The Jetstar brand is taking off in Japan – with the might of celebrities, pandas and two of the world’s most trusted airlines behind it.
By Annie Hariharan
There are few Australian businesses that can boast successful partnerships with Japanese companies and an even smaller number that have been able to capture more than 50 per cent of the Japanese market.
Low-cost carrier Jetstar Japan – a joint venture between Qantas and Japan Airlines - is one such rarity. Its achievements in a notoriously challenging and competitive sector have highlighted not only the importance of cultural cohesion, but also the advantages of a dual brand that can offer different strengths.
Since launching its first flights at Japan’s Narita Airport just over three years ago, Jetstar Japan has managed to avoid the business turbulence that rival low-cost carriers have experienced. The result is that it now has almost 60 per cent of the low-cost market in a country that has traditionally been slow to embrace this cheaper but less glamorous form of air travel. (Low-cost carriers cater for about 7 per cent of Japan’s domestic traffic, compared with a global average of 22 per cent.)
The company thinks it has plenty of growth left, too, with the low-cost sector growing faster than the rest of Japan’s air travel market.
“The growth prospects ahead of us are enormous,” says Masaru Kataoka, Jetstar Japan’s chairman.
“There is every chance Jetstar Japan will end up being an even larger airline with more than twice or three times the operation size [of] our current operations.”
“The Australian press and some of the investment community, they don't like failures and risk-taking.” Alan Joyce, Qantas
When Qantas and Japan Airlines decided to roll the investment dice with a new low-cost carrier, “they had more in common than people realised”, says Neil Hansford, chairman of aviation consulting company Strategic Aviation Solutions.
“Australian companies still think of UK and US companies as a good fit, and that could be true for management styles and consumer demand,” he says.
“But the aviation industry is one area where Japan and Australia are a perfect cultural match. Qantas is rated the safest airline in the world, because it has a strong culture of maintenance and pilot training.” This, he says, resonates with Japan Airlines, a company focused on efficiency and high operating performance.
Strengths on both sides
Each company brought something to the joint-venture table. In the case of Qantas, it was proven management and expertise in running a low-cost carrier, with its Jetstar subsidiary now in its 12th year of operation and flying domestic and international routes.
Japan Airlines, on the other hand, brought credibility and assurance to the deal, with an established and trusted reputation in its native market.
The timing of the joint venture coincided with Japan’s highly regulated airline industry beginning to embrace the low-cost model of air travel – something it had previously resisted, despite uptake the world over. As a result, low-cost carriers are expanding their networks within the country and travellers are benefiting from competitively priced tickets.
Today, the price of a round-trip flight from Tokyo to Osaka on a low-cost carrier is about ¥10,000 (A$115). In comparison, the cost of travel on the high-speed Tokaido Shinkansen train is almost triple: ¥28,000 (A$325).
When presented with such a significant cost saving, even status-conscious Japanese business executives are becoming more willing to alter their traveling styles.
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Jetstar’s Asian expansion
The Jetstar brand has also been established in Vietnam (Jetstar Pacific), Singapore (Jetstar Asia) and New Zealand, while attempts to set up Jetstar Hong Kong foundered in mid-2015 when it was denied regulatory approval.
According to Jetstar Group’s CEO Jayne Hrdlicka, the dual-brand model has benefits for both overseas and Australian markets.
“Each year, we get smarter about how we use the two brands together in Australia,” she told the CAPA aviation consultancy last year, “and each year, we get more creative in deepening the focus each brand has on its market segment. Our partners in Vietnam, Japan and Singapore place huge value on this wisdom and market know-how, and already see its benefits.”
“We get smarter about how we use the two brands together.” Liz McCarthy, Jetstar
Will Horton, an analyst from CAPA, has watched the emergence of Jetstar Japan with interest and notes that the airline has grown more aggressively than other locally owned low-cost competitors, such as Vanilla Air and Peach Aviation. This has been helped by the fact that the Jetstar brand was “visible earlier in Japan”, he says, in reference to Jetstar International’s flights to the country.
