Osaka Kansai International Airport

South Korea-Japan airline market sees structural change from LCCs, political tension & weakening yen

The once tidy and highly profitable Japan-Korean market is undergoing fundamental change – accompanied by double-digit yield declines.

It is difficult to identify precisely which ingredients are provoking the greatest change in the South Korea-Japan airline market. First, in mid/late 2012 the market was transformed as new airlines entered and others added capacity; these were mainly LCCs with unprecedented low fares. Then late 2012 saw Japanese outbound tourist numbers fall sharply due to political tensions between South Korea and Japan over largely uninhabited but disputed islands.

In 2013 the Japanese outbound market remains soft as the yen weakens. While the international political situation will eventually cool down, the Korean response has been to target individual tourists rather than tour groups, a change that was long overdue in any event.

But the difference now is that those individuals have LCCs to provide for their needs. These carriers are here to stay, and they will grow – for the usual reasons, but also due to the weakening yen. While the economic and political factors favour the Korean side, it is the Japanese side that has a larger share of the market.

Low-cost airline Peach boldly pursues Japan-Southeast Asia one-stop market using new Okinawa base

Japan’s Peach Aviation is looking at several potential markets in Southeast Asia as part of a new base in the southern Japanese island of Okinawa. The low-cost carrier is bullish on the Okinawa market, which it already serves from its Osaka Kansai base.

Peach is planning domestic expansion at Naha on Okinawa, starting with service to Shin Ishigaki in Sep-2013. It aims to start international operations at Naha as soon as the airport’s low-cost terminal, which opened specifically for Peach in Oct-2012, is upgraded to handle international flights.

Peach expects the Okinawa base will attract a high volume of transit passengers heading from its various destinations in Japan to Southeast Asia. But at least for now Peach plans to rely on self-connections rather than offer a connecting product. Peach already sees a large number of self-connections coming from its international destinations, particularly Hong Kong.

Hawaiian Airlines endures short-term pain to secure, it hopes, successful longevity

Hawaiian Airlines faces a challenging time during 1H2013 as its efforts to diversify outside of the Hawaii-US west coast market during the last few years need more time to bear fruit. Its ambitious long-haul expansion is accompanied by the introduction of a new inter-island subsidiary and the reworking of other portions of its inter-island network.

All of the changes Hawaiian is undertaking or planning to introduce are intended to bolster efforts to preserve its profitability, which has been fairly consistent during the last few years. But in the near future the carrier is facing pressure as its new long-haul Asian markets spool up and increases in competitive capacity create pressure in its trans-Pacific service to the continental US.

While the strategy Hawaiian is adopting to persevere in the long-term is solid, the airline might be attempting to accomplish too much too fast, which in the shorter-term is creating pressure on yields and unit revenues.

Taiwan’s TransAsia Airways' growth Part I: Expanding role in Northeast Asia-Southeast Asia traffic

Part one of this report on the growth strategy for Taiwan's TransAsia Airways looks at how the carrier is seeking a greater role in Northeast Asia-Southeast Asia connecting traffic. To facilitate a greater ranger of destinations – the carrier's sole Southeast Asian point is Singapore – TransAsia plans to open service to Bangkok as well as destinations in Indonesia and Malaysia. In Northeast Asia, a Tokyo service may be added while frequency boosts will occur at existing Japanese destinations.

One Asian market TransAsia is not interested in is Taipei-Hong Kong, the world's most populous international route and which is currently experiencing over-capacity following the opening of cross-Strait flights between Taiwan and mainland China, a market TransAsia is present in. The carrier's new A330s, its first widebodies, will initially be used on blue-chip regional routes to raise awareness and also where demand justifies their presence.

Hawaiian Airlines looks to rebound from tough competitive market conditions in 2H2013

Hawaiian Airlines believes industry-wide capacity cuts and decreases in its own unprofitable supply will allow the carrier to post a stronger performance during 2H2013. This is after currency pressures, a somewhat too ambitious expansion into inter-island markets and competitive pressure on its routes to the US mainland dulled the carrier’s 4Q2012 performance.

The company recorded a USD3.4 million loss during the last three months of 2012 compared with a USD21 million profit for the year prior.

Despite the decline in profits Hawaiian recorded a 14% increase in top-line revenues to USD493 million during 4Q2012; but a 20% jump in operating expenses to USD481 million drove operating income down 64% to USD12 million.

Peach holds strong, AirAsia Japan drops CEO & Jetstar Japan reduces Kansai; Nagoya new battleground

AirAsia Japan and Jetstar Japan are about six months old now and already there is significant change at the fledging carriers: AirAsia Japan has switched CEOs after sagging performance while Jetstar Japan will reduce its second base at Osaka Kansai, the home of Peach Aviation, Japan's first new LCC, which launched in Mar-2012 - suggesting Peach has efficiently maintained its presence in Japan's second-largest metropolitan area.

Peach launched with services to a number of secondary cities whereas AirAsia and Jetstar entered only trunk routes. But now Jetstar will launch some secondary city routes of its own, suggesting an evolving route network strategy as well as responding to the market with agility, which airlines – especially in Japan – do not typically have strength in.

Finally, Jetstar looks as if it will steal AirAsia's thunder by opening a base in Nagoya, Japan's third-largest metropolitan area. AirAsia since nearly its launch has talked of a Nagoya base, making it likely Asia's two leading LCC groups will continue to battle head on in Japan.