Low cost carrier emergence in Japan and East Africa

Dino D'Amore
By Dino D'Amore May 4, 2016 20:16

Low cost carrier emergence in Japan and East Africa

Since deregulation, the Japanese low-cost carrier market has been growing at speed. Some thought that with Japan Airlines (JAL) back in good order, it and ANA would stifle low-cost demand after some time. Close to ten years since the final round of airline market deregulation, eight low-cost airlines control just over 10% market share. Of the eight, the big four are Peach Aviation, Vanilla Air, Jetstar Japan and Spring Airlines Japan – of these Jetstar Japan and Peach Aviation are the two low cost airlines that are generating most of the growth. Both are partly owned by none other than JAL and ANA, respectively. This shows that the emergence of Japanese low cost carriers is certainly not detrimental to the operations or margins of ANA and/or JAL. In fact, Jetstar and Peach have total low cost control at Osaka Kansai, Fukuoka and Nagoya. Only at Tokyo’s Narita does Spring Japan and Vanilla come into the picture with key routes. AirAsia is sure to make an impact from summer 2016, but it is hard to see the airline being able to challenge the ANA and JAL low-cost machines. Management has been keen to choose an underserved large population catchment airfield in the form of Chūbu Centrair International Airport as its hub and this does give the airline a head start to get rolling without having to offer ticket prices at huge discount. The advent of specialist LCC terminals at Japanese airports should cut costs further for these airlines but we must consider the danger that rates at these terminals will rise eventually, and if they come anywhere close to rates at the normal terminal gates, these no frills LCC terminals will become a problem for the low-cost carriers that JAL and ANA in the main terminals will be able to use to their advantage. Of the Japanese low costs, five are Airbus operators while four are Boeing operators.

Meanwhile, Fastjet in Africa is facing an increase in competition from none other than Air Zimbabwe, which is introducing two weekly flights to Dar es Salaam in Tanzania from Harare in Zimbabwe at prices starting at $400 for a return ticket. This follows on from the Harare to Victoria Falls route addition by Air Zimbabwe and the re-introduction of the major Harare-Johannesburg route that has had quite an impact on Fastjet. Air Zimbabwe is government backed and has debts in excess of $200 million at this time. We are seeing the familiar scenario of government-backed loss making airlines driving down the margins of privately run airlines. Air Zimbabwe, if the government can keep the airline running, presents a significant danger to Fastjet margins.

Dino D'Amore
By Dino D'Amore May 4, 2016 20:16