily operate domestic flights from Haneda and Itami and not the international airports where the LCCs are based. Jetstar Japan this week received its first A320 from Toulouse and will use the aircraft for proving flights in May-2012.

See related articles:

• AirAsia Japan plans launch with domestic and Korean flights
• Jetstar Japan plans more aggressive launch than competitor Peach, reflecting Japanese LCC market

There is no doubt further route cannibalisation - and on larger scales - will occur as the low-cost bases of LCCs makes Japan's legacy and inefficient carriers retreat. This is the initial change and represents an early beginning of the end for the legacy carriers on certain domestic routes, but also a very exciting start for new lower-cost entrants.