ANA moves to take control of Peach in a move aimed at accelerating growth.
Low-cost competition in Japan is set to sharpen with ANA Holdings moving to exert greater control over budget carrier Peach by taking a majority stake in the carrier to better ramp up its growth.
The move comes as Jetstar Japan, part owned by rival Japan Airlines and Australia’s Qantas Group, is also preparing to up the competitive ante in 2017.
ANA Holdings (ANA HD) currently owns 38.7 per cent of Peach but plans to spend $US270m to push this up to 67 per cent.
The deal, which is subject to regulatory approval and would take place in April, would see ANA buy about half the shares held by two other investors: Hong Kong-based Eastern Aviation Holdings and public-private fund Innovation Network.
ANA said the shareholders had decided consolidation as the best way to accelerate the growth of Osaka-based Peach, which will retain its current management.
“Since Peach launched in 2011, it has become a driving force in Japan’s LCC market and we are proud to support the acceleration of its growth across Asia,” ANA chief executive Shinya Katanozaka said in a statement. “Peach is a key component of ANA HD’s strategy, providing customers with greater travel choices, as well as expanding our network and enabling us to better serve the increasing number of international tourists visiting Japan.’’
Peach became profitable in fiscal 2013 and recorded an operating profit of 6.1 billion yen ($US53.5m) in 2015. It expanded to last year operate 18 Airbus A320 aircraft on 13 international and domestic routes.
Japan’s budget carriers are gaining a stronger foothold in the market and could account for 20 per cent of capacity by the end of 2017, according to scheduling expert OAG. That would be up from 16 per cent at the start of the year.
However, overall capacity growth in Japan moderated last year and OAG has questioned the ability of LCCs to stimulate travel in the mature Japanese market.
OAG rated Peach as Japan’s third-biggest LCC in terms of capacity in 2016 after industry leader Skymark Airlines and Jetstar Japan.
Three other LCCs — Solaseed, Vanilla Air and Spring Airlines Japan — also operate in the market and account for 22 per cent of capacity across Japan’s top 10 airports, with Jetstar dominating Tokyo’s Narita airport and Peach leading at Osaka’s Kansai.
ANA is Japan’s biggest domestic carrier and also owns 100 per cent of Vanilla Air as well as stakes in Solaseed and Skymark, prompting one Japanese analyst to float the possibility of a merger between Peach and Vanilla.
“We take the move by ANA management as a positive step to bring a second major LLC under its wings, which would give it more leverage and flexibility in the future, including a possible Peach merger with Vanilla,” SMBC Nikko Securities analyst Hiroshi Hasegawa said ina note obtained by Bloomberg. “That said, we question the price and future return on investment.”
Qantas chief executive Alan Joyce said last week that Jetstar Japan had seen a number of years of continuous improvement and had put in a “great performance’’ in the six months ending December 31.
“We’re very focused on where we can get profitable growth out of our business and we think Japan is one that is the case and we’re adding a significant amount of capacity in the Japanese market,’’ he said.
Qantas doesn’t consider Skymark an LCC and Joyce said Jetstar Japan, which is profitable, now had 53 per cent of the domestic low-cost carrier market in Japan.
“It’s got the best brand in Japan for the low-cost carrier, the best customer service so there are so many opportunities for us up there and we just have to pace them and allocate them where we think the right returns are going to come at the right time,’’ he said.
