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Tuesday, Dec. 21, 2010
Low-cost carriers elbowing their way into Japan's skies
By MIZUHO AOKI
2010 was a landmark year for Japan's aviation industry: The government inked an open skies accord with the U.S. in October to further liberalize their civil aviation markets, and during the same month Tokyo's Haneda airport opened a new international terminal.
The bar was also lowered for foreign airlines to fly to domestic airports, including low-cost carriers that have the potential to alter the landscape of the nation's aviation industry, analysts say.
Following are basic questions and answers about budget carriers and their expected impact on Japan's aviation market.
What defines a low-cost carrier?
A low-cost airline would generally be one that offers cheaper airfare than mainstay rivals, probably because of lower overhead, and in many cases only has economy class seating. It would also presumably provide fewer in-flight services and sell tickets directly.
Low-cost carriers have also been known to offer flights at greater frequency, keep a simple inventory of same-model aircraft for maintenance and pilot qualification purposes, and focus on medium- and short-haul flights.
Not providing free meals and beverages, or entertainment systems or blankets, and being only economy class translates into more crowded cabins.
But low-cost carriers' actual business models vary. Malaysia-based AirAsia X offers long-haul flights. Others cater more to business passengers, and some do offer in-flight services.
South Korea's Air Busan offers free in-flight meals and drinks, including beer, for flights between Osaka and Busan, said Shinichi Minakuchi, supervisor at the airline's Osaka office.
How many foreign budget carriers currently serve Japanese airports?
Six overseas low-cost carriers currently fly regularly to and from Japanese airports, according to the transport ministry.
Australia's Jet Star was the first overseas no-frills carrier to launch services in Japan, at Kansai International Airport in 2008.
Other low-cost carriers include Jeju Air and Air Busan from South Korea, Philippine-based Cebu Pacific Air, Singapore's Jet Star Asia and AirAsia X.
Last July, China's Spring Airlines began offering charter flights connecting Ibaraki Airport and Shanghai Pudong International Airport.
South Korea's Jin Air Co., an affiliate of Korean Air, has applied with the transport ministry to fly to Kansai airport next March.
But the schedule has not been finalized yet, so it is still subject to change, the ministry said.
How cheap are low-cost carriers?
Although prices vary, they are said to be 20 to 70 percent cheaper than those of full-service carriers.
For example, the cheapest price for Air Busan's regular round-trip tickets between Kansai International Airport and Busan airport until the end of February is ¥16,000 (excluding taxes). The carrier, however, is also running a discount campaign, offering ¥9,900 round-trip airfare for 10 percent of its seat capacity.
Spring Airlines boasts ¥4,000 one-way flights (excluding taxes) from Ibaraki Airport and Shanghai's Pudong Airport, although this price is reportedly set for only about 10 percent of seats on a single flight.
How do budget airlines rate in terms of safety?
They pose no greater risk than other airlines, according to Fumiaki Isono, of Mitsubishi Research Institute.
"As long as a carrier uses the latest airplanes and has a decent business model like AirAsia X, then there is no difference (in the safety) between low-cost carriers and legacy carriers," Isono said.
However, people need to be careful if a budget airline cuts corners by using aging aircraft and skimps on maintenance fees, he added.
Is there a Japanese budget carrier?
Skymark Airlines is often referred to as a low-cost carrier.
The airline currently operates only domestic flights, but plans to expand its service to international flights in fiscal 2014, according to the carrier. Candidate destinations include London, New York and Frankfurt.
For the expansion, Skymark is planning to purchase Airbus A380s, the world's largest passenger plane. A purchase agreement with Airbus is expected to be concluded sometime next spring.
Also, ANA is scheduled to establish a new low-cost carrier in January by teaming up with Hong Kong-based First Eastern Investment Group, according to ANA President Shinichiro Ito.
Flight operations are expected to start in the second half of fiscal 2011.
Then there's Japan Airlines, which in January filed for bankruptcy. It, too, has entertained the notion of engaging in budget flights, but no decision has been made to date.
What's the impact of no-frills carriers on the nation's aviation industry?
It is a threat to Japanese carriers, analysts say.
"To put it simply, it has a negative impact on Japanese carriers in terms of revenues. When looking at overseas markets, a certain percentage of passengers have shifted from legacy carriers to low-cost carriers," Mitsubishi Research Institute's Isono said.
But on the other hand, if budget carriers bring more people to Japan, demand will undoubtedly increase, he said.
According to "Airline Haisen" ("A Lost Battle of Airlines") penned by aviation analyst Kazuki Sugiura, some 150 low-cost carriers operate worldwide and their shares of seat supply in the aviation market as of 2009 was 34 percent in Europe, 28 percent in the U.S. and 16 percent in Asia.
Are budget carriers going to take root here?
Isono thinks they will, but only for international flights.
Considering the stagnant economy, demand for cheaper flights will increase, he said.
Narita International Airport and Kansai airport are reportedly considering building new terminals specifically for budget carriers.
However, as for domestic flights, it is unlikely to change for a while because of strict regulations that set the bar high for new low-cost carriers to enter the domestic market, Isono said.