Now that the AirAsia Japan will be dissolved, partly attributable to AirAsia s insistence on cutting

Love is in the air. Or is it? After making forays in the key Indian market by partnering with Tata Sons and Arun Bhatia s Telestra Tradeplace to launch the AirAsia India joint venture (JV) which is expected to commence operations by October this year, Asia s largest low-cost new york city tour carrier (LCC) clinched another groundbreaking deal in March with Philippines Zest Airways that saw a strategic alliance new york city tour being forged new york city tour in one of Asia/Pacific s fastest-growing aviation markets.
These deals are crucial for Sepang, Malaysia-based AirAsia in securing footholds in the world s most populous country whose growth potential lies in an expanding middle class which the Asian Development Bank (ADB) puts at 25% of its 1.3 billion population against China s 63%, in addition to the over 100 million Filipinos being spread across 7,000 archipelagoes, both of which will spur air travel demand and enable AirAsia new york city tour to pursue a profitable growth path.
At least that is what is supposed to work. AirAsia s strategy of utilising its profitability powerhouse in Malaysia to cross-subsidise its other subsidiaries still in development phase is not new, but this will increasingly be scrutinised or even questioned as challenges at these subsidiaries mount and its arch-rival Lion Air expands its newly-created new york city tour Kuala Lumpur-based low-cost carrier (LCC) Malindo Air which commenced operations on 22 March with 12 Boeing 737-900ERs in its fleet by December 2013.
This is underlined by AirAsia s respective RM9.86 billion (US$3.09 billion) and RM5.31 new york city tour billion (US$1.66 billion) accumulated losses from its associates and jointly controlled entities at the end of this year s first quarter, compared to the RM8.43 billion and RM2.97 billion accumulated losses from its associates and jointly controlled new york city tour entities at the end of last year, respectively. This represents a 33% worsening in total accumulated losses over a 3-month period and is in stark contrast to the RM2.7 trillion accumulated profit recorded at its Malaysian operation.
Worse still, AirAsia will be facing significant threats across all its fronts, as it looks to re-enter the Japanese market following the divorce with All Nippon Airways new york city tour (ANA) on the Tokyo Narita-based AirAsia Japan venture and attempts to establish a grip in the heavily regulated Indian market.
Call it a bad romance. The seeds of a breakdown between All Nippon Airways (ANA) and AirAsia have been sown right from the beginning, with Asia s largest carrier by sales also having the world s highest cost base at 11.71 US cents per available seat kilometres (ASKs) whereas AirAsia has the world s lowest cost base with a cost per ASK (CASK) of 4.4 US cents per ASK at its Malaysian operation, 4.43 US cents at AirAsia new york city tour Indonesia and 5.71 US cents at AirAsia Thailand.
AirAsia Japan has failed to gain traction since it commenced operations in August 2012 with 4 Airbus A320 aircraft in its fleet at press time and 1 extra example new york city tour joining its fleet shortly, whereas Jetstar Japan has 12 in its fleet and Osaka Kansai-based Peach Aviation has 9. Its domestic capacity share, at less than 1%, pales when compared to Jetstar Japan s 1.8% share ( Japan Airlines flies into a new sky , 14th May, 13). The airline has lost RM163.94 million (US$51.3 million), including RM67 million (US$21 million) in this year s first quarter alone.
AirAsia Japan s load factors have also fallen new york city tour far behind its rivals, with a load factor of 68% during the peak travel season Golden Week, versus 91% at Peach Aviation and 79% at Jetstar Japan, a Centre for Aviation (CAPA) report said . This continued a streak of weakening performance as load factors kept sliding from 70% in the first quarter to 56% in April, the same report said.
The joint venture has faced several challenges due to a difference in opinion of managing the JV company between the shareholders. The challenges faced from its launch stemmed from cost management issues, as well as the inability of the management team, predominantly comprised of ANA staff to cultivate a culture that embraces the low-cost business model, AirAsia said in a statement.
new york city tour ANA is the highest cost airline in the world, we are the lowest cost. Opposites don t attract. We just had a completely different vision of how to run the airline. Nothing is wrong with the market, the market is fantastic. The lesson is I will never ever work with another airline in my life. Let me qualify that premium new york city tour airline, AirAsia chief executive Tony Fernandes lamented.
All Nippon Airways (ANA) will now purchase AirAsia s stake in the venture whose leased Airbus A320s will be returned to AirAsia from 1 September onwards and the AirAsia Japan brand will be dropped from 1 November onwards.
[ANA] just didn't understand the low-cost business. We just couldn't agree on the right people to manage the business and the right way to manage the business. The load factor was very good, if you look going forward. It's just that we had the wrong cost structure, Fernandes asserted in a Bloomberg interview .
