Rakuten aims to boost online travel site with AirAsia stake

By acquiring a stake in the Japanese unit of Malaysia-based AirAsia, Asia's largest low-cost carrier, Rakuten Inc. aims to expand its customer base of Rakuten Travel, its online travel site.

Rakuten's share in AirAsia's Japanese subsidiary is expected to stand at less than one-third of the budget carrier's capital base. Rakuten and AirAsia will announce their partnership Tuesday. Several other Japanese corporations will also invest in the company.

Japan Airlines (JAL) and All Nippon Airways (ANA) dominate the domestic low-cost carrier business with Jetstar Japan under JAL's wing, and Peach Aviation and Vanilla Air under ANA's. Rakuten's foray into the aviation industry is expected to ramp up competition among the industry.

On the other hand, Rakuten can expect to develop new travel merchandise by incorporating Asian networks in addition to domestic networks operated by AirAsia.

The airline plans to expand domestic routes from its Chubu Airport hub in Aichi Prefecture to Sapporo, Fukuoka and Narita, with aims to eventually operate flights to South Korea, Taiwan and other Asian destinations.

Since AirAsia will be the only budget carrier to have its hub at Chubu Airport, Rakuten will gain a foothold to expand its business — especially in the Nagoya area. AirAsia can also improve the strength of its sales by utilizing the Internet retailer's sales network through Rakuten Travel.

AirAsia established AirAsia Japan in 2011 with ANA Holdings Inc., with which ANA is affiliated. AirAsia Japan began operations in August 2012 as the nation's third largest low-cost carrier and operated a total of nine routes, five domestic and four international.

However, AirAsia decided to dissolve its partnership with ANA on June 13 and withdrew from the Japanese market. The joint venture was suffering a downturn with a consistently low passenger load factor of under 50 percent.

A number of reasons were cited for the failure, including the carrier's ticketing system which sold tickets online to individual customers. The setup did not suit the Japanese market, where tickets are often sold through travel agencies for group tours.

But thanks to the emergence of low-cost carriers, a new demand for aviation has been created leading to more frequent flyers. It seems AirAsia could not give up its ambition to tap the Japan market.

A series of troubles have beset budget airlines in this country.

Peach Aviation, Jetstar Japan and Vanilla Air have been forced to cancel flights due to a shortage of pilots because of sick leave and a wave of resignations since April. Spring Airlines Japan, an affiliate of China's Spring Airlines, has twice postponed the start of operations originally scheduled for the end of May.

Price competition triggered by the arrival of low-cost carriers injected new life into the domestic aviation market, but problems mounted as they attempted to operate without sufficient personnel or planes. These issues need to be handled by AirAsia, should it wish to succeed in penetrating the Japanese market.