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All's Fare in the Air: The War for Japan's Flyers


Kvetch Report
Japanese officials are addressing travelers' concerns about safe flying, with the Ministry of Transport due to publish its first airline report card in October

Tokyo Bay now has an even cooler selling point: Palette Town, the city's largest theme park and shopping area

It's not easy being cheap. Just ask Hideo Sawada, the 48-year-old chairman of Skymark Airlines. When his discount carrier (Japan's first new airline in 35 years) unveiled the first of its two planes last August, the journalists and onlookers assembled at Tokyo's Haneda Airport were puzzled by the large question mark on the fuselage of the Boeing 767-300. The question would not be answered until the low-budget service took off in September: the aircraft was emblazoned with an advertisement for DirecTV, its inflight entertainment service. Sawada's second steely steed was unleashed in April with an ad for Microsoft slapped on its side.

Sawada honed such cheeky cost-cutting measures while building his H.I.S. discount travel agency business. From a one-room office in Tokyo Sawada's company has taken off like a rocket, mushrooming into 173 branches worldwide and racking up sales of $1.4 billion last year. But he did not just want to hawk cheap tickets. The entrepreneur was eager to take on the overpriced and over-regulated airlines getting rich from his success in selling seats on their planes. But he knew it wouldn't be easy. "An airline is a very difficult business to start up in Japan," says Sawada.

No kidding. Japan's major carriers--Japan Airlines, All Nippon Airways and Japan Air System--have long enjoyed a cozy existence, carving the country's aviation business among them and keeping fares in line with each other's. In 1996, Japan's Ministry of Transport permitted the Big Three to adjust their fares by as much as 25% from recommended levels, raising hopes that ticket prices would come down to earth. Instead, the high-flying troika raised their domestic prices, citing competition from Northwest and United Airlines on international routes and the world's highest airport charges at home. Within months, Japan's domestic air ticket prices were three times higher than comparable U.S. fares.

Sawada entered the fray in late 1996, when new slots opened up in the wake of a five-year airports expansion plan. Inspired by small U.S. carriers, the novice airline mogul slashed his overhead by reducing turnaround times and skipping inflight amenities like reading materials and moist towelettes. He hired freelance or retired workers and leased planes, contracting their upkeep to All Nippon Airways. Cabin crew duties included between-flights cleaning and, in a Virgin-like touch, posing in swimsuits for a promotional book. Sawada sells directly to the public by taking seat reservations on the phone, a ticketless system in which customers then pay for and pick up a paper slip seat confirmation at more than 30,000 convenience stores in Japan or upon check-in at the airport. His no-frills tactics let Skymark launch in November with Tokyo-Fukuoka flights for only $114 each way--half what his competitors charged.

The upstart carrier got some company in December, when Hokkaido International Airlines, or Air Do, inaugurated service between Tokyo and Sapporo for $133 one-way, or 35% less than what the Big Three were charging for the world's busiest sky route. Despite initial safety concerns about the two debutantes (both of which passed government scrutiny and spot checks), passengers began migrating to the new airline. Each flew more than 85% full over Christmas.

It didn't take long for the majors to fight back. When JAL matched Skymark's fare on the Fukuoka route in March, ANA and JAS followed suit; by June, all three were offering the same or cheaper prices on the routes flown by Skymark and Air Do. JAL and ANA had other tricks under their wings, including plans to form their own low-cost domestic carriers and offering joint promotions like the "Welcome to Japan" airpass (a bargain $104 per flight for up to five domestic destinations). The larger airlines have also been reminding travelers that they offer more flights and options than the newcomers.

The price-undercutting has subsided since Skymark increased its Tokyo-Fukuoka fare to $135 on July 1, a move prompted by the need to "focus on our management," says Sawada. "Our first mission [to launch] was accomplished. It was very tough, tougher than I had thought." So what's a little guy to do next? Japan's maverick travel discounter plans to launch overseas charter flights. Meanwhile, next year brings full airline deregulation to Japan, along with more airport slots and new discount carriers. Expect more air-raising adventures in the months ahead.

With reporting by Sachiko Sakamaki/Tokyo

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