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Business Insight

View from the Top: Low-cost Airline Dreams Big

Our "View from the Top" series profiles top business leaders and their insights and strategies. In this instalment, Shinichi Inoue, CEO of Osaka-based Peach Aviation speaks about plans to expand routes and claim a larger share of the Asian market.

On March 1st, Peach Aviation celebrated its third anniversary. In that time, the airline has carried more than 8 million passengers. The company's growth has surpassed its own expectations.

Japan's first low-cost carrier attracted nationwide attention with its friendly name. It set up its first hub at Kansai Airport in Osaka.

Peach started with only two routes. It now flies 10 domestic and 7 international routes. Inoue wants to make air travel as reasonably priced and convenient as train travel. "We offer low fares every day and pride ourselves on reliability," Inoue says. "I think that's why people feel we're affordable, particularly young customers. The concept of a 'flying train' is a really good way to understand what we do."

To speed up processing and boarding, Peach developed a check-in terminal similar to ticket machines used at train stations.

The airline also differentiates itself by serving local delicacies. Innovative ideas like these have helped it become the first budget carrier in Japan to turn a profit after its first 2 years in operation.

Inoue is now aiming to clear accumulated losses, a promise made to the public. He says the financial year starting this April will be crucial for showing the company's progress. Low-cost carriers squeeze out profits by limiting the amount of space allotted to each seat. But there is a limit to how long people can sit in such conditions. So Peach won't add any routes that take longer than four hours.

Last year, the company set up a second hub in Okinawa, which Inoue wants to be a gateway to Japan from other Asian cities. "As long as Kansai Airport was our hub, we couldn't go any farther in four hours than Northeast Asia," he explains. "Making Okinawa a hub puts Southeast Asia within reach. That increases our coverage and means we can expand our network. From Okinawa, we can fly to Bangkok, Hanoi and Ho Chi Minh City."

But the expansion has created new problems. Last year, the company suffered a pilot shortage. 2,000 flights were canceled in 6 months. Inoue says the company is taking steps to prevent another shortage, including looking for pilots in Japan while putting efforts into recruiting foreign pilots and training flight-school graduates to be co-pilots.

The growing number of foreign and domestic low-cost carriers has created fierce competition. But Inoue notes that just 7% of passengers in Japan use budget airlines, so he sees plenty of room for growth.

He sees reliability and careful branding as key to that growth. "If we're going to survive, we need to fly on schedule, have a strong brand, and provide new value through innovation," he says. "We also need to create a stable, low-cost framework. Right now, we're supported by young people who are associated with concepts like 'cute' and 'cool,' and one thing we can do is to capitalize on that with our branding."

Inoue's aims for expansion stretch to other Asian countries. "The original goal was to set up a regional airline for all of Asia," he says. "We want to expand by setting up hubs in the region. I want to create a company that's not only affordable, but also fun, doing things that more upmarket firms won't do."

Inoue says the company continues to focus on providing unique services and low prices. He believes this is the approach a low-cost carrier needs to survive amid growing competition.

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