Saturday, Aug. 28, 2010

Low-cost airlines fuel competition

ANA, JAL must share skies with no-frills rivals

KAZUAKI NAGATA (Staff writer)

Japan's tightly regulated skies have been seeing some changes in recent years, with a wave of low-cost carriers from Asia entering the market and domestic budget airlines rising to intensify the competition.

Observers are looking carefully at the impact on the Japanese airline industry, especially what it means for All Nippon Airways Co. and Japan Airlines Corp.

When JAL filed for protection from its creditors in January, transport minister Seiji Maehara said he would take a close look at whether Japan will need two megacarriers in the future, when competition will only grow more intense.

Experts are split on the degree of the low-cost carriers' impact on ANA and JAL, but pretty much all agree the best outcome for consumers would be that both survive and maintain a healthy competition.

"I think the impact is quite big," said Hajime Tozaki, an economics professor at Waseda University and former JAL employee. "Under the ongoing deflation, (JAL and ANA) will lose customers to budget carriers and will be forced to keep carrying out unhealthy cost-cutting."

Compared with Japanese airlines, which spend more on employment and have to pay expensive aviation-related taxes and public dues such as airport fees and fuel taxes, budget Asian carriers are almost free of regulation and have lower employment costs, Tozaki explained.

Low-cost carriers' fares can be 20 to 70 percent less than those of major airlines. The tickets can be offered at reasonable prices because their operational focus is on carrying customers place to place for short to midrange distances.

For instance, budget airlines commonly cut in-flight meals and charge extra for checked baggage. Also, to maximize passenger numbers, seating configurations are often as cramped as possible.

"The cost structure is fundamentally different (from Japanese airlines)," Tozaki said.

But considering that budget airlines don't focus on luxury services, Makoto Murayama, a senior analyst at Nomura Securities, said their primary customers differ from those who fly Japan's big carriers, so the direct impact on ANA and JAL is subtle.

Japan's airline market is notoriously conservative due to tight regulations, including strict safety guidelines and restrictions on foreign investment. The bar was set too high for new firms to enter the market, resulting in limited competition.

The recent entry of no-frills carriers from Asia is partly due to the need of struggling airports to attract more fliers.

For instance, Kansai International Airport, which relies on government subsidies, is especially active in inviting budget airlines. Currently, five such carriers Air Busan, Jetstar, Jetstar Asia, Jeju Air and Cebu Pacific Air provide regular flights to and from Kansai.

Known for its expensive landing fees and inconvenient location, Kansai made a bold move last fall to make the landing fee practically nonexistent for carriers opening new international routes through the end of March 2011.

This fiscal year has seen Air Busan and Jetstar Asia start flights to the airport.

Ibaraki Airport, which opened in March, invited in Spring Airlines, a Shanghai-based budget carrier. It started flights late last month.

The Chinese airline recently announced it was offering \4,000 one-way tickets between Ibaraki and Shanghai Pudong International Airport.

Meanwhile, Skymark Airlines Inc., a Japanese no-frills carrier that has survived in the tough competition, is looking to grow.

Established in 1996 and having experienced several ups and downs, Skymark is opening 11 new routes this fiscal year, more than double its previous total, to finally rise as a solid third force in the domestic industry.

Airfares were a bit too expensive, and "we thought if we calculate and make efforts, this could be a business, so we've been focusing on forging a low-price model," said Masakazu Arimori, Skymark's chief financial officer.

Arimori explained that the company drafted a sound management plan and has been following that since 2005, which included flying only Boeing 737-800s.

"By unifying the plane under our own specifications and configuration, it facilitates savings, having the same seats and same parts," said Arimori, adding pilots and mechanics can work more efficiently if they deal only with one model.

The unification was completed last September.

Other cost-saving efforts include multitasking by employees, said Arimori, citing as an example that some mechanics are also members of the firm's corporate planning team.

But as ANA plans to establish its own budget airline, and JAL reportedly planning a similar move, the competition among domestic no-frills carriers looks to intensify.

Yet Arimori said Skymark still has an advantage in terms of low operating costs. Skymark's cost to move one seat 1 km has decreased to some \8, but the rate for JAL and ANA is \13 to \15, he said.

The rise of budget airlines in the Japanese market may be good for consumers, but it is also to their benefit if ANA and JAL survive and continue healthy competition, experts said.

"From the consumers' point of view, it is not good that one company dominates the market," said Nomura's Murayama. But at the same time, he said, if thinking just about surviving the competition, it would be more stable to merge as one.

Tozaki of Waseda University said it is still possible that both ANA and JAL can survive. After JAL filed for bankruptcy and closed some routes, fares on those routes increased, he said.

"Competition is important," he said.

While internal reform efforts by the megacarriers are necessary, Tozaki also said the government should ease regulations, such as the cap on foreign investment, to absorb knowhow from outside, so they can be more competitive.

続き（日本語解説へ）

Friday, Sept. 3, 2010

EDITORIAL

Mr. Kan vs. Mr. Ozawa

After some meanderings, the campaign for election of the next president of the Democratic Party of Japan officially started Wednesday, with Prime Minister Naoto Kan and former DPJ Secretary General Ichiro Ozawa vying for the post.

As Japan is facing serious problems in the economy and in other fields, and since the DPJ head becomes prime minister, the two politicians must clearly present their grand vision of the future of Japan, road maps toward that goal, and policy measures to solve the problems assailing the country in that process.

More to The Japan Times ONLINE

Wednesday, Sept. 1, 2010

EDITORIAL

Surviving with a strong yen

As the Japanese economy is battered by a recent rise of the yen against the U.S. dollar to a 15-year high, the Bank of Japan decided Monday to inject more liquidity  an additional \10 trillion at a low interest rate on top of the \20 trillion under the existing lending scheme  into the economy, while keeping the key interest rate at the current 0.1 percent. The government also decided on a framework of additional measures for spurring the economy.

More to The Japan Times ONLINE