Tokyo Notes

ANA Eyes Budget Market

Japanese airline ANA looks to branch out into the low-cost domestic and regional market.

With Japan Airlines (JAL), the flabby former undisputed champion of Japanese aviation, staggering on the ropes, the leaner All Nippon Airways (ANA) is looking to flex its muscles and switch up attack.

On Thursday, ANA announced that it planned to launch a budget carrier by the end of the year to compete with low-cost foreign airlines.

The yet-to-be-named carrier, according to various reports, will initially fly five jets on eight domestic and short-hop routes across east and south-east Asia, slashing between 30 and 70 percent on some sky-high domestic journeys. ANA is looking to make flying a cheaper alternative to the high-speed Shinkansen rail network, and is rumoured to be planning a 5,000 yen ($60) single fare between Tokyo and Osaka (where it will base the airline at the white elephant Kansai International Airport). ANA will hold a 39 percent stake in the carrier, with a third of the funding coming from a Hong Kong-based investment group.

JAL, the former state airline, and ANA have dominated the Japanese aviation industry since their establishment in the early 1950s, with start-up carriers facing many barriers to breaking the virtual duopoly.

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JAL racked up huge profits during Japan’s bubble era in the 1980s and early 1990s when a decadent public went in droves on package tours to sunspots such as Hawaii or Guam. But after too much of a good thing, the airline began to develop a middle-aged spread of huge loss-making investments, a bloated workforce (and ensuing elephantine pension burden), and a string of unprofitable routes. While several Liberal Democratic Party administrations coddled the carrier, it finally crash-landed in January when it filed for bankruptcy protection with combined group liabilities of 2.32 trillion yen (about $27.5 billion), making it Japan’s biggest postwar nonfinancial corporate failure.

On August 31, JAL’s new management team submitted a turnaround plan to shed some of its extra pounds. It intends to retire 103 of its 258 aircraft, cut 39 domestic and 10 international routes, reduce its workforce by a third over the next year, and sell or liquidate hotels and other sandbags weighing it down. But according to an analysis piece in the Yomiuri Shimbun, its recovery is heavily dependant on its creditor banks providing fresh loans and waiving debts.

No doubt some ANA board members and shareholders will take pleasure in JAL’s current troubles, especially with the recent news that ANA has clipped JAL’s wings to become the nation’s largest carrier in terms of passenger volume and cargo. About 3.65 million people flew on ANA aircraft in June, up 10 percent from the same month the previous year, with a reported 30 percent growth in international travelers.

ANA is also upping the ante with new services to a number of overseas locations in Asia and North America from the new international terminal at Tokyo's Haneda Airport that opens next month. Its budget airline announcement must also be a blow to JAL, which is also said to be considering setting up a no-frills carrier.

While cheaper flights could provide cheer during stagnant economic times to a public with increasingly slimmer wallets, many must wonder why they have been so long in coming.

Aided by deregulation, the likes of Ireland’s RyanAir and America’s JetBlue Airways have been bussing passengers to destinations in Europe and the Americas for a decade or longer, with dozens of similar start-ups emerging across the world in recent years. Japan does have a number of small low-cost carriers (examples include Skymark, Air Do and Skynet Asia), but routes are still limited and their fares are often not that much lower than on conventional services.

Expanding the number of budget flights would allow more people to travel cheaply in and out of Japan (ANA is clearly eyeing an increase in Chinese visitors) and could boost the economy through increased tourism and business travel. Yet extortionate landing charges at Japan’s airports (slots at Kansai are reportedly 12 times more expensive than at London’s Heathrow), are pricing many potential carriers out of the market.

While the nation is dotted with almost 100 airports, many of these are underused and losing money. They should consider reducing landing fees (perhaps with government assistance) and encourage more low-cost carriers to fly their way.

The nation’s economy could benefit if more competitors were in the ring taking on the two heavyweights – it would certainly help keep them at a fighting weight.