AirAsia Japan Fails to Make the Grade

The backers of AirAsia Japan have revealed they are currently exploring “all available options” for the low-cost business after the carrier failed to meet initial growth targets and the planned expectations of its shareholders.  The carrier, a joint venture between AirAsia and All Nippon Airways (ANA), was established in August 2011 and launched operations last year but has struggled in what is a competitive marketplace.

AirAsia officials revealed to The HUB ahead of last August’s launch that their initial estimates for market penetration in Japan were cautious due to the limited exposure of the AirAsia brand but the latest news on the carrier’s challenges suggest the issues are more deeply rooted in the business model.  The low-cost airline strategy is new to the Japanese market and AirAsia has suggested that corporate business mentality is at least part of the problem. 

In a statement AirAsia says the joint venture has been “facing some challenges attributed to a difference of opinion in management, most critically on the points of how to operate a low-cost business and operating from Narita,” noting that the management team is predominantly comprised of ANA staff, starting with but not limited to the Chief Executive Officer and Chief Financial Officer positions.

According to AirAsia, since its launch AirAsia Japan has “failed to track” its proposed business plan due to “the inability to manage costs”.  It says it has seen customer adoption “increasing as the AirAsia brand starts to resonate in the market,” and is “optimistic” for the future of the business.  “AirAsia continues to be committed to Japan and sees the potential for a low-cost airline to thrive in the market,” it says but warns that it would “not rule out any options” to make this happen, “including dissolution of the joint venture”.

AirAsia Japan initially launched operations from Tokyo Narita to the domestic destinations of Fukuoka, Okinawa and Sapporo on August 1, 2012 subsequently adding international flights from the Japanese capital to Seoul Incheon and Busan in South Korea from October 2012 and November 2012, respectively.  A second hub was opened at Chubu Centrair International Airport in Nagoya in March this year with domestic connections to Fukuoka and Sapporo and an international link to Seoul Incheon being introduced.  A new link between Tokyo Narita and Taipei Taoyuan has also been planned for launch during the second half of this year.

In the table below we look at AirAsia Japan’s performance on its initial five routes from Tokyo Narita in the first quarter of 2013 and its markeshare on each route.  The carrier has managed to secure a good share of the traffic in the domestic markets but has struggled to compete with its established rivals on the two international routes.  Interestingly, its average air fares are very similar to rival low-cost start-up Jetstar Japan in the domestic market but higher across all five routes to the market average and much higher than existing budget operator Skymark Airlines.

During Q1 AirAsia Japan actually had the largest share of the estimated O&D demand on the Tokyo Narita – Sapporo route pair, slightly more than Jetstar Japan and Skymark Airlines but was ranked second in the Tokyo Narita – Fukuoka market (behind Jetstar Japan) and third in the Tokyo Narita – Okinawa market (behind Jetstar Japan and Skymark Airlines).

ESTIMATED SCHEDULED DEMAND ON AIRASIA JAPAN’S INITIAL ROUTES (bi-directional O&D passengers; Q1 2013)

Origin

Destination

AirAsia Japan O&D Traffic

Total O&D Traffic

% Share

Average One-Way Fare

Variance on Market Average Fare

Tokyo Narita (NRT)

Fukuoka (FUK)

44,566

231,129

19.3 %

$265

+8.6 %

Okinawa (OKA)

22,091

156,628

14.1 %

$364

+18.2 %

Sapporo (CTS)

66,251

250,395

26.5 %

$241

+21.1 %

Seoul Incheon (ICN)

22,520

363,448

6.2 %

$385

+4.1 %

Busan (PUS)

22,743

106,374

21.4 %

$353

+5.1 %