All Nippon Airways, AirAsia end budget airline tie-up

Japan's All Nippon Airways (ANA) and Malaysian budget carrier AirAsia Berhand yesterday decided to dissolve their two-year old Japanese low-cost joint venture AirAsia Japan Co Ltd due to management differences and a business slump.

Under the agreement, ANA Holdings Inc, which owns 67-per cent stake in the joint venture will acquire the 33-per cent shares held by AirAsia in AirAsia Japan and make it a wholly-owned subsidiary, ANA said in filing to the Tokyo Stock Exchange.

The subsidiary will then remain operating as a company in the ANA Group's air transportation business, and continue the low-cost carrier business based on Tokyo's Narita airport, ANA said.

The airline will continue to operate under the AirAsia brand until the end of October 2013.

 Although monetary details of the transaction have not been disclosed, ANA said that the financial impact of the dissolution on ANA is limited.

 AirAsia, the region's largest budget carrier and ANA, Japan's largest airline, formed the joint venture in August 2011 to tap the country's low-cost market and began its operations a year later.

It is one of the country's three low-cost airlines which entered the market in recent years. Rival Jetstar, a joint venture between Australia's Qantas and Japan Airlines began its flights last July from Narita and Peach Aviation, another ANA joint venture with a Hong-Kong based private equity group launched its operation from Kansai airport in Osaka in March 2012.

AirAsia has been offering budget flights to Sapporo, Fukuoka and Okinawa in Japan and two cities in South Korea.

The three new budget carriers together account for less than 6 per cent of the domestic Japanese market, while the older Skymark Airlines which is also considered relatively low-cost has a 7-per cent market share.

ANA blamed the joint venture's failure to poor marketing and predominantly online ticket booking amodel dopted by AirAsia Japan.

In a press briefing, ANA vice president Shinzo Shimizu said that the joint venture agreement was terminated because its name didn't spread in Japan and it couldn't make profits. The airline reported an operating loss of $36 million in the fiscal year ended March.

ANA said that it would start a new low-cost brand in November.

"We will announce details of which brand and aircraft to use, as well as routes, in July," Shimizu said.

According to some reports, a possible merger with Peach Aviation, has also been not ruled.

In a statement, AirAsia said that the joint venture faced many challenges since its launch and cited fundamental difference of opinion between its shareholders on cost management to where domestic business operations should be based.

''It is time for us to part ways and focus on our attention on what we do best, which is running a true low-cost carrier,'' AirAsia founder and chief executive Tony Fernandes said.

However, Fernandes was optimistic about the Japanese market for low-cost carriers and said that ''despite the cost issues the AirAsia brand has resonated with Japanese customers.''

"I remain positive on the Japanese market and believe there is tremendous opportunity for a low-cost carrier to succeed," he said.

The break-up comes at a time when AirAsia is spreading its wings to other countries in the region.

The company is focusing its attention on the large and fast-growing neighbour Indonesia, where it is operating AirAsia Indonesia and is planning for a $200-million initial public offering later this year.

In India, AirAsia has already received the approval from India's Foreign Investment Promotion Board (FIPB), and is awaiting the green signal from the civil aviation ministry.

The new budget airline AirAsia India is being launched through partnerships with Tata Group and Amit Bhatia-owned Telstra TradePlace in a ratio 49:30:21.