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Jetstar Japan is a joint venture between Qantas Airways, Japan Airlines and Mitsubishi Corporation. The carrier operates from its hub at Tokyo Narita International Airport, with a secondary base at Osaka Kansai. The LCC operates domestic services to cities including Fukuoka, Okinawa and Sapporo. Jetstar Japan's fleet of Airbus A320 aircraft are sourced from affiliate Qantas Airways.
Location of Jetstar Japan main hub (Tokyo Narita Airport)
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider Jetstar Japan fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
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Jetstar Japan and Peach Aviation have received air traffic rights for China which, if utilised, would grow the Japanese LCC footprint in China – Japan's largest visitor source market. Spring Japan became the first Japanese LCC to serve China in Feb-2016. The absence of Japanese LCCs in China may seem surprising, but there are regulatory hurdles, market access questions and conservatism at Japanese LCCs. AirAsia Japan, launching in 2017, will likely leverage the group's China experience; it is the largest non-greater China airline group serving China.
The prospect of further growth comes as incumbents cite overcapacity. What was once a profitable market now only produces returns in the peaks. All Nippon Airways, the largest airline between Japan and China, reported lower revenue on the back of "a deterioration in the supply-demand environment". Spring China has told Bloomberg that some competitors "aren't well-prepared", and will be "phased out". Overall Japanese LCC routes and capacity may be small but will be watched by Chinese airlines, ever mindful of the need to find new business models.
Vanilla Air was born out of the crisis of All Nippon Airways and AirAsia dissolving their JV airline – AirAsia Japan. ANA took 100% ownership and, for strategic value and pride, swiftly re-launched the airline. It was a tall challenge, so Vanilla Air's existence has been fragile. Now that Vanilla has found a segment and formed an identity externally and internally, it is looking to assert itself. As announced at CAPA's Jun-2016 LCCs in North Asia Summit, Vanilla Air plans to be the first Japanese LCC to have a major presence in Southeast Asia. Vanilla plans to overcome the geography and narrowbody aircraft range restrictions between Japan and Southeast Asia by operating fifth freedom flights from Taipei, made possible by Japan's open skies agreements with Taiwan and most Southeast Asian markets. Its first Southeast Asian service will be a daily flight from Taipei to Ho Chi Minh, the largest Southeast Asian market from Taipei after Singapore, and strategically important for ANA.
Dual brand strategies are being put to the test as Hong Kong Airlines relaunches services to Tokyo and Osaka. Its last foray in these markets was before it separated from what became the robust and fast-growing LCC – HK Express. Tokyo and Osaka are HK Express' two largest routes and account for nearly a third of all seats. Ostensibly the two will focus on different market segments, but the core passenger group for each is the leisure traveller.
Hong Kong Airlines is preparing for significant long haul expansion, including codeshares to major Australian cities and its own deployment to North America and Europe. Tokyo and Osaka may indicate what premium traffic and discretionary premium leisure passengers it can win, as well as whether the market sees enough value and sophistication in Hong Kong Airlines or would rather pay more for established Cathay Pacific, or less for HK Express. Hong Kong Airlines and HK Express will jointly account for 24% of both Tokyo and Osaka capacity, compared with Cathay's approximately 43%. The LCC market between Hong Kong and Japan has grown rapidly to where LCCs account for 27% of the total market, including 23% to Tokyo and 35% to Osaka – all from near zero five years ago.
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.
In just over a year Taiwan's LCCs – Tigerair Taiwan and V Air – have carved a 10% share of the Taiwan-Japan market. More Taiwanese visit Japan than any other market while Taiwan is Japan's third largest outbound market after Korea and mainland China. Taiwanese have affinity for Japan and share some culture, and additionally a Nov-2011 open skies agreement has unlocked growth. Summer 2016 seat numbers are 143% higher than five years earlier in summer 2011. Summer 2016 is 26% up from 2015.
Six years ago there were no LCCs in the market. Now, LCCs make up 26% of the total market and have a higher share on specific routes: 30% between Osaka and Taipei, 43% between Tokyo and Kaohsiung. Taiwanese LCCs account for 35% of the LCC market – double their share at the start of 2016.
Lower costs in Taiwan and a home market advantage give Taiwanese LCCs a strong growth outlook in Japan. Yet elsewhere they are struggling to find new markets. Japan accounts for 57% of Tigerair Taiwan and V Air's seat capacity. Korea and Hong Kong are bilaterally constrained, while Southeast Asia has not been as popular a market. Taiwan's LCCs made quick wins in the underserved Japanese market but now have work ahead of them to build awareness of new markets.
Leaders of North Asia’s low cost carriers (LCCs) will gather in Narita on Jun-7/8 for CAPA’s North Asia LCC Summit.
Hosted by Narita Airport, the Summit marks 12 years of CAPA’s flagship series of LCC events in Asia and marks CAPA’s second return to Japan.
Featuring over 40 speakers, including senior executives from all of North Asia's LCCs, and with simultaneous translation in English, Japanese, Korean and Mandarin, the Summit will explore the commercial drivers for LCC growth in this region, as the market opens.
North Asia has yet to experience the rapid expansion of LCCs that has occurred in Southeast Asia - but that is changing quickly.