Japan’s Bullet Trains Face Challenge From Low-Fare Airlines

Photographer: Tomohiro Ohsumi/Bloomberg

Central Japan Railway Co.'s 700 series Shinkansen bullet train travels past Mount Fuji at sunset in Fuji City, Shizuoka Prefecture, Japan. Central Japan Railway, the biggest bullet-train company, may face competition from Peach Aviation Ltd., which plans to add flights in October between Tokyo and Osaka. Close

Central Japan Railway Co.'s 700 series Shinkansen bullet train travels past Mount Fuji... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

Central Japan Railway Co.'s 700 series Shinkansen bullet train travels past Mount Fuji at sunset in Fuji City, Shizuoka Prefecture, Japan. Central Japan Railway, the biggest bullet-train company, may face competition from Peach Aviation Ltd., which plans to add flights in October between Tokyo and Osaka.

The battle between three new budget airlines in Japan is benefiting businessmen as well as tourists, as operators of the bullet trains that have dominated long-distance travel since 1964 cut prices to defend market share.

West Japan Railway Co. (9021) and Kyushu Railway Co. started reducing advance ticket prices this month by as much as 34 percent to 14,000 yen ($140) between the central city of Osaka and the southern city of Kagoshima over the next three months.

While that’s still more than three times the lowest fare of 3,980 yen offered by Peach Aviation Ltd., the cuts suggest budget carriers are gaining ground. Peach, Jetstar Japan Co. and AirAsia Japan Co. began flying last year in a $19 billion domestic aviation market dominated by Japan Airlines Co. (9201) and All Nippon Airways Co. that competes against the nation’s four high-speed rail operators.

“It’s the beginning of something,” said Peter Harbison, executive chairman at the Sydney-based CAPA Centre for Aviation. “You want to be picking off those other city pairs that aren’t served well. If the bullet-train operators are smart, they’ll try to head it off more.”

West Japan Railway, known as JR West, predicts profit will drop 4.5 percent to 57.5 billion yen in the year ending March, even as it forecast sales will rise 0.9 percent to 1.31 trillion yen.

Photographer: Tetsuya Yamada/Bloomberg

Passengers board an Airbus SAS A320 airplane for a Peach Aviation Ltd. flight at Kansai International Airport in Izumisano City, Osaka. Peach filled 78 percent of plane seats between the start of service in March 2012 and the end of March this year, it said. Close

Passengers board an Airbus SAS A320 airplane for a Peach Aviation Ltd. flight at Kansai... Read More

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Photographer: Tetsuya Yamada/Bloomberg

Passengers board an Airbus SAS A320 airplane for a Peach Aviation Ltd. flight at Kansai International Airport in Izumisano City, Osaka. Peach filled 78 percent of plane seats between the start of service in March 2012 and the end of March this year, it said.

Central Japan Railway Co. (9022), the biggest bullet-train company, may also face competition from Peach, which plans to add flights in October between Tokyo and Osaka.

1 Percent

Based at Osaka’s Kansai airport, Peach started operations in March 2012. The closely held carrier is 38.7 percent owned by All Nippon, while Hong Kong-based Far Eastern Aviation Holdings Ltd. holds 33.3 percent and the Innovation Network Corp. of Japan has 28 percent.

The airline said it has tripled its fleet to nine planes since last year and had carried 2 million passengers as of May to its seven Japanese and three overseas destinations.

That’s still less than 1 percent of the 307 million trips on high-speed trains in the year ended March 2012. In comparison, all domestic flights carried 79 million passengers in the period.

“We’re not targeting bullet-train passengers,” said Sayako Suetsugu, a spokeswoman for Peach. “We have a whole range of people who fly with us.”

That includes “some business travelers,” she said, declining to say how many.

Establishing Presence

Peach filled 78 percent of plane seats between the start of service in March 2012 and the end of March this year, it said. That rose to 91.3 percent during the nation’s Golden Week holidays in late April and early May, Peach said.

Source: West Japan Railway Co. via Bloomberg

An undated handout photograph shows the N700 Shinkansen bullet train, jointly developed by West Japan Railway Co. and Kyushu Railway Co. Close

An undated handout photograph shows the N700 Shinkansen bullet train, jointly developed... Read More

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Source: West Japan Railway Co. via Bloomberg

An undated handout photograph shows the N700 Shinkansen bullet train, jointly developed by West Japan Railway Co. and Kyushu Railway Co.

Peach flies three times a day between Osaka and Kagoshima on Airbus SAS A320 planes that can carry 180 passengers, with a flight time of 1 hour and 10 minutes.

In comparison, JR West runs 23 bullet trains a day to Kagoshima, each of which can carry 540 people. In Tokyo, the shortest gap between bullet-train departures is as little as three minutes.

“Low-cost carriers are starting to establish a presence in the Japanese travel markets,” said Nicholas Cunningham, a Tokyo-based transport analyst at Macquarie Group Ltd. “JR West could, in our view, afford to consider further such offerings.”

JR Central isn’t offering special discounts to compete against low-cost carriers as its customers are mainly business travelers, not the tourists who fly budget carriers, said Teruyoshi Nagashima, a spokesman at the Nagoya-based company.

Rail Network

Jetstar Japan is the only one of the three budget carriers started last year that offers flights between Tokyo and Osaka, the route JR Central’s trains run. None of the three carriers have flights between cities on the bullet-train network of the second-largest operator, East Japan Railway Co. (9020)

Japan’s bullet trains have grown from the first 553-kilometer (344 mile) line that connected Tokyo and Osaka in 1964 to a 2,620-kilometer network. They have 250 arrivals and departures between Tokyo and Osaka a day, compared with 96 for airlines on that route, according to JR Central.

Japan was first in the world to develop high-speed rail, defined as having trains that run at least 200 kilometers per hour. Top speed has since been raised to 320 kph, intensifying the battle with planes.

The competition for passengers is becoming more domestic after All Nippon said last month it’s buying out Malaysia’s AirAsia Bhd. (AIRA) in their budget carrier venture.

“We’re aware of the competition,” said Yosuke Tsuda, a Tokyo-based spokesman for JR West. “Still, the frequency of trains we run and the number of people we can carry is very different.”

The railroad company has already won passengers from airlines since it started direct service between Osaka and Kagoshima in March 2011 in cooperation with Kyushu Railway. JR West more than doubled its share of travelers who fly or take the train between the Kansai area, which includes Osaka, and Kagoshima to 35 percent in the year ended March 2012, from 13 percent a year earlier, according to the company’s latest figures.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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