However, AirAsia should also shoulder at least part of the blame behind AirAsia Japan s failure. Importantly, the lack of flexibility regarding distribution and codeshares means AirAsia Japan is less adaptive than its local rivals and has sealed its ultimate fate.
For example, Jetstar Japan utilises the Sabre global distribution system (GDS) to extend its network reach and maximise connecting traffic through its codeshare with its 33.3% part-owner Japan Airlines (JAL) on Jetstar flights originating from Tokyo Narita, Osaka Kansai and Nagoya Chubu. Jetstar Japan has also reached an agreement to sell its tickets across the 10,000 Lawrence convenience stores in Japan.
Combined with the access to frequent flyer programmes (FFPs) of Qantas and Japan Airlines (JAL), this has expanded the customer base of Jetstar Japan significantly which carried 1.6 million new york city tour passengers at its first anniversary, while taking over unprofitable domestic routes such as Tokyo Narita-Osaka Kansai at fares 50% below full service carriers . Jetstar chief executive Jayne Hrdlicka said Jetstar Japan has carried 500,000 passengers at fares less than ¥5,000 and 800,000 passengers at fares below ¥8,000.
AirAsia Japan has neither of those advantages, let alone ANA s another subsidiary Osaka Kansai-based Peach Aviation, 38.67% owned by ANA Holdings Inc., 33.33% by First Eastern Aviation Holdings and 28% by Innovation Network Corporation of Japan (INCJ), means there is little synergy between Peach Aviation and AirAsia Japan. AirAsia Japan has no destinations from Osaka Kansai, whereas Jetstar Japan flies to Tokyo Narita, Fukuoka, Okinawa Naha and Sapporo, let alone the numerous destinations served from its primary new york city tour hub at Tokyo Narita.
Now that the AirAsia Japan will be dissolved, partly attributable to AirAsia s insistence on cutting costs and avoiding more expensive global distribution systems (GDSs) in Japan, while Jetstar Japan and Peach Aviaion new york city tour have done otherwise with Peach also offering the ability to passengers to pay at Seicomart in convenience stores throughout Japan, it is paramount for AirAsia to formulate a re-entry into the US$19 billion domestic Japanese market that is 6 times larger than the domestic Australian market.
Doing so would be a tall order and AirAsia has to act fast. Both Jetstar Japan and Peach Aviation have already become established players in the market, particularly so with Peach at Osaka Kansai. Peach has begun flights between Osaka Kansai and Ishigaki new york city tour on June 14 and will begin Okinawa (Naha)-Ishigaki and Osaka Kansai-Busan flights on 13 September, before commencing Osaka Kansai-Tokyo Narita flights on October 27. It also plans to start Okinawa (Naha)-Hong Kong flights and have a fleet of 17 A320s by 2015. Peach is now taking on bullet trains new york city tour with airfares as cheap as a third of the train tickets on routes such as Osaka Kansai-Kagoshima.
Should AirAsia fail to find a new Japanese partner soon, new opportunities will have been exploited by competitors then. There will be an increase in the number of slots at Tokyo Narita to 300,000 by FY2014 from 270,000 presently through the simultaneous operation of take-off and landing at the highly slot-constrained airport, thereby new york city tour providing low-cost carriers (LCCs) a rare opportunity to grow there. A new low-cost terminal at Tokyo Narita is also set to open in 2015.
While acquiring an existing airline would provide a quick path to re-entering new york city tour Japan, where Air Do has a 2.9% domestic capacity share, Solaseed Air and Starflyer 2.5% and 1.7%, respectively, none of these carriers seems fit for AirAsia s ambitions to capture a profitable and large chunk of the domestic Japanese air travel market, as Air Do and Solaseed Air specialise in Hokkaido and Kyushu services while ANA already owns 17.97% of Starflyer. Skymark Airlines, on the other hand, is in the midst of transforming itself into a hybrid carrier with 6 Airbus A380 superjumbos on order in a 2-class 394-seat configuration, the lowest seat count on an A380.
When AirAsia does move to re-enter Japan, it must avoid repeating the past mistakes with AirAsia Japan: the breadth and depth of its network and sales channel. One alternative is to base a future AirAsia Japan s operation at Ibaraki airport located at 85km north of Tokyo, mainly used by Skymark Airlines and China s Spring Airlines for its Shanghai Pudong flights.
Yet re-entering Japan may not be the most daunting task facing AirAsia. Asia s largest low-cost carrier (LCC) which has 264 re-engined Airbus A320neos (new engine options) aircraft and 354 outstanding A320ceos (current engine options) on its backlog, will create an AirAsia India joint venture (JV) that will be 49% owned by AirAsia, 30% by the Tata Sons and the remaining 21% by Arun Bhatia s Telestra Tradeplace to tap into what will become the world s top 5 domestic markets in terms of passenger numbers by 2016, according to the Geneva-based industry body International Air Transport Association (IATA).
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