Flight of fancy?

Budget airlines may be heading for Japan – meaning cheaper trips abroad

We have all been there – it’s November and you are thinking of booking a flight for a Christmas holiday, but the prices are ridiculously expensive. For many in Japan, this leads to a difficult choice between struggling for money in the New Year and having another uneventful Christmas.

Well, that all may be about to change. Budget travel may be coming to Japan as recent developments such as the opening of Ibaraki Airport, the bankruptcy of Japan Airlines (JAL) and the economic downturn conspire in a push to bring down prices. And then there is the third terminal at Haneda Airport, which will bring further competition to Kanto.

The story began long ago. Despite the fact that most of Japan’s population is crammed into a few urban areas – 40 million people live in greater Tokyo – Ibaraki Airport was the 98th to be opened. This has had consequences – as well as leading to accusations that politicians were wasting money on the airports, it was also a factor that led to the bankruptcy of JAL.

When JAL collapsed, it led to further deregulation of Japan’s skies – allowing in more international airlines and intensifying competition. By September 2010, ANA had announced that it would create a budget airline, set to hit the skies in the second half of 2011, and once unheard of bargains were already becoming available for travelers looking to head overseas.

September saw the Chinese carrier Spring Airlines offer one-way tickets to Shanghai from Ibaraki airport for less than ¥5,000. AirAsia X also announced that to celebrate the opening of its route between Haneda Airport and Kuala Lumpur, it would be offering tickets for one-way flights between Tokyo and the Malaysian capital for ¥5,000. To put this in context, ¥5,000 will get you between Tokyo Station and Mishima in Shizuoka Prefecture will leave you with little change from ¥5,000.

Moving toward budget airlines could have serious consequences for Japan. JAL has said it aims to cut more than 19,000 of its 47,000 employees by 2015 in a bid to maintain competitiveness. And while ANA’s 12,900 employees are likely to be pleased to see their company taking the initiative and looking to fill the void left by distrust in JAL, it is likely to see strong competition in the years to come.

Budget airlines manage to make a profit by cutting as many costs as possible. Often, meals will not be served on flights, and the interior of planes will be refitted to squeeze in as many people as possible. Employees can also be expected to multitask, with some staff having work weeks that split time between areas such as engineering and corporate planning.

Airports have also got in on the act, making it more desirable for airlines to land on their runways, in an effort to wrestle custom away from the dominant hubs of Narita Airport and Osaka International Airport.

For Kansai International Airport, that meant cutting landing fees for airlines by around 80 percent. While it once cost ¥580,000 for a Boeing 77 with a landing weight of 280 tons to land at the airport, since September 2009 that fee has been reduced to ¥100,000 for airlines that see year-on-year growth. The consequence has been more budget airlines moving to the airport, and healthier trade. For instance, flights to the Philippines can now be bought for around ¥50,000.

“We want to boost our airport’s advantages in order to beat international competition, although the emergency measure may give us biting pains,” said Shinichi Fukushima, the president of Kansai International Airport Co. last year when announcing the reductions. Whether the airport will be able to end its fee reduction in March 2011, as it initially planned to, is anybody’s guess.

Ibaraki Airport has also developed a strategy to bring in lower cost airlines. When the airport was first planned, it was to be a three-storey, state-of-the-art building. It was also to be the nation’s 98th airport, located less than 100 km from Tokyo. Perhaps the intention was for it to go into direct competition with Haneda and Narita. Ibaraki Prefecture Governor Masaru Hashimoto, however, thought that would be economic suicide and in 2007 ordered the blueprints be torn apart.

The new look airport that Hashimoto ordered was a minimal affair. Departures, arrivals and the viewing lounge were restricted, and services offered are basic. Passengers enter flights from the tarmac, runways are designed so heavy-goods vehicles are not needed to taxi planes before takeoff or after landing, and there are few stores and restaurants in the airport.

The airport has also made traveling from Tokyo convenient. From Tokyo Station, passengers on planes leaving from Ibaraki Airport can get a bus that takes 1 hour and 40 minutes to get there and costs ¥500. By contrast, Narita Airport costs ¥1,280 each way and takes and hour.

“Just another standard airport wasn’t going to work. We’d be behind the times as soon as we opened,” Hashimoto told the New York Times earlier this year. “We needed to turn our thinking upside down.”

Haneda, however, has kept up. Low-cost carriers leaving from the airport are only likely to increase over time, as more and more people opt to pay less money to head overseas.

Japan has long been a notoriously difficult place to leave for its citizens. Spaces at airports have for decades been closely guarded, with only the two major airlines, JAL and ANA getting a significant amount of space in the two large Tokyo airports. JAL’s collapse and the economic downturn have changed that.

As the nation was forced to give concessions to overseas airlines in the face of JAL’s bankruptcy, Japan has seen its money for holidays slip away as purse strings have been tightened. Incomes have seen increases in recent months, but mainly because of variables such as overtime work and unscheduled pay through bonuses. In the year to July, meanwhile, the downward spiral for scheduled pay continued to fall, with the average Japanese taking home ¥245,443 per month (according to the Ministry of Health, Labor and Welfare), with wages having seen 24 months of consecutive decline.

Amid these circumstances, targeting lower budget travelers made sense. But the success of the projects may depend on the nation’s fortunes away from aviation. As well as traffic going out of Japan, traffic has to come in, and one of the biggest potential growth markets for tourism to the nation is China. As events this year have shown, in which the arrest of a Chinese boat captain by Japan led to a tit-for-tat war of words, there are no guarantees that those tourists will be coming to Japan in droves. In the aftermath of the diplomatic dispute, Beijing sent word to tourist agencies to tone down sales pitches from Japan.

An expensive yen may also play a factor in keeping away tourists. While the wealth of other Asian nations may be able to afford a visit to Japan, the middle classes are now in a position where their currency will go a lot further in other countries close to home.

And with airports needing to generate profit while at the same time attracting airlines to bring in passengers, innovations and price cuts may not be enough to move the industry back into good times.

Story by Richard Smart
From J SELECT Magazine, December 2010