Japan’s on track...and on budget

Increasing low-cost carrier activity is helping Japan to shrug off the doldrums of the past and emerge as a strong destination once again.

In 2015, visitors to Japan were up an incredible 47% to 19.73 million, slightly below the 20 million target that the Japanese Government had set for 2020, the Tokyo Olympics year. There are some straightforward reasons for this. Japan is a fantastic location that offers a unique way of life. Stunning natural beauty is combined with great food and hospitality and some of the most dynamic cities in the world.

“One of the most attractive things about Japan is its four distinct seasons, each with its unique colour,” says Shuichi Kameyama, executive director, inbound promotion department, at Japan National Tourism Organisation (JNTO).

“Tohoku region – literally north-east region – is the most suitable place to enjoy these beautiful seasonal changes, but it’s not commonly known to foreign visitors. Tohoku has many top-class scenic spots and traditional local events: cherry blossoms in spring; energetic local festivals in summer; autumnal colours; and snow-covered winter scenery. JNTO is planning to intensively promote the Tohoku area’s hidden beauty in 2016.”

New business drivers are also at play. Some 94% of the 19.73 million visitors that came to Japan last year used air travel. “So air capacity is directly linked to the growth of Japan’s inbound tourism, one of the priority sectors for Japan,” Kameyama notes. “Japan has many airports from the north of Hokkaido to the south of Okinawa. JNTO cooperates with these airports to provide airline companies with useful information for making decisions on new routes to Japan. We also use our 14 overseas offices to support planning and promotion of new routes by airlines.”

Japan’s relaxation on access to Tokyo Haneda and liberalisation via open skies agreements are also causing domestic and international traffic to grow.

Interestingly, though, an increasing portion of that 94% is taken up by budget airlines. Japan has seen five low-cost carrier (LCC) start-ups in four years and these have rejuvenated a market dominated by Japan Airlines (JAL) and All Nippon Airways (ANA). AirAsia Japan, Spring Airlines Japan, Peach, Jetstar Japan and Vanilla Air now compete in a vibrant aviation sector.

AirAsia Japan is having a second attempt at the market, its first incarnation having fallen short of expectations in a difficult environment. “By offering low-cost flights, we want to change the existing framework,” says CEO Yoshinori Odagiri.

He has indicated that he expects international service to make up the majority of its operations. China, South Korea, Hong Kong, Taiwan, Macau and Guam are all on the agenda. By the end of 2016, AirAsia Japan should be operating six A320s and will grow by about five aircraft per year.

China will be an especially important market. Odagiri says that given the country’s large population, it is unlikely that travel demand will disappear despite the economic slowdown.

The sentiment is backed up by JNTO figures, which suggest that Chinese visitors have more than doubled in the past 12 months. AirAsia Japan will be helped by parent carrier AirAsia having a strong presence at Chinese airports and a good relationship with travel agents. That should ease AirAsia Japan’s entry into the market and reduce its costs.

Also serving China is Spring Airlines Japan, which commenced international flights to Chongqing and Wuhan in February this year. The airline is even planning to go into the hotel business in Japan to accommodate the huge influx of Chinese passengers.

In fact, Chinese visitors are quickly becoming Japan’s largest tourism source. China Southern’s Japan passenger numbers in the first nine months of 2015 exceeded its traffic for the whole of 2014, reports suggest. In total, 14 Chinese airlines are serving or plan to serve Japan – 5 of them having entered the market in the past two years.

AirAsia Japan intends to use Nagoya as its hub in the initial phase of operations, and from 2018 will have the benefit of a low-cost terminal. It will compete in Nagoya with Jetstar Japan.

Nagoya has only one airport, unlike Tokyo and Osaka, so AirAsia Japan will come up against the full-service carriers. ANA accounts for 56% of domestic seat capacity at the airport, analysts claim, while JAL is second largest with a 14% share. Jetstar Japan, which JAL partially owns, is third largest with a 13% share.

