Why Japanese Retailers Decided to Jump Into the Budget Airline Battle

AirAsia aircraft parked at boarding gates at Kuala Lumpur International Airport 2 in Sepang, Malaysia Photograph by Charles Pertwee/Bloomberg

Airlines around the world are trying to turn into retailers to boost profits. In Japan, retailers are instead getting into the airline business.

A year after it ended its pursuit of the Japanese budget market, Malaysian carrier AirAsia is planning a second attempt in the nation next year with the help of a trio of Japanese companies. Rakuten, Japan’s largest online retailer, announced on Tuesday that it will buy an 18 percent stake in the new airline, which is expected to begin flying in the summer of 2015.

Rakuten is controlled by Japanese billionaire Hiroshi Mikitani, who spent $900 million in February to acquire the messaging service Viber and holds a $100 million stake in Pinterest, a website where people pin photos and other digital flotsam. Mikitani and his wife control more than 23 percent of Rakuten’s shares. The company also runs an online travel business in Japan, as well as the U.S. retail site Buy.com, which it has rebranded.

Cosmetics and pharmaceutical company Noevir and Alpen Group, a Japanese sporting goods maker, are also investing in the new carrier. AirAsia plans to raise about 7 billion yen ($69 million) for the new venture. A representative at Noevir’s U.S. headquarters in Irvine, Calif., says the company declined to discuss the airline, and Alpen Group could not be reached for comment.

The new airline would mark AirAsia Chief Executive Officer Tony Fernandes’s second try at breaking into Japan, the one market that has thus far eluded his successful track record as an airline entrepreneur. AirAsia’s joint venture with All Nippon Airways, called AirAsia Japan, dissolved last year when the Japanese airline bought out Fernandes’s 33 percent stake and renamed the carrier Vanilla Air. “We have not given up on the dream of changing air travel in Japan,” Fernandes told the New York Times last year.

The ANA-AirAsia alliance never worked, given different philosophies on how to approach the discount segment of the Japanese market. ANA executives said Japanese consumers demanded a higher, meticulous level of service that AirAsia could not provide—a service that meant higher costs. AirAsia, in turn, bristled at ANA’s fiscal approach about running a financially tight operation, the kind necessary for a successful low-cost airline.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE