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Japan has room for carriers, says Fernandes

Friday August 12, 2011

AirAsia Bhd boss Tan Sri Tony Fernandes is unperturbed by Jetstar’s entry into Japan’s domestic market to rival AirAsia Japan as he feels the market is big enough for all players.

“No issue, the market is huge but Jetstar has many things to sort out in Asia, so it will be stretched,” Fernandes said.

The Centre for Asia Pacific Aviation (CAPA) said in a report that low-cost carriers (LCCs) still only operates around 2.7% of the 3,000 weekly international services to and from Japan currently.

It said LCC penetration within Japan was low at 9.1% but still higher than 6.8% for intra North Asia, which includes South Korea, Hong Kong, Macau and Taiwan.

“The new LCCs will only enter progressively but just the knowledge that they are on the way will dramatically shift the very cautious mindset that has kept Japan’s aviation system the most expensive and under-exploited in the world,” it said, adding that the “sky is the limit for growth upsides.”

Jetstar on Tuesday announced plans to set up Jetstar Japan with partners Mitsubishi Corp. Jetstar Japan will fly from Narita airport, the same terminal as AirAsia Japan, with the latter starting operations in August and the former in December 2012.

Jetstar group chief executive officer Bruce Buchanan remains bullish about the prospects and said earlier that the carrier did not see any problems in filling its 24 aircraft as Japan was an underserved market.

Jetstar’s announcement comes hot on the heels of AirAsia’s partnership in July with Japan’s largest carrier, All Nippon Airways (ANA). The pact is split 49% for AirAsia in terms of revenue and 33% in terms of voting rights.

Separately, ANA has another LCC, Peach Aviation, which will compete head on with Jetstar Japan and AirAsia Japan. Peach takes off in March from Kansai airport.

“The propensity to travel among the Japanese is high compared with many other countries even though the rising affluence in countries like India and China has swelled on a scale never seen before. That also explains why Asia is the next growth area and why airlines are trying to establish bases beyond their own markets,” said an analyst.

Though the market may be ripe for the taking, analysts believe that most Japanese have not fully warmed up to the idea of LCCs, despite Skymark Airlines the first airline to offer lower prices in the late 1990s and eight other LCCs flying to Japan.

AirAsia XCEO Azran Osman-Rani has a contrarian view. He said that before the recent earthquake in Japan, AirAsia X enjoyed passenger load factors of over 80% for its KL-Tokyo flight. During the earthquake, demand did plummet but the recovery afterwards has been strong and, in August, loads have reached 86%.

“A lot more people are Internet-savvy and more than happy to buy tickets online. There is a mix of consumers that still preferred packages and those who want to just purchase air tickets. The landscape is definitely changing,” Azran said.

With three players emerging next year and the potential of a fourth coming, will the market get crowded and challenging despite bullish growth prospects?

“No challenge, it is such a great market and growth will come from the 126 million Japanese who found it too expensive to fly. The market is five times bigger than Malaysia,” Fernandes said, asking whether “Jetstar had in seven years in Asia slowed AirAsia down?”

Operating in Japan could also be challenging, said a Maybank IB Research analyst. He pointed out that airport charges were among the highest in Asia and the airports were not so LCC friendly and that made it tough for LCCs that needed quick turnaround time.

Fernandes does not see this as a problem. “It (Narita International) is building a low-cost carrier terminal (LCCT) for us as the market is massive.” Both AirAsia Japan and Jetstar Japan have plans to fly to cities in North Asia from Japan but that will come later.

Separately, Fernandes twittered that AirAsia would soon announce a route to Manila and two new destinations in China. He said the airline needed more aircraft each year and he was meeting up with Airbus officials today.

“We need to lease more or buy classic A320s … we are hoping to get LCCT in Penang or northern region and Langkawi.”

This article is a verbatim copy of the original article from The Star.

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