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JAL teaming with local low-cost leader to take on Vietnam

Vietjet will give flag carrier foothold in fast-growing market

Budget carrier Vietjet could begin service to Japan this year.

HANOI -- Japan Airlines will partner with Vietjet Aviation to rebuild its presence in Vietnam, joining a trend of Southeast Asian collaborations between conventional and low-cost carriers.

The arrangement includes code-sharing and the ability to transfer reward miles accumulated on one airline to the other. They may also jointly operate routes Vietjet plans to launch as early as this year between Vietnam and Japan. Vietnamese destinations are likely to include such popular resort towns as Nha Trang, Da Nang and Phu Quoc.

The upstart Vietjet commanded a 41.5% share of Vietnam's domestic air travel market in 2016, coming in just below the 42.5% held by the state-owned Vietnam Airlines. The low-cost carrier could well take the lead in 2017. Vietjet's biggest challenge now is to develop its international presence. It hopes to double the share of revenue from international flights to 40% within several years.

JAL was allied with Vietnam Airlines in this country until last fall. The pair split after All Nippon Airways parent ANA Holdings acquired a roughly 9% stake in the Vietnamese flag carrier for 2.43 trillion dong ($106 million at current rates), when Vietnam moved to sell a portion of its shareholdings in state enterprises.

Vietnam Airlines' service has improved since the carrier teamed up with ANA, reports a frequent flyer between Japan and Vietnam. The airlines have exchanged personnel and expertise as well as introduced the latest aircraft on these routes. Vietjet likely hopes that teaming up with a similarly powerful partner will enable the budget carrier to compete internationally.

With the partnership, JAL intends to regain its foothold in the Southeast Asian nation's growing travel market. More than 10 million travelers visited Vietnam last year -- double 2010 levels. The figure is expected to double again by 2020. Travelers from Japan increased 10% to 740,000 in 2016.

Try new teammates

But despite this growth, the past few years have been rough flying for many carriers. Even low-cost carriers in such markets as Taiwan, particularly those with low market shares, have been forced to suspend or otherwise alter service.

The answer for many airlines has been to forge partnerships with peers outside the alliances that have long shaped the air travel industry, which tend to involve mainly full-service airlines rather than budget carriers. ANA has belonged to the Star Alliance since 1999, and JAL joined Oneworld in 2007.

Four budget carriers in China's HNA Group formed the U-Fly alliance in January 2016. ANA unit Vanilla Air and seven peers launched the Value Alliance that May, bolstering customer service functions including flight reservations and options for connections.

Tie-ups among full-service and budget airlines, like that between JAL and Vietjet, are the latest trend. The Japanese carrier has already partnered with Jetstar Airways, a unit of Australia's Qantas group. Vietjet cooperates with Air India, making JAL its second flag carrier partner.

Malaysian budget carrier AirAsia and ANA once ran a low-cost Japanese joint venture for a time. AirAsia is now making another run at the Japanese market in partnership with e-commerce giant Rakuten.

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