ANA launches first budget carrier in Japan

JAPAN - With the Thursday launch of a new low-cost carrier, Peach Aviation, and the planned launches of two other low-cost carriers this summer, this year is expected to mark the beginning of an era of budget air travel in Japan.

The move likely means more intense competition among airlines, including conventional ones, as decreases in airfares - considered to be relatively high in Japan - may accelerate.

The first, near-capacity flight of Peach, based at Kansai Airport, took off with 162 passengers bound for New Chitose Airport near Sapporo at 7:29 a.m. on Thursday.

A 58-year-old company employee who lives in Osaka said he was happy with the start of Peach.

"The price is attractive. I used to fly to Sapporo and other cities about three times a year to see soccer games and other events. But with Peach I can fly at least twice as often," he said.

One-way fares from Kansai Airport to New Chitose and Fukuoka airports start at 4,780 yen and 3,780 yen, respectively, about one-half those major airlines.

"We are confident of our safety and affordability. Our launch begins a new era in the industry. We want people to enjoy their journey in the sky, which is no longer [a luxury] out of their reach," said Shinichi Inoue, chief executive officer of the airline, before the first flight.

The airline is partly owned by All Nippon Airways, but there are many differences compared to conventional carriers.

At Kansai Airport, there are no check-in counters but six automated check-in machines for passengers. They will be located in a commercial building until a terminal for budget airlines opens in autumn.

Peach uses only small, fuel-efficient Airbus A320s and the number of seats has been increased to 180 from the standard 166 by narrowing the space between seats.

Passengers have to pay for drinks and food on flights and are charged for baggage.

Regarding safety, Peach receives technical assistance from ANA. Passenger Shigeyuki Tanaka said the quality must be good if they follow ANA's guidelines.

Peach plans to begin service between Kansai Airport and airports in Nagasaki, Kagoshima and Naha by the end of the year. The airline also hopes to start service between Kansai Airport and South Korea, Hong Kong and Taiwan.

In July, another budget carrier, Jetstar Japan, backed by Japan Airlines, plans to launch flights. ANA affiliate AirAsia Japan aims to start operations in August.

There is no doubt domestic airfare wars will intensify with the entry of the three low-cost carriers. The three firms themselves are expected to be forced to compete directly on the Narita-New Chitose and other routes that are expected to become popular.

Jetstar Japan CEO Miyuki Suzuki is not afraid of the competition. She said Jetstar promises to not lose the price war.

Competition between the budget carriers and Skymark Airlines, a startup airline independent of the major Japanese airlines ANA and JAL, is already heating up.

Skymark--which does not call itself a low-cost carrier--began flights to and from Kansai and Narita airports last autumn in anticipation of the launch of the three budget carriers.

Skymark cut its cheapest one-way tickets between Tokyo and Fukuoka to 3,800 yen from the initial 5,800 yen after Peach unveiled its ticket prices.

Airlines need new strategies

Major airlines that have invested in low-cost carriers will be forced to differentiate their markets from those of LCCs, which are certain to grow in popularity in Japan.

LCCs are hugely popular in the United States and Europe. According to the International Air Transport Association's 2010 ranking of the world's airlines by their number of passengers, Ryanair of Ireland came first among international airlines, while in the U.S., Southwest Airlines was the largest domestic carrier. Both are LCCs.

In Europe and North America, LCCs account for about 30 percent of all airline seats.

In Japan, the government and airline companies are ready to aggressively promote LCCs as a trump card to boost the airline industry.

At Narita Airport, the number of arrival and departure slots will increase to 300,000 by fiscal 2014.

Kansai Airport and other smaller airports facing financial difficulties are hopeful the expected demand created by LCCs will boost passenger numbers.

The companies operating Kansai and Narita airports plan to build terminals for LCCs.

By providing simple facilities for LCCs, such as those that do not have boarding bridges, the airports will be able to charge lower fees than conventional terminals.

The Land, Infrastructure, Transport and Tourism Ministry will undertake deregulatory measures that LCCs have been requesting so costs can be cut.

De-regulation will make it possible for LCCs to shorten the parking time of planes by allowing passengers to remain aboard aircraft when they are being refueled. This will enable LCCs to increase profitability by extending airplane operation hours.

But many problems must be addressed for Japan's LCCs to enjoy success.

Difficulties include the aircraft fuel tax imposed in Japan--which is rarely imposed internationally--and landing fees. The international landing fee at Narita is about two to three times the fee charged for regular planes at South Korea's Incheon Airport.

Japan's three LCCs--Peach Aviation, Jetstar Japan and AirAsia Japan--might fear being held back by their investors, which are major airlines including ANA and JAL.

LCCs created by major U.S. airlines such as Delta Air Lines and United Airlines have ended in successive failure.

Regarding Japan's LCCs, Japan Aviation Management Research's head Yoshihisa Akai said, "The key [to their success] is how LCCs will be able to operate without restrictions from the major airlines [which are their main shareholders]."

ANA President Shinichiro Ito said the LCCs it runs, AirAsia Japan and Peach, will be able to operate in their own right. But as passengers switch to flying with LCCs, major airline companies will have to think hard to devise new strategies to differentiate the market.