Venture Republic CEO and co-founder Kei Shibata, speaking at CAPA's LCCs & New Age Airlines in North Asia conference in Macau, predicted (05-Sep-2012) the LCC penetration rate in Japan will reach 50% within five years. At below 10%, Japan currently has one of the lowest LCC penetration rates in the world but the market has seen this year the start of what Mr Shibata sees as a long overdue revolution with the launch of three LCCs – Peach, Jetstar Japan and AirAsia Japan. "We have been suffering the last two decades but finally we see some light at the end of the long tunnel," Mr Shibata said, adding, "It's definitely changing peoples behaviour". Venture Republic owns and runs Japan's leading online travel search engine Travel.jp.
Japan's LCC penetration rate to reach 50% within five years: Venture Republic CEO
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LCCs in North Asia: low average LCC penetration disguises achievements and intense competition
Northeast Asia is often thought of as a laggard for LCC development. After all, 11% of seats within the region are operated by LCCs compared with 56% in Southeast Asia and 40% in Western Europe. But attendees at CAPA's LCCs in North Asia summit at Tokyo Narita (7/8-Jun-2016) heard how these figures disguise significant inroads in certain markets: LCCs account for 40% of domestic Korea capacity, 38% of Japan-Korea and 30% of Taipei Taoyuan-Osaka Kansai.
CEOs from LCCs in Japan, Korea, mainland China, Hong Kong and Taiwan attested to their opportunities but also the challenges. Restrictive slots and traffic rights were a common theme and so too were protectionism, a slowly evolving regulator, and airspace constraints. Northeast Asian LCCs exclusively make up the U-Fly Alliance, while Northeast, Southeast and Australian LCCs are members of the Value Alliance. Southeast Asia is characterised by joint venture airlines operating with a single brand while Northeast Asia has more independent airlines.
LCCs gaining market share in the domestic China market will have the greatest impact on the region's overall share. Asia's airlines have varying strategies to access China growth. By deploying LCCs, Singapore Airlines serves more Chinese destinations than Cathay Pacific.
China-Japan: Peach, Jetstar Japan & China United the latest LCCs to enter Asia's 3rd largest market
Japan-China is the third largest international country pair in Northeast and Southeast Asia. The market has expanded due to Chinese outbound visitor growth, with Chinese visitor numbers doubling from 2.4 million in 2014 to 5.0 million in 2015, and 9M2016 shows a further 30% expansion. LCCs account for approximately 10% of the market, and there are an expected three further LCC entrants in the Japan-China market: Peach Aviation, Jetstar Japan and China United Airlines. Their entry, however, comes after the major boom: eight airlines have entered the market since 2014.
The impact of the additional LCCs will be minimal in network size: Peach's four weekly Osaka-Shanghai flights are in addition to an existing 117 weekly flights. Over the long term there are strong opportunities for LCCs (as evidenced by the first mover Spring Airlines), but in the near future the greatest impact from additional LCCs will be in reminding Chinese full service airlines of alternative business models and their own need to reform. To a Chinese airline a Japanese LCC is almost paradoxical: an airline trying to be low cost in a high cost country with low population growth. Yet the relative success of Japanese LCCs provides a case study – and also market challenges.