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Airfares for Japan's low cost carriers leveling off

Ticket prices drop 12% over last 5 years, but slide is slowing

Passenger jets belonging to budget carriers Jetstar and Vanilla Air sit at Japan's Narita Airport.

TOKYO -- Competition between Japan’s budget airlines and major carriers is easing as discount ticket prices slow their downward trend.

Average per capita passenger revenue amounted to 15.3 yen (14 cents) per kilometer during the fiscal year ended in March, data from Japan's transport ministry shows. That marks a 12.6% drop from fiscal 2011, before low-cost carriers were fully established in this market.

However, the rate of decline has gradually gotten weaker. The year-on-year slide hovered in the 4% range in fiscal years 2012 and 2013, but the margin shrank to 2.5% last fiscal year, according to the data from 11 major carriers with domestic service, including ANA Holdings and Japan Airlines.

"It's far-fetched to think that the fares will continue to decline like in the past," said a source at a large airline, echoing a widespread view.  

Airfare at ANA and JAL sank 6% during the five-year period analyzed, as the two majors fought back against low-cost carriers by offering early-purchase discounts. But while ticket prices slumped by 2.8% in fiscal 2013, the dip only amounted to 1.7% fiscal 2016.

ANA Holdings and JAL hold stakes in three budget carriers -- a factor contributing to the stabilizing airfares. ANA this year converted Peach Aviation into a consolidated subsidiary. That kind of business relationship allows the big airlines to blur the boundaries with their low-cost peers.

For example, JAL is cutting the number of seats available at flights at Narita Airport in part due to the switch to smaller aircraft. JAL then redirects surplus traffic to Jetstar Japan, the 33%-owned budget airway with which it struck a code-sharing agreement.

Low-cost carriers bought out by large airlines get to engage in joint fuel procurement and other cost-cutting measures, which tend to shave ticket prices even more. On the other hand, this funneling of flights weakens competition.

Although budget carriers sell tickets at less than half the prices offered by the majors, the price tags have largely remained flat. While simplified airport facilities and added fees for in-flight services have helped keep prices down, it will be difficult to maintain that equilibrium in the face of the global pilot shortage, which is driving up labor costs.

In the U.S., domestic airfare shot up 21% in 2016 from 2006, according to industry group Airlines for America. What was once a landscape dominated by six major airlines has transformed into a three-carrier oligopoly. Those three -- American Airlines, Delta Air Lines and United Airlines -- have also formed their own separate hubs in a way that diminishes the overlapping of routes.

(Nikkei)

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