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ANA to merge low-cost units Peach and Vanilla

Japanese low-cost carriers Peach and Vanilla Air will be merged into a single entity by end of fiscal 2019, with Peach to be the surviving brand.

In a statement, ANA Holdings (ANA HD) says the merger will "combine and further enhance the strengths the two LCCs have" and create a stronger competitive advantage. The integration process will begin in the second half of fiscal 2018.

Beyond fiscal 2020, the integrated entity will have more than 50 aircraft operating on more than 50 routes. This is up from the current 35 aircraft and 39 routes in service. Peach and Vanilla's respective bases at Osaka Kansai and Tokyo Narita airports will be retained.

The integrated carrier will also enter the mid-haul low-cost market in fiscal 2020 to capture the growing travel demand in Asia-Pacific.

The holding company has set a target for the carrier to attain an operating profit of Y15 billion ($142 million) and revenue of Y150 billion in fiscal 2020.

"ANA group will maintain the strategic independence of the integrated LCC, and position the airline as an important pillar for greater profits and new opportunities for further expansion, and become the leading LCC in Asia," it adds.

As a result of the merger, the shareholding structure in Peach will also change.

ANA HD is set to raise its stake in Peach from 67% to 77.9% through the acquisition of Y11.3 billion worth of shares from First Eastern Aviation Holdings. This will reduce the latter's stake from 17.9% to 7%. The transfer is due to take place in April and subject to regulatory approvals.

The announcement comes days after a Nikkei Asian Review report said that the two carriers will be merged by 2020 to better compete in the Asian airline market and to tackle "cost and other issues".

Last month, ANA HD also disclosed that it is looking to launch a medium-haul LCC around 2020, as part of a greater focus on the budget market. This airline will use "small size medium-haul aircraft".

The same document, released as an update to the mid-term strategy, also indicated that Peach and Vanilla would continue to play a role in capturing demand from Asia. Prior to the merger announcement, ANA HD owned 100% of Vanilla Air and 67% of Peach.

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