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Jetstar Japan is a joint venture between Qantas Airways, Japan Airlines and Mitsubishi Corporation. The carrier operates from its main base at Tokyo Narita International Airport with a fleet of A320 aircraft. The LCC operates domestic services to cities including Osaka, Fukuoka, Okinawa and Sapporo. Jetstar Japan's aircraft are sourced from affiliate Qantas Airways, with the fleet set to grow to 24 aircraft within its first few years of operation.
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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Whisper it quietly, but Japan's low-cost carriers appear to be cannibalising traffic at All Nippon Airways and Japan Airlines. ANA and JAL carried 19% fewer passengers between Osaka and Sapporo in 2012 than 2010 despite the overall market growing 20%. This goes against the story all parties tell that LCCs are only increasing, not cannibalising, volumes. The cannibalisation is confined, so far, but there are signs of concern. ANA and JAL saw reduced traffic in 2012 on overlapping LCC routes despite overall 2012 traffic being the strongest in nearly five years.
ANA and JAL are responding differently to LCCs. The nuances reflect their wider outlook – and fears. JAL is more aggressively cutting capacity on overlapping LCC routes while ANA is sometimes growing. In the medium-term, JAL expects to cut overall domestic capacity in line with the country's shrinking nature while ANA plans growth. JAL's cuts have been rewarded with higher load factors while ANA's growth has seen lower load factors, but all load factors need improvement.
All Nippon Airways chose the name "Vanilla Air" for its LCC in part for Vanilla Air's popularity, simplicity and inoffensive connotation. Those characteristics will be the initial theme for Vanilla Air's route network, as the carrier largely sticks to the network created by AirAsia Japan, the JV that will end operations in Oct-2013 before re-branding to Vanilla Air in Nov-2013.
Vanilla Air's initial route network from its Tokyo Narita hub will include Okinawa, Sapporo, Seoul Incheon and Taipei Taoyuan. Vanilla intends to later launch services to beach markets like Guam and Saipan. ANA ended Guam services in 2009 and has not served Saipan in recent history.
A later phase could see Vanilla Air serve Indonesia and other points within eight hours' flying, which will presumably require an aircraft other than the A320 Vanilla plans to launch with. Vanilla has flagged that A330 operations could be a possibility in the future. This raises concern as Vanilla Air will already be challenged to achieve a strict cost base and have efficient operations. With plans to offer free checked luggage to all passengers, Vanilla Air may be morphing from a low-cost carrier to a hybrid leisure carrier. But, unless a clear vision is specified from the start, erosion of low cost objectives will be inevitable.
Jetstar Japan has secured its position as the largest of the low-cost carriers that launched in Japan in 2012. But this size has come at a price. Jetstar Japan perhaps under-estimated the limitations posed by its home base Tokyo Narita's curfew.
While Jetstar Japan's punctuality has been in line with global averages, Japanese legacy carriers have created expectations in the market with extraordinarily high on-time performance and low cancellation rates. While that makes ANA and JAL super reliable, it also inflates their cost base. But the market, in an all too typical tale, has demanded the the same reliability but with the lower fares. Another growing pain was issues over safety procedures, leading it to voluntarily put a hold on growth.
But now Jetstar Japan has adjusted to its market and is looking forward, as CEO Miyuki Suzuki told CAPA's recent LCCs and New Age Airlines Summit in Seoul. An Osaka Kansai base and international operations have been put on hold. Jetstar Japan has been handed a considerable opportunity by the situation at AirAsia Japan, also based at Narita. AirAsia Japan will suspend operations in Nov-2013 and re-launch in Dec-2013 as Vanilla Air, bringing to ANA not just a new name but new strategy as Vanilla, like half-sister Peach Aviation, places more emphasis on international flights than on domestic. That leaves the new LCC domestic market to Jetstar Japan. Its next competitor, Skymark, will be distracted in 2014 as it takes A330s and A380s, moving away from being an LCC to more of a hybrid operation.
Air Do, based in the Hokkaido region in Japan, is an unusual type of carrier and perhaps one that could only exist in Japan’s atypical domestic environment. It enjoys a strikingly synergistic relationship with All Nippon Airways and leverages a valuable position at slot-constrained Haneda.
Air Do has challenges: Its traffic is highly seasonal, relying on passengers to flee the scorching summer for Hokkaido’s cooler weather. Air Do’s fleet of 767s allows it to target Tokyo-Sapporo, the world’s largest air route, while 737 classics serve thinner points in Hokkaido. But this brings considerable inefficiency to a 13-aircraft fleet, Air Do CEO Sadao Saito told CAPA’s LCCs and New Age Airlines conference in Seoul. Air Do's CASK and yield are lower than at ANA, and Air Do creates efficiency with load factors typically 10ppts higher than at ANA or JAL on overlapping routes. Air Do generally posts profits but with large variance.
Japan's Peach Aviation has reported an operating loss of JPY900 million (USD10.8 million) in FY2012, its first full year of operations. At a negative 6.3% margin, this is a not unacceptable performance from such a young start-up. Peach intends to have a significant improvement in FY2013 by posting an unspecified profit. This is far better performance than AirAsia Japan, which recorded about USD33 million of losses. Jetstar Japan has not released financial results.
Peach's CASK, according to CAPA calculations, stands at USD10 cents – 31% lower than ANA but 29% higher than Skymark, although increasing scale and diminished start-up costs will see CASK reduce. A very approximate CASK calculation for AirAsia Japan suggests its CASK is higher at USD11.6 cents, which combined with lower yields and load factors underscores its difficulties that culminated with AirAsia pulling out. Peach has been the highest yielding of Japan's new LCCs, although understandably well below ANA and JAL. Of the LCCs, Peach has shown strong performance in on time and cancellation rates, critical in punctuality-minded Japan. Its utilisation rate is also the highest.
Vanilla Air will become the new name of AirAsia Japan from 01-Nov-2013. The re-branding exercise follows the Jun-2013 dissolution of the joint-venture between AirAsia and All Nippon Airways that established AirAsia Japan, which commenced flying on 01-Aug-2012. ANA has taken over AirAsia's 49% stake to have complete control and will guide Vanilla Air with 100% management control on its re-launch, ANA's first time establishing a LCC by itself. AirAsia Japan will pause operations at the end of Oct-2013 and resume flying in late Dec-2013 under a new reservation system and with a new fleet of A320s; AirAsia Japan's fleet will be returned to AirAsia.
Vanilla Air plans to have 10 A320s in 2015, making it smaller than Jetstar Japan or Peach. Its domestic and international route network will be similar to AirAsia Japan's but include the leisure beach markets of Guam and Saipan. Vanilla Air will take up AirAsia Japan's Tokyo Narita base, maintaining a split as ANA's partially-owned LCC Peach is based at Osaka Kansai. Full network details will be released in Sep-2013 with sales to commence in Nov-2013 for a late Dec-2013 launch. Before then, ANA has its work cut out to almost create a carrier from scratch as it gets cut off from the AirAsia systems it had been riding on.
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