Peach takes steps to explore medium haul LCC model

    Japan’s largest LCC, Peach, took its first steps toward transforming itself into a medium haul low cost carrier at the 2018 Farnborough Airshow.

    The airline revised a Nov-2016 order with Airbus for 10 A320s to include two A321LRs (to be delivered in 2020). The A321LR is touted by Airbus as the longest-range single aisle aircraft in the world, opening new routes from Japan to destinations up to nine hours’ flying time away. Peach will become the first Asian airline to operate the A321LR.

    The announcement follows Peach CEO Shinichi Inoue’s comments at the CAPA LCCs in North Asia Summit in Jun-2018, confirming the carrier’s plans to begin medium haul operations of seven to eight hours in the near future. He said that the carrier would not survive without entering the medium haul market by 2025: “We believe it is necessary to move into the middle haul business to expand demand”.

    Peach’s international footprint is restricted

    Peach is Japan’s largest LCC and has an important role in the Japanese market, but its international footprint to Northeast Asian cities is restricted by the performance limitations of its A320s. Peach’s largest international markets are Taiwan, South Korea and Hong Kong.

    Peach international seat capacity by market: week commencing 30-Jul-2018

    Source: CAPA – Centre for Aviation and OAG

    International LCC capacity to Japan is dominated by foreign airlines

    Foreign LCCs dominate international LCC capacity to Japan: of the top 10 largest LCCs operating international services to Japan, Peach is the only Japanese airline.

    Top 20 LCCs operating international services to Japan, by seats, week commencing 30-Jul-2018

    Source: CAPA – Centre for Aviation and OAG

    Reasons for this include Japan’s slow adoption of the LCC model. Before 2012, rigid regulations made it hard for LCCs to make a mark in Japan’s legacy-dominated market. Japanese LCCs have to contend with higher costs compared to airlines from other countries. Foreign airlines also hold a geographical advantage for serving Japan’s large network of underexploited secondary cities.

    Peach will increase its market share

    Before Peach revised the A320 order to include two A321LRs, CEO Shinichi Inoue confirmed the LCC’s intention to expand in Southeast Asia.

    By altering the LCC’s competitive position, the A321LR will help Peach increase its market share, enabling it to reach beyond its present range limitations to markets not yet tapped by Japanese LCCs.

    A number of foreign LCCs, including AirAsiaX and Scoot, are already growing low cost long haul capacity between Southeast and Japan – LCC capacity has almost doubled between 2012 and 2018 (source: OAG).

    LCC seats between Japan and Southeast Asia.

    Source: CAPA – Centre for Aviation and OAG

    Peach will need to contend with JAL’s planned low cost long haul carrier

    Peach is not the only carrier in Japan with ambitions to expand low cost service beyond short haul. Earlier this year Japan Airlines announced plans to launch a low cost long haul carrier based at Narita, to operate services to international destinations in Asia, Europe and the Americas. Japan Airlines expects to launch the new low cost airline in 2020, coinciding with the expected delivery of Peach’s A321LRs.

    Japan is ripe for low cost long haul development

    The LCC model is gaining traction in Japan, with international LCC seats more than doubling from 5.8 million in 2015 to 12.7 million in 2017. With large, densely populated and well connected cities, Japan is ripe for long haul LCC development, ensuring ample opportunities for both Peach and Japan Airlines.

    Seats from 2008 to 2018 for Japan

    Source: CAPA – Centre for Aviation and OAG

    With the arrival of Peach’s first A321LR aircraft, the launch of JAL’s low cost long haul carrier and the Tokyo Olympics, 2020 is shaping up to be an exciting year for Japan’s aviation industry.