News Article

Japan’s budget airlines endure post-pandemic business model challenges

With the airline industry struggling during the coronavirus pandemic, the situation is especially troubling for low-cost airlines, which rely on high seat occupancy and aircraft operating levels.

As they relaunch more flights that have been grounded since February, some use their aircraft for freight transportation while others seek to balance infection prevention with profitability until social distancing regulations can be eased safely and air traffic demand recovers to pre-pandemic levels.

However, some experts in the aviation industry claim that low-cost carriers will probably need to start devising new business plans instead of simply weathering the storm by hoping that demand will eventually return.

Peach Aviation Ltd., a group company of ANA Holdings Inc., is preparing to resume services on all of its domestic routes after dramatically reducing its schedule, while Jetstar Japan Co., a budget carrier partnered with Japan Airlines Co., is also restoring flights in phases following substantial cancellations.

Both carriers are asking that passengers wear face masks and suspend all in-flight sales, but elsewhere they are taking a slightly different approach to prevent virus infections of passengers.

Jetstar will not take reservations for middle seats, the same safety measure taken by Japan Airlines, although its officials say the arrangement is “a temporary solution” that can not be maintained unless it relinquishes the low-cost business model and increases fares.

Peach Aviation does not take any special customer spacing measures, saying its aircraft have advanced ventilation systems, although industry officials say it will still be difficult to make profits with the current level of demand for air travel.

Jetstar Japan and Peach Aviation are not facing severe financial troubles as their parent companies Japan Airlines and ANA say they have sufficient funding to deal with the current crisis, but they still face a long road to full-service recovery.

“The seat occupancy rate that low-cost carriers need to make a profit is estimated to be between 70 and 80 per cent,” said Yasuhito Tsuchiya, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co.

The number of domestic flights Jetstar Japan plans to operate in June will be only 10 per cent of the pre-pandemic amount, while Peach Aviation’s will be just above 30 per cent, the airlines claim.

Tsuchiya said a possible path of survival for budget airlines is to coordinate services more closely with their parent companies by opening routes which are not covered by big carriers.

“They have to depart from the low-price-first approach and give more value to passengers, such as increased quality of services … but in this situation, such a business change is very difficult,” he added.

Earlier this month, Zipair Tokyo Inc., a wholly-owned budget carrier subsidiary of Japan Airline Co., made its maiden flight from Narita Airport to Bangkok with a Boeing 787 jet, flying cargo instead of passengers.

“Low-cost airlines must survive by taking steps that include turning part of their services to cargo flights for a while,” said Tomohiko Nakamura, a professor at Kobe International University who is well-versed in the aviation industry.

‘”Recovering the demand for passenger flights to levels before the pandemic will take a long time. Low-cost flights could well become a thing of the past.”

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