TT-649 -- Low-cost Carriers, Black Ships of Tourism? Ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, February 12, 2012, Issue No. 649

+++ INDEX

- What's New -- Low-cost Carriers, Black Ships of Tourism?
- News -- 22 VC-backed companies IPO'd in 2011
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback -- Don't forget "Cranks" for cycling
- News Credits

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+++ WHAT'S NEW

On March 1st this year, Peach Aviation, a Low-cost Carrier
(LCC) that is a joint venture between All Nippon Airways
(ANA) and Hong Kong-based investment fund First Eastern
Investment Group, will start flying domestic legs at
greatly reduced rates over existing airlines. The company
announced that it would offer one-way tickets between Osaka
and Sapporo for just JPY4,780 and between Osaka and Fukuoka
for JPY3,780. With prices like this, Peach could mark the
start of a massive price reduction in fares, and a
subsequent surge in domestic air travel.

Actually, we find it interesting that the first two major
LCC announcements in Japan are both tie-ups with ANA. The
airline is already well ahead of its rival, Japan Airlines
(JAL), in terms of revenue and profits, and one would have
thought that they would want to maintain the status quo. We
can only assume that the belated arrival of an Open Skies
agreement with the USA has meant that the inevitable, the
penetration of foreign airlines into the domestic market,
was going to happen anyway and ANA has decided to become a
first mover as a result. This is smart, since studies
abroad show that first movers who have sufficient financial
resources have become the dominant players in the LCC
market over the long term.

Also, we found ANA's choice of a partner for Peach
interesting. They picked the First Eastern Investment Group
(FEIG) of Hong Kong to kick off their first foray into
LCCs, and yet FEIG seems to have very little background in
airline start-ups, to the extent that the partners hired an
outside consultancy, Mango Aviation, to design the LCC
structure, hire in key leadership, and form relationships
with key vendors. We can only assume that ANA is thinking
to the future and China -- given FEIG's Victor Chu's famed
personal network amongst the leadership of China.

Probably the most hopeful note on the Peach investment is
that Mango Aviation claims that "Determined to learn from
the mistakes of flag carriers that have unsuccessfully
established LCCs, the Osaka based JV is fully arms-length
from ANA." This means the airline will hopefully avoid the
kiss of death that other LCC efforts have had when they
start to cannibalize the parent's earnings.

Over the next 12 months, it appears there will be a flood
of LCCs bursting on to Japan's domestic market. The Nikkei
recently listed the following firms and routes, and we
imagine there will be quite a few more in the works:

Spring Airlines -- Ibaraki-Shanghai, Saga-Shanghai
JetStar Asia Airways -- Kansai Intnl-Taipei, -Singapore
AirAsia X -- Haneda-Kuala Lumpur
JetStar Airways -- Narita-Cairns
Jeju Air -- Kansai International-Seoul
Cebu Pacific Air -- Kansai International-Manila
Eastar -- Chitose-Seoul

[Continued below...]

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[...Article continues]

The arrival of the LCCs into the local market means some
interesting changes in local economies and in trade and
tourism in general. Here are some of the knock-on
effects/benefits as we see them:

* Tourism
It goes without saying that Japanese tourism is going to
undergo some massive changes over the next 3-5 years. If
each of the above listed LCCs is responsible for at least
3,000-10,000 new arrivals a month, that means an extra
500,000 tourists who may not have been thinking Japan
previously. We imagine that most of this traffic will come
from Asia initially, and given that people will be able to
connect with budget domestic locations like Ibaraki and
Saga, repeat travelers will be looking at regional areas
that previously missed out on the tourist trade.

It also means that there will be a lot of people "popping
over" to Japan from China, Taiwan and various places in SE
Asia for a quick shop, soak in an onsen, or gourmet
experience. Taking LCCs, we can imagine that these people
will be looking to offset their luxury expenses with
budget accommodation and easy language access -- leading to
new business opportunities for hotel operators willing to
service them. Backpacker and low-cost international
traveler hotels are still a rarity in Japan, but we think
that within 24 months, most of the major brands will have
set up a beach head operation here.

