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Transportation

Japan's LCCs Progress Beyond 'Infancy'

By Michael B. Baker / September 13, 2017 / Contact Reporter
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Low-cost carriers are carving out an increasing portion of the market in Japan, though legacy carriers still maintain a more dominant position there than in much of the rest of the world. In Northeast Asia, LCCs account for just 13 percent of market share, CAPA North Asia and Middle East senior analyst Will Horton said at the Association of Corporate Travel Executives conference in Tokyo. While that's two percentage points higher than a year ago, it remains well below other regions. LCCs have 51 percent of market share in Southwest Asia, 44 percent in Western Europe and 33 percent in North America, for example.

Even so, LCCs in Northeast Asia have grown their available seats at a greater percentage than full-service carriers year over year, Horton said. On a few select routes, such as Japan-Korea, they account for nearly half the market share, according to CAPA.

Within Japan, LCCs remain a new concept thanks to regulations and the culture's traditional scorn for the idea of "budget" or "cheap." That began to change in 2012 with entrants like Jetstar, Peach, Spring and Vanilla Air. All except Spring are owned at some level by either ANA or Japan Airlines. Those LCCs have built capacity over the past few years as ANA's and JAL's have remained flat. LCCs now represent about 10 percent of airline capacity in Japan, Horton said.

LCCs are attracting business travelers, as well. Jetstar chairman and representative director Masaru Kataoka said the carrier was surprised to discover that 20 percent of their passengers were traveling on business, according to a survey. As such, the carrier, which has grown to 21 aircraft over its first five years and expects to reach 28 by 2019, developed a FlexiBiz bundle for business travelers, which includes premium seat selection, extra carry-on baggage and flexibility with changes. "We didn't expect such a large amount of passengers, so we decided to develop this kind of environment," he said. "Although we are an LCC, we believe we have an opportunity to grow this segment."

JAL VP and head of global sales Steve Smith said that while Japan LCCs remain in their "infancy," he expects them to become a growing force in Japan the way they have in Southeast Asia. "There's no way to stop the disruption of LCCs; it's just a question of how you are going to manage it," Smith said. "It's almost like a brand-new market because they've got a lot of people who are doing business in Japan that are in the small business category. That's a market we really all have not touched as good as we can."

Tech companies with cost-focused travel policies have been the most natural clientele for Japanese LCCs, while investment banking firms, media and pharmaceutical companies remain resistant to their use for business travel, he added.

Of course, their penetration into the corporate travel market also will depend on how easy it is to book LCCs through corporate travel channels. IBM Asia/Pacific airline lead Takahide Tanaka said his company supports use of LCCs so long as they meet its safety requirements. However, India is the only market in the region with which IBM is working closely with such carriers.

Walmart director of global travel in Asia Robert Alvey faced a similar challenge: "It comes back to safety and security, where we have travelers booking through the TMC to capture that data. The way it is distributed and the way agencies provide that content to corporate travelers is very different in Japan."

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