All Nippon Airways got into the low-cost sector in order to get a first-mover market share in Northeast Asia, where the business model has been slow to take off.
Its first low-cost carrier Peach, a joint venture with a Hong Kong-based company, began operations in March from Osaka's Kansai airport. AirAsia Japan, a joint venture with AirAsia, will launch from Tokyo's Narita airport in August.
"Concerns about Peach cannibalising ANA's market share have so far proven unfounded. ANA's passenger numbers are not decreasing, and there is evidence that Peach is creating pure new demand in the low-cost segment. When AirAsia Japan starts up, it will tap into the pent-up demand in the metropolitan Tokyo region and we are confident that it will do well," says ANA chief executive Shinichiro Ito in Beijing.
They will go up against Japan Airlines' joint venture with Qantas, Jetstar Japan, which will be based in Tokyo. Qantas has also started up a Hong Kong-based joint venture with China Eastern Airlines, and Chinese carrier Spring is looking to expand from its base to other Northeast Asian countries.
Industry analysts believe this is likely to be the start of a wave of low-cost travel in Northeast Asia, which has lagged behind Southeast Asia where low-cost airlines are believed to account for around 30% of overall short-haul traffic.
"If we did not do this now, someone else will do it in Japan. So we had no choice but to get into the low-cost business, and we won't know how competitive it can get. But we are confident that this will tap into new demand that ANA, as a full-service carrier, has not managed to reach before. This year is the start of the low-cost carrier business in Japan, and in the future, it will be one of the wings of our growth," says Ito.
ANA must also face up to a newly resurgent Japan Airlines, which is emerging from court-led rehabilitation as a much leaner and profitable carrier, in the full-service segment. Ito points out that both carriers have been competing for a long time, and that ANA will not take this lightly.
“We will do what we need to in order to be stronger and to lower our unit costs. We are starting to expand our international network, and working with our joint venture partners United and Lufthansa for services to the USA and Europe respectively to increase our coverage. By ourselves, we will increase services to Asia and add new services as we get more [Boeing] 787s,” says Ito.