With uncertainty remaining over when – or if – travel demand will make a full-fledged recovery from the coronavirus pandemic, two of Japan’s major airlines are positioning themselves to take advantage of any upturn with a punt on low-cost services, per Kyodo News.

As leisure demand is expected to have a much faster recovery as compared to business travel, ANA Holdings Inc. and Japan Airlines have both decided to strengthen their relationships with low-cost carriers.

However, the move by the two major airlines – which have long established themselves as full-service carriers – could very well be a double-edged sword, aviation experts note.

ANA Holdings, the parent company of All Nippon Airways, has been planning to launch a new low-cost carrier brand in the year till March 202 with flights connecting Japan with Oceania and Southeast Asia.

Meanwhile, Japan’s national carrier, Japan Airlines, has already made plans to made Spring Airlines Japan Co. a consolidated subsidiary in June. The unit of China’s major LCC Spring Airlines Co. will take its place in the JAL group alongside wholly-owned budget airline Zipair Tokyo Inc., which made its debut operations last year in the midst of the Covid-19 pandemic.

Potential in Low-Cost Carriers

An initiation of two budget carriers is a reflection of JAL’s strategic shift away from what used to be seen as the national carrier’s cautious stance on low-cost carriers.

“The coronavirus pandemic is greatly changing the structure of air travel demand and consumer behaviour, along with the market environment. We will promote reform to create a sustainable business structure,” Japan Airlines President Yuji Akasaka said at a press conference.

“We will seriously cultivate the low-cost carrier market with growth potential,” he said as JAL also unveiled a medium-term business plan.

The move to rethink both short-term and long-term strategies comes as both carriers continue to burn through cash and cut costs to stay afloat.

In the business year ended March 31, ANA reported a record net loss of $3.7 billion, while JAL posted a smaller net loss of $2.6 billion, its first red ink since its 2012 re-listing.

Double-Edged Sword

However, Shinya Hanaoka, a professor of aviation policy at the Tokyo Institute of Technology, warned that low-cost carriers may only provide a stopgap solution.

“As a safe business strategy for the immediate future, they apparently choose low-cost carrier services. But such low-cost carriers won’t be sufficient to become a strong revenue source for the respective groups,” Hanaoka said.

Low-cost carriers typically focus on short-haul flights and high flight frequency per day or per route to improve fleet utilization efficiency by offering non-frill services to keep costs at a bare minimum.

Unfortunately, competition has been ferocious in the market, which began in Japan when Peach Aviation Ltd, now an ANA subsidiary, began operations back in 2012.

Prior to the Covid-19 pandemic, air travel demand in Japan was on a steady increase thanks to a rise in foreign visitors mainly from Southeast Asia. With a steady demand, ANA and JAL were able to coexist with low-cost carriers without either losing a large chunk of business as the market itself became bigger, industry observers say.

But it is still uncertain whether such momentum will return.

Last year, AirAsia Japan decided to abolish all its routes, effectively closing down its Japan operations. As JAL is set to boost its investment in Spring Airlines Japan, major low-cost carriers in Japan will now belong to either the ANA or JAL camps.

Hajime Tozaki, a professor well-versed in the airline industry at J.F. Oberlin University, said this may lead to a “proxy war” between the two groups, causing the double-edged sword.

“JAL and ANA are anxiously looking at what the other side is aiming to do. The next step (from the initial COVID-19 shock) can be expanding (services for the charter of) business jets that have met robust demand. But whether it should be the LCC business is a question mark,” Tozaki said.

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Charlotte Seet

Fascinated by aircraft from a very young age, Charlotte’s dream was to work alongside the big birds one day. Pursuing her dream, she went on to achieve her diploma in Aviation Management and is currently working on her degree in Aviation Business in Administration with a minor in Air Traffic Management. When she’s not busy with school assignments, you can find her aircraft spotting for long hours at the airport. In Charlotte’s heart, the Queen of the Skies will always be her favorite aircraft.

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