Jetstar Japan receives AOC and plans for 3-Jul-2012 launch as Narita to build new low-cost terminal


Jetstar Japan, a low cost airline joint venture between Qantas subsidiary Jetstar and Japan Airlines, received its Air Operator’s Certificate on 06-Apr-2012 from Japan’s regulatory authority the Ministry of Land, Infrastructure and Transport (MLIT). The AOC will ensure Jetstar can achieve its recently announced launch of 03-Jul-2012, significantly ahead of the Dec-2012 launch date given when the carrier was announced last year. Next Jetstar Japan will commence proving flights and start ticket sales.

Jetstar Japan is one of three new LCCs to commence operating this year in Japan. All Nippon Airways’ LCC subsidiary, Peach, commenced operations on 01-Mar-2012 between Osaka Kansai and Sapporo New Chitose Airport. ANA also has another JV subsidiary, AirAsia Japan, due to commence operating in Aug-2012.

Meanwhile Narita Airport has announced it will build a dedicated LCC terminal, presumably to offer a more attractive proposition to the new industry. Although the airport previously discussed a LCC terminal, it offered no firm commitments or details. The new LCC terminal is expected to open in 2015 with other facilities available in the interim for both domestic and international flights.

A remarkable decade in prospect for Japan after years of stagnation

The current flurry of activity in new airline entry is in dramatic contrast to the deadly inertia that characterised the Japanese industry in the first decade of this century. With a sluggish JAL-ANA duopoly in place and limited capacity at the capital’s focal airport, Narita, nothing was to happen until the “big bang” when capacity-strapped Narita and Haneda Airports were to receive extensions in 2010.

But the big bang was even louder than expected. Japan Airlines surrendered to bankruptcy in Jan-2010. The subsequent forced reduction in size of JAL, combined with an associated open skies agreement with the US then transformed the attitudes of regulators and the industry, at the same time as a glut of Tokyo airport capacity completely changed the Japanese industry scene.

And, after largely ignoring for years the explosion of LCCs elsewhere in the region, 2011 was suddenly characterised by announcements of no less than three new LCCs, two of them JV subsidiaries of ANA and one for JAL. (The main exception to date had been the still-small and independent domestic operator, Skymark, currently the only Japanese airline with a respectably low cost base relative for the region.)

Jetstar will now be in a position immediately to begin proving flights prior to commercial operations. Importantly, this means the company can soon begin selling tickets, allowing it to help offset the numerous startup costs. Initial destinations are Tokyo Narita, Osaka, Sapporo, Fukuoka and Okinawa.

See related article: Jetstar Japan brings forward launch date to Jul-2012 as Asian LCCs swell to 50 by end-2012

Conscious of the impending arrival of AirAsia Japan, Jetstar is keen to gain a competitive edge in the timing of its market entry. This approval will be a positive for it. The ANA/AirAsia subsidiary is due to commence operating in Aug-2012 and a month’s lead will provide a competitive advantage.

Monetising the LCC brand name is becoming the name of the game

The Jetstar name has gained remarkable brand recognition in Japan in the relatively short time the Australian-based parent has been operating to the country. This familiarity would have been a positive factor in accelerating the approval process.

As Jetstar CEO, Bruce Buchanan noted, “as a group of airlines operating in 16 countries, Jetstar has the experience to work closely with regulators and meet operational requirements in various jurisdictions….Delivering our innovative model over the last five years in Japan through long haul services has given us a head start in preparing for our first domestic flights.”

This growing reputation will undoubtedly be a plus for Jetstar – and for AirAsia – as these super brands multiply across the region.

Just last month, on 26-Mar-2012, Jetstar announced another new JV, this time with China Eastern, to be based in Hong Kong (it already has similar cross-border operations in Singapore and Vietnam). This entity will automatically attract investor attention, allowing both partners to sell down what is effectively simple monetisation of the Jetstar (and China Eastern) brand, as AirAsia has done and continues to do. It is one of those increasingly sophisticated phenomena arising out of the astonishing changes occurring in the Asian region at present.

See related article: Qantas expands Asian strategy with Jetstar Hong Kong venture with China Eastern

Meanwhile a questionable decision by Narita to build a new LCC terminal

Coincidentally, Narita Airport also announced plans to establish an LCC-specific terminal to be built by 2015. This is to be developed to the north of Terminal 2, which will meanwhile cater for the low cost airlines’ international operations. A separate facility will cater for domestic operations in the interim.

This may well be a response to concerns that the airport’s notably high charges create a very unfriendly environment for low cost airline operations, especially now that nearby Haneda, with somewhat lower charges, is a serious competitor for this new trade – as is Tokyo’s low cost airport, Ibaraki. A new dedicated terminal would presumably be able to offer a lower level of service (already Narita says the LCC terminal will not have jetbridges) and therefore be able to offer a lower cost profile for its LCC clients. It will certainly send a positive message to LCCs that Narita is in business for the new era.

But, as is often the case with Japan’s somewhat isolated approach to the industry, the move may well be out of step with recent airport and airline thinking. The priority for many, increasingly hybridising LCCs, is to maintain the ability to connect with other airlines.

For example, Kuala Lumpur International Airport, home of AirAsia, the region’s largest independent LCC, is establishing a new LCC terminal that will facilitate transfer of LCC passengers (the existing facility already offers this in limited form for AirAsia's "Fly-Thru" service). Following last year's AirAsia-Malaysia Airlines share swap, plans were announced to better connect the LCC terminal with the main KLIA terminal, although specifics are still to be worked out on the complex project that has taken very public twists and turns. But there is no doubt of the new connectivity needs that the evolving LCC models require.

And Singapore’s Changi, one of the first to adopt a dedicated LCC terminal, has found that it cannot cater to the needs of its main clients. Jetstar, for example, has preferred to avoid the dedicated low cost facility there and to use the main terminal, to allow it to interline and connect more effectively with the full service airlines with which it connects.

Last month, Changi took the decision to demolish its relatively new low-cost carrier terminal and to build a larger hybrid terminal in its place, even though it meant that the airport’s total handling capability would shrink by 10% during what could prove to be a challenging four-year period before the new hybrid Terminal 4 opens. But the Changi decision was taken because the airport’s experience with the LCC evolution over the past five years has been that international LCCs – particularly the full service airline subsidiaries – are looking increasingly for connectivity with full service airlines that does not exist at dedicated low cost terminals.

Hopefully Narita will be able to profit from the experience of these other leading airports. Critical to its success of having a separate LCC facility is how well it connects to main terminals and public transportation, a matter not to be underestimated in a country whose superb and clockwork public transportation is popular.

See related article: Singapore Changi’s decision to close budget terminal could backfire as need for third runway grows

Next: AirAsia Japan to make its move

As the Japanese scenario unfolds, 2012 promises an exciting environment for new – and older – airlines. AirAsia, and its JV with ANA, will soon make a similar announcement towards its own operations. The revolution is well under way although there will be casualties before it has unfolded much further.

This is still early days. But the overall market upside potential remains vast.

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