Think global, act local
What isn’t visible with Jetstar Japan is anything overtly Australian; you will not, for instance, find koalas or kangaroos on its logo. This has always been Jetstar’s approach when expanding into other countries, but doing business in Japan requires very careful assessment of the local culture and a tailored approach to meet customer demand.
Head of marketing for Jetstar Group Liz McCarthy says the company “prides itself on thinking globally and acting locally”, adding that Jetstar Japan is known neither as an Australian nor a Japanese airline but as “simply a leading carrier in price and quality”. That would not be the case if the business was run from Australia, argues McCarthy.
“We are deeply committed to the Japanese market and it is obvious in how we grow the local team with decision-making authority.”
This approach is evident in the carrier’s Japan-centric distribution channels and marketing. For example, customers can buy airline tickets from kiosks in convenience stores in addition to the usual online channels and sales offices.
“Convenience stores are such an essential part of Japanese culture,” explains McCarthy.
“They sell everything, even men’s T-shirts and boxer shorts, because so many men work long hours in the city and don’t have time to go home and change.”
The company has also adopted a red panda mascot, Jetta, which features in advertising campaigns, and it has engaged well-known Japanese fashion model and actress Mirei Kiritani as its brand ambassador. Videos and photos of Kiritani are often widely shared online, so images of her at Jetstar events and launches further etch the company’s brand into the minds of the Japanese consumer.
Such initiatives are the sort that customers will often share on social media – important in a country with high levels of internet penetration and online customer engagement. In November last year, Jetstar Japan’s Facebook page had more than 370,000 likes, compared with 67,000 likes for Vanilla Air and 27,000 likes for Peach.
The bottom line
For a low-cost carrier, especially one still in fledgling mode, making early profits was never going to be easy. In 2012-13, Jetstar Japan lost ¥8.8 billion (A$100 million); the next year, it lost ¥11.1 billion (A$120 million). Some of this loss can be attributed to the delay in opening a second base in Osaka and some is due to the weakening yen.
Qantas did not break down the detailed financial performance for Jetstar Japan in 2014-15 but highlighted that the carrier had “significantly improved” its performance for the financial year, with revenue per available seat kilometre up 8 per cent. More recent reports suggest that the Qantas senior management team thinks Jetstar Japan can make a profit in 2016-17.
Japan Airlines’ Jian Yang told INTHEBLACK that his company believes Jetstar Japan “can achieve profitability in [the] near future”.
“The aviation industry is one area where Japan and Australia are a perfect cultural match.” Neil Hansford, Strategic Aviation Solutions
CAPA’s Horton is convinced that Jetstar Japan is on the right track. Its fleet growth has slowed – in his analysis, a sensible change that has allowed the airline to increase its focus on keeping existing planes in the air for as long as possible each day. Horton also points out that in 2014, a number of Jetstar Japan’s aircraft were out of service, waiting for the repeatedly postponed Osaka base to open.
“The cost impact from under-utilisation is clear,” he says, “but Jetstar Japan is closing the productivity gap with Peach.”
In mid-2015, both Qantas and Japan Airlines pledged ¥5 billion (A$55 million) to support Jetstar Japan’s operations and maintain its position in the growing Japanese low-cost domestic market. That had the effect of triggering speculation about Jetstar Japan’s viability.
By November, however, with Qantas announcing a return to profit, chief executive Alan Joyce went on the offensive.
“The Australian press and some of the investment community, they don’t like failures and risk-taking,” he told a business function.
“If you are going to be creative and generate new businesses, some of those are going to fail. We have had more successes in Asia than we have had failures. These things don’t switch on overnight. You have to work at them.”
The rise of the low-cost carrier
One of the most notable developments in the past 40 years of travel is the low-cost carrier, offering cheaper flights in exchange for limited in-flight service – and less room for your kneecaps.
The no-frills, low-budget concept began in the US in the 1970s, spread through Europe and Australasia in the 1990s and arrived in Asia in the 2000s.
Today, there are more than 100 low-cost airlines operating in every corner of the globe, with the largest of these being Southwest Airlines in the US.
This article is from the February issue of INTHEBLACK.
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