TOKYO -- Japan Airlines has made a wager that a no-frills air travel business model will work on medium- and long-haul flights -- something no domestic rival has attempted given the challenge of maintaining passenger volumes.
The Japanese flag carrier's new budget airline Zipair Tokyo will start service next year from the Tokyo area's Narita Airport to Bangkok and Seoul, JAL said on Friday.
The announcement comes as Japanese corporate tax reductions tied to the company's 2010 bankruptcy filing are set to expire. JAL sees low-fare service as a new earnings driver.
In a departure from other Japanese budget airlines focused on domestic and East Asian routes, Zipair has extended its horizon to Southeast Asia and beyond.
For long-haul flights, Zipair will "first consider North America, and later Europe," Shingo Nishida, the unit's president, told a news conference. He did not give specific destinations, but said Zipair will aim to debut long-haul service as early as 2021.
The new carrier will initially operate two Boeing 787 midsize jets, with plans to increase its fleet to around 10 aircraft after five years in business.
JAL is looking beyond the increasingly crowded short-haul market. It envisions a two-tiered approach, with its namesake airline catering to high-value business travelers while Zipair meets the needs of cost-conscious flyers.
Services expansion will be needed to narrow the gap with Japanese rival ANA Holdings, which widened after JAL's lurch into bankruptcy.
In fiscal 2017, JAL logged 51.8 billion available seat kilometers -- a measure of passenger capacity for international flights --compared with ANA's 64.3 billion km. The difference was a result of ANA's expansion while JAL was restricted from launching new routes as a condition of its government bailout.
This means "ANA's earnings advantage will grow if travel demand rises," said Ryota Himeno, an aviation industry analyst at JP Morgan Securities in Tokyo.
Scaling back money-losing operations has restored JAL to financial health. Net profit for the six years through fiscal 2017 totaled about 960 billion yen ($8.64 billion). Shareholders' equity has risen to more than 1 trillion yen from around 390 billion yen as of March 2012, giving JAL an equity ratio of 57% to ANA's 41%. JAL will channel these funds into the new budget carrier.
But whether Zipair can make money remains to be seen. Typical budget airlines fly many short-haul trips, earning profits by their sheer number of passengers.
Longer-haul carriers have longer flight times, which limit the frequency of flights. They also use bigger jets, creating a bigger risk of unfilled seats. Other budget airlines have struggled to make the jump to further destinations. Indonesia AirAsia X -- part of Malaysian entrepreneur Tony Fernandes' AirAsia group -- halted its service linking Bali and Narita in January.
JAL's experience operating low-fare airline Jetstar Japan with Australia's Qantas Airways is not likely to help, said an industry insider. The joint venture flies to Japanese cities and such nearby Asian destinations as the Philippines. But Zipair "has a different business model, so it won't be easy to get the new business on track," the insider said.
Securing enough pilots will be another challenge. Zipair has made progress on a pilot-recruiting effort that began in October, Nishida said.
But the industry is experiencing a shortage. Japan's transport ministry estimates that 380 new pilots will be needed in 2020, with the figure rising to 430 in 2030. Yet only about 300 new pilots are trained each year.