ANA and AirAsia End Partnership on Low-Cost Carrier

TOKYO — Malaysia’s AirAsia and All Nippon Airways of Japan announced the dissolution of their joint ownership of the struggling Japanese budget carrier Tuesday, attributing the split to fundamental differences over cost control and customer service.

In separate statements, the airlines said that All Nippon, also known as ANA, had agreed to buy out AirAsia’s 33 percent stake in the venture and operate it as a wholly owned subsidiary. Neither airline disclosed how much All Nippon would pay AirAsia for relinquishing its stake.

Signs of discord had been apparent for some time at AirAsia Japan, a low-cost carrier formed two years ago as a number of airlines raced to crack open Japan’s lucrative aviation market. The new carrier based its operations at Narita Airport, about 70 kilometers, or 40 miles, east of Tokyo, and offered budget flights to Sapporo, Fukuoka and Okinawa in Japan as well as two cities in South Korea.

But the budget airline has been slow to generate sales, prompting each partner to accuse the other of undermining the business.

AirAsia Japan’s passenger load factor, a measure of average occupancy on an airline’s routes, was 53 percent in May, a critically low level for a budget carrier that makes up for low fares by flying lots of passengers.

The venture ate into All Nippon’s operating profit to the tune of about 3.5 billion yen, or about $36 million, in the latest fiscal year through March, according to the company.

On Tuesday, All Nippon said ineffective marketing, a poorly designed Web site and poor customer service had doomed the venture.

Shinzo Shimizu, senior vice president at All Nippon, said that the airline had learned a lot from its Malaysian partner on how to cut costs by adopting simpler reservation systems, turning planes around faster on the ground and getting employees to multitask.

But cutting costs was not enough to win over Japanese travelers, Mr. Shimizu said.

“AirAsia may be almighty in Southeast Asia, but it wasn’t fit to provide the meticulous service called for in Japan,” Mr. Shimizu said. “Even a low-cost carrier requires attentive service, and the airline was not up to task.”

Speaking privately, an All Nippon official pointed to numerous shortfalls in the level of service AirAsia brought to Japan.

For example, the official said, AirAsia required passengers booked on domestic flights to check in 45 minutes before departure — unthinkably early for passengers in Japan, who are used to being whisked onto flights when they arrive even 15 minutes before takeoff — and having those flights still depart on time, to boot.

The online reservation service was also problematic, the All Nippon official added, because it featured unclear Japanese and limited payment options.

Meanwhile, Tony Fernandes, AirAsia’s chief executive, appeared to call out All Nippon for not being committed to a genuinely low-cost carrier. AirAsia had previously criticized its partner’s generally lax approach to cost management.

“I have great respect for ANA as the leading legacy airline in Japan, but it is time for us to part ways and focus our attention on what we do best,” which is running a true low-cost carrier, Mr. Fernandes said. “Despite the cost issues, the AirAsia brand has resonated with Japanese customers.”

The Center for Aviation in Sydney called such differences in approach irreconcilable. “The AirAsia-ANA partnership has not been a happy place,” the industry research group said in a report this month, as tensions between the two airlines surfaced. “Although there was an excellent rapport between the heads of the two organizations, lower down the body the chemistry simply did not match. When a low-cost airline is forced to adopt high-cost practices, the flaw is unavoidably fatal.”

All Nippon’s Mr. Shimizu said that it would pick a new name for the AirAsia venture and decide by July how it would be run. He said the airline was considering a possible merger of AirAsia with Peach, another low-cost venture backed by Hong Kong investors that All Nippon runs out of Kansai International Airport in Osaka.

AirAsia’s troubles underscore the difficulties low-cost carriers have had in entering the highly insulated Japanese market, where domestic fares have stayed above global norms for decades.

Japan’s other flagship carrier, Japan Airlines, started a joint venture with Qantas Airways two years ago. The venture, JetStar Japan, operates flights from both Narita and Kansai.

Those three low-cost carriers together hold a mere 5 percent to 6 percent of the domestic Japanese market, according to the Center for Aviation. Skymark Airlines, which is also relatively low-cost, holds an additional 7 percent share.

AirAsia’s retreat from Japan comes at a time when the airline is focusing on a new challenge closer to home — a venture by its Indonesian rival, Lion Air.

Still, Mr. Fernandes hinted that his airline might take another crack at the Japanese market.

“I remain positive on the Japanese market and believe there is tremendous opportunity” for a low-cost carrier to succeed, he said. “We have not given up on the dream of changing air travel in Japan.”

Article source: http://www.nytimes.com/2013/06/26/business/global/ana-and-airasia-end-partnership-on-low-cost-carrrier.html?partner=rss&emc=rss