All Nippon Airways' announcement that the firm will establish the nation's first low-cost carrier under a major airline by the end of the year is a response to the threat posed by the expansion of budget carriers in Asia, according to industry sources.
ANA's planned budget airline, slated to begin domestic and international flights in the second half of fiscal 2011, will likely intensify the scramble for passengers among airlines, railway companies and bus operators, the sources said Thursday.
However, it remains to be seen whether this expansion in transport options will be in travelers' best interest.
At a press conference Thursday, ANA President Shinichiro Ito announced that the low-cost carrier will be run in cooperation with Hong Kong-based First Eastern Investment Group, with Kansai Airport in Osaka as the airline's hub. The firm will operate independently of ANA, with 66.7 percent of the company held by Japanese investors, including 39 percent by ANA. First Eastern will own 33.3 percent, the maximum foreign ownership allowed in domestic airlines.
Cheap carriers filling the skies
Low-cost carriers have taken up a rapidly rising share of the Asia-Pacific market recently. They accounted for 15 percent of the region's air passengers in 2009, about twice the figure three years ago, the sources said.
Air travel demand is expected to continue to rise in Asia, as the region's economies keep growing strongly, and demand for seats on low-cost carriers is also predicted to expand. Several foreign budget carriers have entered the Japanese market: Shanghai-based Spring Airlines is even offering 4,000 yen one-way tickets between Ibaraki Airport and Shanghai for 10 percent of the seats on each flight.
Ito said the company's decision to become the first among major Japanese airlines to have its own budget carrier will serve as a breakwater for the domestic airline industry, preventing Japanese airlines from losing passengers to foreign discount carriers.
Cutting costs to the bone
ANA's planned low-cost carrier will make every effort to reduce operating costs to keep fares low, airline officials said.
For example, the new carrier's planes will all be of the same model to curb maintenance costs, and shuttle flights without stopovers will be used to operate the planes more efficiently. Other steps include only selling tickets online and expanding the duties of cabin attendants, such as having them help clean the inside of the plane and assist in boarding passengers, the officials said.
Passengers on budget flights will be asked to tag their own baggage when checking in, and all in-flight meals, drinks and other amenities will cost extra, they said.
Carrier to be independent
ANA has so far held back on announcing the routes the discount carrier will serve, but routes being considered include flights linking Kansai Airport with Narita, Fukuoka and Naha, according to the officials. However, flights from Tokyo's centrally located Haneda Airport will not be available, because of limited landing slots at the airport.
When asked if the planned carrier will compete with ANA itself, Ito said, "We can't rule out the possibility that the low-cost carrier will eat into ANA's profits."
Although ANA will be the new airline's largest shareholder, the parent company intends to give the budget carrier a great deal of managerial independence, including decision-making power on flight routes. The firm may expand its services to overlap with ANA's in the future, Ito said.
The new firm will charge about 5,000 yen for a one-way flight between Kansai Airport and Narita, about one-third the price of a Shinkansen ticket from Tokyo to Shin-Osaka. If discount carriers are successful and expand their operations, railways and buses will likely become caught up in a fierce price war, the industry sources said.
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