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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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Japanese LCCs could tackle booming Chinese market as AirAsia Japan launches and Spring Japan expands
There is no shortage of superlatives to describe the passenger traffic growth between China and Japan. Chinese visitors are quickly becoming Japan's single largest tourism source. China Southern's Japan passenger numbers in the first nine months of 2015 have exceeded its traffic for the full year 2014. 14 Chinese airlines intend to serve Japan at the end of 2015, including five carriers which have entered in 2014 or 2015. China's Spring Airlines has virtual bases at Nagoya and Osaka Kansai and is planning to construct hotels in Japan to accommodate the visitors it is bringing over.
Japan's LCC sector is vibrant, with five start-ups in four years. They have helped rejuvenate Japanese traffic despite the shrinking economy and decreasing local population. Yet they have remained absent from the China-Japan market. The 2012 China-Japan territorial dispute weakened travel conditions, and since then the local LCCs appear to have felt overwhelmed by the influx of Chinese carrier capacity. This will start to change: AirAsia Japan plans to launch in Mar-2016 and eventually serve China, a market its affiliate carriers know well. Spring Airlines Japan, the locally established JV of Shanghai-based Spring, will finally commence international services in 2016 and is making two Chinese cities, Chongqing and Wuhan, its first destinations. Despite the growth already witnessed, this is only the beginning for the market. Japanese LCCs will have a role in its expansion.
AirAsia Japan has submitted to Tokyo an application for an Air Operator's Certificate to re-enter the Japanese LCC market, its first JV having collapsed in 2013. AirAsia Japan envisions a Mar/Apr-2016 launch from Nagoya, an airport without the heavy competition or curfew AirAsia Japan Mk I encountered at its previous base of Tokyo Narita.
The start-up plans to complete 2016 with six A320s and grow by five aircraft each additional year. In Jul-2015, Jetstar Japan operates 20 A320s, the most of any new LCC, followed by Peach with 16 A320s. AirAsia Japan will be out to show it has learned from past mistakes and can apply its pan-Asian model, with some localisation, in multiple markets.
Japan continues to benefit from this influx of carriers. Domestic growth has slowed to 2%, but Japan saw 92m domestic passengers in its latest reporting year, the highest since 2007. AirAsia Japan will be unique along with Spring Airlines Japan for not being affiliated with ANA or JAL, which directly account for 79% of the market and indirectly for over 90%. Slowing domestic growth has however come with faster 9% outbound international growth. 1H2015 inbound tourism is up a remarkable 46% and Japan will need to set more ambitious targets than 20m visitors in 2020. 2015 could welcome 18 million visitors, up from 10 million in only 2013.
Tokyo Narita on 08-Apr-2015 will open its low-cost carrier terminal, the third Japanese airport to have one, after Osaka Kansai and Okinawa Naha. The LCCT will open with five LCCs: local carriers Jetstar Japan, Vanilla Air and Spring Airlines Japan as well as Jeju Air and Jetstar Airways (Australia). Those five carriers comprise 78% of Narita's LCC movements and 74% of LCC seat capacity. The LCCT will have transfer facilities, the airport tells CAPA at the recent Routes Asia conference in Kunming.
The LCCT is further proof of the dramatic changes in Japan's aviation policy framework in recent years that have supported LCCs and open sky agreements. In 2015, LCCs will account for 18% of Narita's seats, including 67% of domestic seats. Both of these figures are up from almost zero in 2011. Over a third of all LCC seats at Tokyo Narita are international, and this is expected to grow further as Jetstar Japan commences international flights from Narita and Narita welcomes new service from carriers including Tigerair Taiwan and Indonesia AirAsia X.
There's no room to stand still in the airline business. Qantas CEO Alan Joyce's often controversial measures during a turbulent four years are being vindicated. His aggressive transformation of Qantas appears now to be showing remarkable dividends, with the prospect of going from a billion dollar loss in 2014 to a billion dollar profit just a year on. Next on the agenda will be growth.
Qantas International has returned to profitability for the first time since the global financial crisis (GFC); this is partially due to depreciation gains following large write-downs in FY2014, but there is a fundamental redirection too. Qantas Domestic has bounced back now that the domestic capacity war is over and with room for further improvement. Jetstar has returned to profit but is still under-performing compared to previous years, again with more upside.
Lower fuel costs will deliver Qantas a minimum AUD500 million benefit, setting the group up for a full-year profit around AUD1 billion. The fuel tailwind is an added bonus. Even without it, there are structural changes that will continue to flow through irrespective of that windfall. "Today we can see a bright future," Mr Joyce says.
Yet that proclamation means Qantas must address calls for it to return to growth now that its dark days of restructuring are, if not all behind it, at least nearing fruition. Initially growth is expected to be mostly in the international market as the relatively mature domestic market may be challenged by weak consumer sentiment. For the longer term international growth must be the goal; this will hinge on the synergies Qantas can gain with its key international partners, and if Qantas is successful in lobbying for a slowdown in foreign carrier growth.
Japanese aviation once again has a loss of face with Skymark Airlines filing for bankruptcy almost five years to the date Japan Airlines did so. But like JAL, Skymark's filing with liabilities of JPY71 billion (USD603 million, a fraction of JAL's USD25 billion filing) may prove to be the best option forward, and a chance to emerge stronger. (The carrier will be de-listed but remain flying.) Skymark's filing was accompanied with resignation of Shinichi Nishikubo. He was more than Skymark's CEO and largest shareholder: he took a deeply personal vested interest and ran the company top-down. Skymark without Mr Nishikubo is a scenario many employees could not have imagined. But this is an opportunity.
Skymark now has a tabula rasa. Mr Nishikubo used Skymark to crusade against legacy incumbent airlines, creating friction when there became a need last year to have a logical codeshare with those same incumbents. Initially a revelation in the Japan market as a successful LCC, Mr Nishikubo's involvement, such as personally making Skymark's IT systems or deciding on the A380 purchase, sacrificed Skymark's strategic value and chance for development. Skymark must now decide what its future is, and without Mr Nishikubo Skymark there is no predestined direction. Routes will be cancelled and the A330s withdrawn. Skymark has a foundation to build on, and finally being able to create a sound strategy should rightfully see investors line up.
Osaka Kansai-based LCC Peach Aviation is looking to consolidate its position in the Japanese LCC market. Although it is the second largest (Jetstar Japan is first), Peach is the only known profitable LCC. Peach is expected to open a base at Tokyo Narita, becoming the fourth LCC with an operation there. Skymark has pulled down its Narita base following weak demand.
At Narita, Peach - part owned by All Nippon Airways - will compete with Jetstar Japan but also Vanilla Air, which is wholly owned by ANA. Peach appears to be taking the view the market is competition between itself and Jetstar and with Vanilla Air something of a distraction. No doubt the ANA strategy is confused – a conflicted scenario that was inevitable from its involvement in two domestic LCCs in Japan.
Peach will further boost its position by operating international flights from Tokyo Haneda, becoming the first new LCC at Haneda. Peach already operates international services while Jetstar Japan will only open its first international route on 28-Feb-2015. Meanwhile Spring Airlines Japan, with low yields and load factors, has increased its capitalisation while it waits to serve more lucrative international destinations.