JAL gambles on new low-cost carrier business

Japan Airlines (JAL) announced a decision to establish a new low-cost carrier (LCC) in the international market to target the rising Asian demand.

After filing a US$25 billion bankruptcy in 2010, the Japanese airline is now looking to make up for lost time by introducing ‘cheap flights’. Scheduled to start its operation in the summer of 2020, the move is part of a new growth plan, while also capitalising on the 2020 Tokyo Olympics.

But the important question here is: Is the airline ready to enter a new market? JAL has suffered enough in one of Japan’s largest bankruptcies outside the finance sector and the company has spent more time recovering than growing new muscles. Will this strategy become a turning point for the airline?

As stated in the company’s 2017-2020 Medium Term Management Plan (which you can view or download below), JAL will specifically feature international routes with medium to long-haul flights. The new LCC business will provide customers with cheaper options when travelling to and from Japan.

DOWNLOAD THE PLAN HERE

According to JAL, the carrier will operate two Boeing 787-8 aircraft and is targeting to launch commercial flights from the summer of 2020. This will be the first stages of its establishment, coming together with Narita Airport’s plans to complete its facility enhancements.

The new LCC company will be a consolidated subsidiary of the JAL Group and plans to operate flights from Narita International Airport to select destinations in Asia, Europe, and the Americas.

While the new LCC is yet to be named, the company stated that it will invest around JP¥10-20 billion (US$91.44 to $182.88 million), hoping to reach profitability within three years from the launch. This is in alignment with its ‘10 Year Grand Design’ where the company plans to accelerate growth while targeting inbound visitors in the years to come.

“Full-service airlines typically have high costs, but in Japan, this is especially so,” said Will Horton, senior analyst at research consultancy CAPA Center for Aviation. “Japan needs new platforms to capture foreign visitors. They are not like the Japanese who are sticky in wanting to fly a costly Japanese full-service airline.”

When JAL establishes the new LCC business, the company aims to create new demand, working along with the successful services provided by Jetstar Japan. JAL will continue to make key investments into the company which features domestic and short-haul international flights.

Japan needs new platforms to capture foreign visitors

Although there’s a predicted influx of tourists for the summer Olympics, and the post-bankruptcy investment restrictions have been lifted last year, there surely are risks that come with entering a new business. But as they say – the bigger the risk, the bigger the reward. This is the perfect time for the airline to dive into a new market, be more aggressive, and put an all-out effort to sustain its business. JAL has placed its bet and now it’s all or nothing.