After AirAsia India, airline joins hands with Rakuten

Jul 01 2014, 13:49 IST
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SummaryAirAsia is Southeast Asia's biggest budget airline by passenger numbers. It is keen to expand beyond the region in the face of stiff competition from rival low-cost carriers and last month, its Indian joint venture, AirAsia India, started flights.

AirAsia Bhd said on Tuesday it would set up a low-cost airline with Japan's biggest online retailer Rakuten Inc and other firms, marking the budget carrier's second attempt to tap one of Asia's lucrative air travel markets.

The new carrier, AirAsia Japan, will have an initial capitalisation of 7 billion yen ($69 million) and will start flying in about a year with a fleet of five Airbus A320 aircraft, the carrier's CEO, Yoshinori Odagiri, told reporters.

The airline will fly to both domestic and international destinations, but has yet to decide which airport it will be its base, he added.

For Malaysian-based AirAsia, the venture with businesses not involved in the airline industry is another attempt to expand to Japan after it pulled out of a partnership with the country's biggest carrier ANA Holdings Inc last year.

That venture, launched in 2011, failed to woo travellers and ANA blamed poor marketing and a user-unfriendly website. The airline has since been rebranded into Vanilla Air, and is now wholly owned by ANA and based out of Tokyo's Narita airport.

"For AirAsia, the rationale is that if they can bring down the costs and they can undercut the competitors, they can make a lot of money because there is still a lot of room to grow," said Tan Kee Hoong, an analyst at Alliance DBS Research in Kuala Lumpur.

"Now that their partners are non-airline companies, the joint venture partners will leave more of their strategy as well as the operational decision to AirAsia."

Rakuten, controlled by Japan's fourth-richest man Hiroshi Mikitani, aims to boost its online travel site through the partnership and create new business to fend off increased competition from the likes of Amazon.com Inc.

Rakuten's travel site is already one of the largest in Japan. Two decades ago, travel company H.I.S pioneered the trend, setting up Skymark Airlines, which is now Japan's leading discount carrier.

Mikitani said he saw great potential in the budget travel market in Japan. "In America, discount carriers account for 30 percent of travel. In Southeast Asia, it's 50 percent. In Japan, it's only 3 percent," he told the same news conference.

Rakuten will own an 18 percent stake in the new airline, while Noevir Holdings Co Ltd, a diversified conglomerate that owns an aircraft leasing business, will own 9 percent. Octave Japan Infrastructure Fund will own 19 percent and sports firm Alpen Co Ltd will own 5 percent.

CHALLENGES

AirAsia's return would intensify competition among Japan's

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