Monday, June 4, 2012

LCC’s difficulty in Japanese market

 All Nippon Airlines (ANA) had gone into Law Cos Carrier (LCC) this year, and they put money into Peach Airline and Air Asia. Japan Air Lines (JAL) also had entered into LCC and they invest for Jetstar Japan. I pick up these topics because I think the topics fit the contents of “Going From Global Trends to Corporate Strategy”. This means the strategies of ANA and JAL were generated from global trends which a lot of LCC companies generated.

 More than 40 years has passed since first LCC company had been born. In fact, LCC’s market share is more than 20% in Europe and the United States. On the other hand, LCC market share is only 3% in Japan. Japanese have a feeling that riding on the plane is special experience. As a matter of fact, Japanese airline usually provided high quality service with high fare.

 However, Japanese market experienced tipping point. Jetstar provided round trip ticket between Kansai-Airport and Sydney with only 20,000 yen (about $250) as a campaign discount ticket though the fare of JAL and ANA was about 120,000 yen (about $1500). In such situation, Japanese people also began to know LCC gradually. After that, Japanese two big airline companies, ANA and JAL had decided to put money into LCC. What is the key to success for ANA and JAL?

 Of course, they can take advantage of airline company, so they can reduce their cost with ensuring safety operation. For example, their equipment simplification, sell over the internet, customer service simplification, increasing plane’s operating time, increasing seat, and so on. However, the whole of airline market is limited, then, we can predict easily that ANA, JAL and LCC will cannibalize. Therefore, Japanese market industry has to expand Japanese airline market size to prevent from cannibalization. In Europe, LCC could enlarge airline market. How about Japanese market? I as one of Japanese would like to mention about this topic.

 In this situation, I think Japanese airline industry have to increase international Japanese tourists in order to enlarge airline market because business tourists will not be changeable and domestic market is limited. I think this is difficult task as following reasons. First, Japan is isolated island country and Japanese country is attractive for tourist. This means most of Japanese people can be satisfied with Japanese sightseeing spot, so they don’t have incentive to go abroad. In fact, such kind of Japanese people don’t have notion that they want to go abroad. Second, Japanese holidays are not so long. This means they are difficult to go abroad in such short holidays. Third, fewer young adult segment Japanese people go abroad than before. This means international Japanese tourists will not be increased. As a matter of fact, this is also serious problem in Japan, so Japanese government also investigates the factor of this topic.

 In this way, I mentioned the difficulty of expanding airline market share. In these days, the number of international Japanese tourists has not been changed. On the other hand, foreign travelers in Japan have been increased, but they have a tendency to use their country’s airline. ANA and JAL made their strategies with considering global trends, but Japanese airline market doesn’t seem to be good for them. So, I think they should produce trend by themselves which many Japanese people want to go abroad. For example, they can cooperate with government and other industry, set up the trip plan for short holidays, and so on. I think these plans help them create high-motivation for overseas travel. ANA and JAL can do these things because they are huge company, so they can have an influence on Japanese people. Not only following global trends, but also producing trends is also good strategy I think. How do you think?

References:

-What is the differentiation strategy of LCC in Japan?
http://pmi-c.weblogs.jp/social_eye/2012/04/lcc-39a6.html

-Society data catalog
http://www2.ttcn.ne.jp/honkawa/6900.html

-Investigation of international Japanese tourists
http://www.mlit.go.jp/common/000019459.pdf

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