ANA and First Eastern to form “the first Japanese low cost airline”
All Nippon Airways and First Eastern Investment (a self-proclaimed "pioneer of direct investments in China") today announced the signing of a MoU to establish what they claim will be the "first Japanese low cost airline". The decision is another part of ANA's strategy to become the dominant Japanese carrier while rival, Japan Airlines, reorganises out of bankruptcy protection. ANA overtook JAL as the largest Japanese carrier in Jun-2010 and plans to boost international flights by 15% in the current fiscal year after an increase in capacity at Tokyo Narita and Haneda Airports.
(Despite ANA's claim, LCCs have been established in the Japanese domestic market since the mid/late-1990s (eg Skymark Airlines, Air Do), as well as new entrants last decade (StarFlyer, AirNext, Ibex, Fuji Dream and SkynetAsia. Overall, the market environment in Japan does not currently favour LCC operations, with LCCs often being described more as "low-fare carriers", due to the high cost environment in that country, with these operators being constrained by a few key factors).
ANA to hold 39% stake; First Eastern 33.3%; other Japanese investors the rest
The new company will be established in 2H2010 with Japanese investors holding a 66.7% stake, of which ANA will hold a 39% stake, while First Eastern will hold the remaining 33.3% stake, the maximum foreign ownership currently permitted for an airline in Japan. The new company's air transport operations are expected to commence in 2H2011.
The LCC will operate both international and domestic short-haul routes out of Osaka Kansai International Airport and will operate independently from ANA.
Announcing the decision, ANA President and CEO, Shinichiro Ito, commented: "Under our corporate vision of becoming the number one airline group in Asia, ANA has been steadily working to substantially improve its network between Japan and Asia. Regardless of the intense competition in the air transportation industry, we anticipate an increase in passenger traffic demand in East Asia, and came to the conclusion that a low cost carrier would be the right approach to compete effectively in this market. We are pleased to partner with First Eastern and to work together to establish the first low cost carrier in Japan."
First Eastern Chairman and CEO, Victor Chu, added: "I am delighted to invest alongside ANA to establish the first low cost carrier in Japan, especially as my family has had strong ties with Japan for over 50 years. First Eastern has been pioneering private equity investments from Hong Kong for over twenty years and we are confident that our unique regional expertise and networks will contribute significantly to the success of our new joint venture with ANA."
Details of ANA LCC plans
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Area |
Full Details |
|---|---|
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Launch |
The new airline will be established at the end of 2010 and commence air transport operations in 2H2011 |
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Ownership |
Japanese investors will hold 66.7% in the carrier (of which ANA will hold less than 40%) while First Eastern will have a 33.3% stake (less than 1/3 of the total stake). |
|
Capitalisation/Profit outlook |
ANA VP Corporate Planning, Yuji Hirako, stated start-up capital in the venture will be between JPY10 billion and JPY15 billion (USD119 million-179 million). He added: "We hope to make a profit from the third, fourth or fifth year" |
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Branding |
The airline will not operate under the ANA brand or under the "NH" code. |
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Base |
The carrier will be based at Osaka Kansai International Airport, with ANA VP Corporate Affairs, Shinichi Inoue, commenting: "We chose Kansai airport for several reasons. It's a 24-hour airport, has domestic and international flights and has excess capacity." Following ANA's decision, Kansai International Airport is expected to proceed with a plan to invest approximately JPY10 billion to construct a new terminal building exclusively for the use by the new firm's passengers, with an aircraft parking apron and a fueling facility. |
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Management |
The airline will be managed separately from ANA. It has been reported that the carrier would appoint an experienced international LCC executive to head the company although these details have not been confirmed |
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Domestic destinations/fares |
The carrier stated it plans to "stimulate new demand through pricing that is competitive to other low-fare transportation providers such as bus and train operators". It has previously been reported in the media that the carrier may charge JPY5,000 (USD60) - compared with JPY14,050 charged by Central Japan Railway for Nozomi Shinkansen services - for services between Kansai Osaka and Tokyo Narita. The carrier may also offer Kansai-Fukuoka and Kansai-Naha services for roughly JPY5,000 and JPY8,000 (USD95). Other potential destinations include Sendai, Niigata, Nagasaki and Kagoshima. |
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International operations |
The carrier similarly stated it plans to "stimulate demand through pricing that creates substantial differentiation with existing airlines". The carrier will reportedly offer service international to a variety Asian destinations, including China and South Korea. |
| Low cost structure |
The carrier plans to offer the following low cost structure:
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| About First Eastern | First Eastern is a Hong Kong-based investment group in the field of direct investments in China. Founded by Victor Chu in 1988, First Eastern has offices in Hong Kong, Beijing, Shanghai, Dubai, and London. First Eastern and its associates have invested into over 100 projects in China covering infrastructure projects, light industries, real-estate development and financial services, generating over USD7 billion of total investments for these projects. |
JAL considers creation of LCC; Japanese Government supports the idea
At the end of Aug-2010 and as part of the carrier's reorganisation programme, JAL President Masaru Onishi stated the carrier would also consider the creation of an LCC, commenting: "There is a lot of interest in low-cost carriers and we will research the issue and decide how to proceed". He however added that nothing concrete has yet been decided on the carrier's plan.
Mr Masaru added that the proposed LCC would be a "Japanese-style low-cost carrier" although it would need to avoid the high operating cost structure characterising Japan's carriers, which have long-standing problems such as high labour costs.
Meanwhile, Transport Minister Seiji Maehara said, in reference to the potential LCC: "If we don't create this new company inside the group, it will become more fragile". The Nikkei has subsequently reported that the establishment of an LCC was added to the carrier's restructuring plan "at the last minute at the Transport Ministry's request".
2010 - a year of change for Japanese aviation
2010 has proven a decisive year for Japanese aviation, with the impact of the JAL bankruptcy expected to persist over the next few years. JAL will eventually emerge from bankruptcy with a lower cost base and a more efficient operation, and the establishment of LCC subsidiaries by JAL and ANA are also likely to shake up the market.