LCCs finally fly Japan's skies

Year 2012 is said to be the first year of low-cost carriers (LCC) in Japan and the curtains have finally opened for this new market segment when Peach Aviation kicked off operations on March 1. Two other budget airlines, namely, AirAsia Japan and Jetstar Japan, are also set to debut in the Japanese market this summer. With network carriers forced to seriously compete with LCCs, the advent of these low-fare carriers will very likely change the skies of Japan. Expectations are high for new demand in terms of passengers, but there are also fears of a contraction in supply in terms of cargoes.

Peach Aviation has thus far launched three leased A320 carriers. Its first flight, the MM0101, departed from Kansai International Airport at 7:00AM on March 1 and was scheduled to land at the New Chitose Airport in Sapporo at 8:50AM on the same day. Starting March 1, Peach Aviation will operate three roundtrip flights per day on the Kansai-New Chitose route and four daily flights in the Kansai-Fukuoka route. Now with Kansai as base, the company is set to launch flights to Nagasaki on March 25 and to Kagoshima on April 1, with two roundtrip flights each to be offered in both routes. The carrier will also venture into international routes by summer this year, with its network expected to expand to five domestic routes and three international routes by then. Its first international flight is scheduled to commence on May 8 to Incheon Airport in South Korea, to be followed by flights to Hong Kong on July 1 and to Taipei on September 30.

Meanwhile, AirAsia Japan will position Narita Airport as the base of its flights. The company plans to launch services in the Narita-New Chitose, Narita-Fukuoka and Narita-Naha routes this coming August, and in the Narita-Seoul (Incheon) and Narita-Pusan routes in October. It will initially operate three A320 aircrafts (which can seat 180 people), with a fourth plane slated to join its fleet in December. Five to six aircrafts are also due to be received by the carrier within next year, thereby boosting its fleet to approximately 10 units. AirAsia Japan plans to build a 30-aircraft fleet within the next five years.

As for Jetstar Japan, the company initially set Narita as its base of operations. However, Miyuki Suzuki, its president, announced at a press briefing recently that the company is considering launching flights from airports other than Narita. With three A320 aircrafts, Jetstar Japan will successively kick off flights to Narita, Kansai, Fukuoka, New Chitose and Okinawa beginning July this year. It will also embark upon flights to short-distance, neighboring countries. AirAsia Japan and Jetstar Japan have not yet disclosed their flight frequencies.

[Will emersion of LCC be a disadvantage for cargoes?]

The foray of new carriers into the market will significantly alter the competition. But while this is expected to stimulate demand for the airline industry through the offering of low fares, it is also envisioned that a certain number of the passengers that will be captured by these LCCs will come from the network carriers. Hence, this will likely lead to the reduction in existing flights and downsizing of fleets for the latter.

In the case of LCCs, their main point is the shortening of the turnaround time. According to the schedules of LCCs, this turnaround time will basically be 40 minutes for domestic flights and 40 minutes for short-distance international flights. Such short period of time will make the loading and unloading of cargoes quite difficult, however, so many of the carriers do not handle cargoes in their flights since they do not expect commensurate profits from such services. In fact, Air Busan and Eastar Jet, which both operate from Narita, do not transport cargoes in their flights.

The above three new LCCs are at that stage when they are still studying about cargoes. Even if they are able to haul cargoes, they will probably be faced with limitations on size and cutoff time. The supply of space in domestic routes has been significantly shrinking in recent years due to fleet downsizing and it is highly probable that this trend will pick up more steam in the future.

With regard to international flights, the new LCCs are targeting services with flight time of four hours at the most. Operating flights to China is quite difficult since the country is not advancing an open sky policy, so it seems that the LCCs are contemplating on launching new or reinforcing existing flights to South Korea, Taiwan and Hong Kong. In the case of Peach Aviation, it will initially fly to Incheon once daily, but the flight frequency will increase to three times per day beginning July this year. Flights in the Kansai-Incheon route currently total 15 roundtrip flights per day for five airline carriers. If the existing carriers in the route do not cut their flights, then the number of flights will grow to 18 roundtrip flights daily.

Narita is not included in the bilateral liberalization framework, so it is rather unlikely that the international flights at Narita will drastically grow in number compared to Kansai International Airport. However, in/after 2013, when bilateral liberalization comes into force and the number of flights to/from the airport reaches 270,000 flights, it is projected that the number of flights operated by LCCs in the short-distance Asia routes will grow by a wide margin.

As for long-distance routes, even LCCs would need time to load food and other cabin service goods, so they can secure enough time to load or unload cargoes. For the time being, however, LCCs will mainly focus on short-distance routes, so it is hard to conceive that this will generate merits for cargoes. While there are certainly LCCs that have disclosed their intention to venture into long-distance flights similar to the case of AirAsia X and Jetstar, as well as Cebu Pacific Air, LCCs foraying into long-distance routes en masse is still probably a long way off into the future.

At present, the LCCs (with regular flights) operating in Japan are Jeju Air (South Korea), Air Busan (South Korea), Jin Air (South Korea), Eastar Jet (South Korea), T'Way Airlines (South Korea), Jetstar Asia (Singapore), AirAsia X (Malaysia), Cebu Pacific Air (Philippines) and Jetstar Airways (Australia). China's Spring Airlines also operates in Japan through program charter flights.