Nagoya isn’t the only Japanese airport with a strategy that employs an LCC terminal. Katsuichi Samejima, senior manager of the aviation marketing and sales department at Narita International Airport Corporation, points out that Narita’s LCC terminal – Terminal 3 – opened in April 2015.

The facility is an important component in Narita’s route development plans, a major element of which focuses on Asian cities within a 2,485-mile radius from Narita. The strategy is based on the flight ranges of the Airbus A320 and the Boeing 737, the workhorses of LCCs.

Japan, the country that once had a reputation for being expensive, can be surprisingly reasonable – and not just in terms of air travel. Prices for food and drink and hotels are comparable with European norms or even cheaper. In line with the increasing market share of LCCs, there has been a boom in budget accommodation.

Grids Nihombashi East in Tokyo has a design inspired by airport terminals, where visitors are encouraged to “cross paths”. The hotel provides travellers with various stay options depending on their budget, with two men-only floors and two female-only floors of dormitories as well as luxury rooms.

Emblem Hostel Nishiarai – just 20 minutes from the iconic Tokyo Skytree – has a more local feel than the buzzing atmosphere of the city’s Shinjuku or Shibuya districts, and is home to cosy eateries and izakayas, as well as traditional bath houses. Emblem hopes to set up four or five more hostels in popular destinations such as Sapporo and Osaka in the near future.

Meanwhile, business hotel chain APA is looking to almost double its current hotel room count, from 57,000 rooms to 100,000 to cater for the rapidly increasing number of foreign visitors travelling to Japan. CEO Toshio Moyota says the company plans to open Japan’s biggest hotel, with 2,400 rooms, in Yokohama in time for the Olympic Games in 2020.

APA recently opened Shinagawa Sengakuji Ekimae hotel providing convenient accommodation for passengers using Haneda Airport.

Japan isn’t just about budget travel though. Narita typifies an aviation market that is going one step further in an attempt to win new business. The new LCC terminal is part of a $1.2 billion upgrade at Narita that includes additional aircraft parking stands, the expansion of the terminal facilities to improve the customer experience and an improvement in runway capacity.

From March 2020, Narita will be able to handle 72 movements per hour. This follows on from a recent increase to 68. In effect, the airport has managed to expand the number of available slots, giving the route development team plenty of opportunities.

“Winning new routes is so important for Narita because it contributes to strengthening our international network and provides existing carriers with more opportunities for getting connecting passengers,” Samejima notes.

Also assisting with route development potential is the increasing use of such longer range aircraft as the Airbus A350 and the Boeing 787. It gives airlines the chance to expand their network to cities where there was little possibility to operate a conventional fleet owing to insufficient demand.

In Narita’s case, it means new airlines are showing interest in connecting to the Japanese capital. In fact, it has already brought significant wins. In 2015, thanks to the Boeing 787, Addis Ababa has been connected to Tokyo by Ethiopian Airlines and Brussels by ANA.

“The business environment is always changing,” Samejima sums up. “At Narita, because we have great flexibility, we have put ourselves in a position to deal with this challenge swiftly and efficiently.”

Tokyo’s metropolitan area is also served by Haneda. The traditional split between the two gateways – with Narita serving the international market and Haneda serving the 92 million-strong domestic market – was torn asunder in the summer of 2014.

Following a lengthy planning and consultation process, Haneda expanded its capacity by 30,000 international movements a year at the same time as Narita reduced its services by 63 flights per week.

“In the short term at least, we have to admit that this had an impact on our route development strategy,” says Koichi Okawara, director of the aviation marketing and sales department at Narita.

But it was just the short term. Thanks to booming demand from the local catchment area, Haneda’s entrance into the international arena proved to be a temporary blip for Narita. Although Haneda has the advantage of being closer to central Tokyo, Narita’s extensive international network has shone through.

Particularly crucial, according to Okawara, was Narita’s status as a hub for long-haul destinations with North American connectivity playing the leading role. “Despite the changes, Haneda will remain largely focused on the domestic network and Narita will be used for international services,” Okawara says. “But we realise that as both airports serve the Tokyo metropolitan area, they need to work together by making use of their individual advantages and sharing functions,” he says.

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