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Tech

Low-cost airlines are making progress in train-loving Japan

By
David Z. Morris
David Z. Morris
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By
David Z. Morris
David Z. Morris
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July 28, 2015, 10:00 AM ET
Narita airport opens budget airline terminal
Travelers enter the newly opened third terminal for budget airlines at Narita International Airport near Tokyo on April 8, 2015. The airport inaugurated the terminal to court a growing number of low-cost carriers for domestic and short-haul international flights. (Kyodo) ==KyodoPhotograph by Kyodo/AP

Japan is both famous for, and proud of, its passenger trains. But the arrival and expansion of low-cost air carriers is giving rail a run for its money.

One stark example is the popular trip from Tokyo to Osaka. Aboard the low-cost airline Peach, the round-trip flight is around 14,000 yen, or a little over USD$110. To take the high-speed Tokaido Shinkansen train, the standard cost is almost double—28,280 yen round trip. On longer routes, the difference can be even more dramatic.

Those price differentials are spurring something deeper than competition.

“Some of the traditional things about travelling on the train have been lost for the current generation [of Japanese],” says Allan Bird, professor of global business at Northeastern University, and a business consultant in Japan for much of the 1970s and 1980s. As air travel gets more economical, everything from the pleasures of countryside sightseeing, to each train station’s array of lunch boxes (“ekiben”), gifts, and collectible stamps, may be left behind.

The low-cost carrier policies, such as upcharges for checked luggage, in-flight food, and ticket changes, would be familiar to customers of Western counterparts like RyanAir and Spirit.

The bulk of these low-cost carriers, or LCCs, have launched since 2010. Deregulation fully opened the door to competition by the mid-‘90s, but until recently, new entrants faced a more concrete limitation.

“Slots have been one of the major constraints,” says Dr. Arthur Alexander, former president of the Japan Economic Institute in Washington D.C. and the author of In the Shadow of the Miracle: The Japanese Economy Since the End of High Speed Growth. From the 1970s until the 2000s, Japan’s major carriers—All Nippon Airways and Japan Airlines—used so much available runway space that there literally wasn’t room for competitors.

A portion of that scarcity was caused by a bizarre political conflict. When Narita Airport was being planned in the 1960s, it was imagined as a three-runway international hub outside of Tokyo, to complement nearby Haneda’s domestic services. But the appropriation of the needed land turned into a no-holds-barred clash between the government, farmers, and radicalized students. This climaxed when someone—likely members of the Japanese Communist group Chuukaku-Ha—fired five homemade rockets at Narita’s traffic control tower in 1984.

Narita was forced to operate with just one runway—and intensified security—until a second opened in 2002. The planned third runway is still on the drawing board nearly a half century on. (Narita did, however, open a third terminal in April 2015 specifically to cater to LCCs.)

More runways have been opening up elsewhere, though. Perhaps most notoriously, Ibaraki Airport opened in 2010, at a cost of 22 billion yen, or around $243 million. Slightly farther from Tokyo than already-inconvenient Narita, Ibaraki was widely ridiculed as a symbol of infrastructure (over) spending—especially when the airport initially offered only one daily flight, to South Korea.

Ibaraki’s managers aggressively courted discount carriers, though, offering runway fees and other costs substantially below Haneda and Narita’s. There are now ten daily departures, to Sapporo, Fukuoka, Kobe, and Shanghai—all but the last operated by Skymark, the largest LCC.

But Skymark itself is an illustration of what Alexander says is the major challenge facing low-cost carriers in Japan—lack of capital. Most of the LCCs are tiny, with fewer than 10 planes, and focused on niche routes. For example, Fuji Dream Airlines’ goal is to fly travelers to Mt. Fuji.

That means the lines can offer fewer connecting flights, and they’re more subject to disruption. For instance, Peach had to cancel flights in 2014 due to a lack of pilots. And Skymark, a pioneer in the space, entered bankruptcy after recent growth plans misfired.

Another obstacle is that the second-tier airports that host LCCs are often not well-integrated into Japan’s larger transit network. Ibaraki Airport, for example, offers far fewer options for getting into Tokyo than does Narita.

Japan’s LCCs don’t seem to be skimping on services, though. Alexandra Hopkin flew Jetstar, Peach, and Skymark during four years living in Okinawa, and says that, despite some inconveniences, “I was treated like royalty.”

The shifting airline landscape is particularly relevant as the Central Japan Railway Company undertakes construction of the Chuo Shinkansen, a next-generation maglev train linking Tokyo and Osaka. When it opens in 2027, its tickets are expected to be even more pricey than today’s shinkansen rates.

“I look at that,” says Bird, “And I’m thinking boondoggle.”

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