The ability of LCCs to turn tourism upside down can be
best demonstrated by Ireland's Ryanair experience. The
company last year successfully diverted 70m tourists from
major airports to secondary ones, and in so doing has given
those travelers somewhere new and cheaper to visit. The
company is credited with making it possible for more than
100,000 British expats to live part-time in the Southwest
of France, essentially "commuting" from the UK, and in so
doing so they have changed the local real estate markets in
those locations.

Similar changes are happening in the USA, where owners of
ski areas have joined together to offer carriers a
guaranteed number of seats, providing they will fly to
their destination. We can see this also happening with ski
areas here in Japan, such as Niseko, although right now
most travelers are still happy to go via Tokyo or Osaka.
Still, the point is that when you think of the massive and
increasingly wealthy population in China, and how Shanghai
is 20% closer to Fukuoka than London is to Marseille, then
the parallels of "weekend migrants" could be very similar
in the future. Obviously the Japanese authorities will need
to do their bit to help this process and they do appear
willing to do so. For example, last year they introduced
3-year multiple re-entry visas for Chinese traveling to
Okinawa.

The potential of Japan as an off-shore holiday camp for
Asia is not lost on foreign, and particularly Asian
investors. We have spoken to a number of groups over the
past months that are expressing increasing bullishness for
Japan, providing the Japanese government stays the course
of welcoming in more tourists -- which, given it set a
recent target of 18m tourists by 2016, seems to be a
reasonable bet. Foreign money injected into a local
destination can dramatically change the economy of that
location. Niseko land used to sell for less than
JPY30,000/tsubo, and is now priced at up to ten times that
amount -- money which largely has flowed into the pockets
of locals.

* Trade
Technology companies in particular will benefit from the
presence of LCCs. A 1999 US study found that high-tech
employees flew 60% more than people in traditional
industries and those cities with hub airports enjoyed an
average 12,000 more high-tech jobs than comparable cities
without a hub. The presence of LCCs will accentuate this
phenomenon. We think there could be a use for all those
under-utilized regional airports in the future after all,
especially since the move to smaller aircraft will mean
that runways won't necessarily need extending.

* Work styles (telecommuting)
Many Japanese already have made the choice to live outside
the big cities and commute in daily. Since the advent of
the shinkansen network to the north of Tokyo in the last 30
years, daily commuters traveling in from Utsunomiya and the
mountains to the North and coastal areas to the South have
become commonplace. Companies willingly fork out up to
JPY50,000 a month for commuter passes and employees
willingly add in an extra JPY30,000 since it's cheaper than
taking a similarly sized house in Tokyo and it's hard to
beat the lifestyle.

Now we're entering the era of telecommuters, the ability to
live even further away is becoming a reality, particularly
for knowledge-intensive firms who measure employee output
in terms of lines of code and social media contacts rather
than hours spent putting in a personal appearance. With the
advent of LCCs, it will be possible for telecommuters based
in Hokkaido or Miyazaki to be in the Tokyo office 2-3 days
of the week, and be working the rest of the time from home.
Indeed, this phenomenon is already well underway between
Kitakyushu and Tokyo, where residents booking 30 days ahead
can get StarFlyer flights for JPY9,800. The LCCs will
probably push this fee down another 30%, meaning that if
you add in the cost of 2-3 nights at a "weekly mansion" in
Tokyo, your overall commute cost will be a mere JPY20,000 a
week -- about the same as people spend now for a 50km
train-based commute.

* Transport pricing
Air freight now accounts for 40% of world trade, and is
particularly suited for advanced economies that require
high value, smaller packages which are time sensitive. The
hollowing out of Japan's heavy manufacturing operations to
China means that Japan is now forced to move up the value
curve as well, ensuring a strong demand for air freight.
Now that we have LCCs arriving on the scene, we can imagine
that these operators will try to make money whichever way
they can, and if there is a business in carrying goods in
addition to people, then the overall net effect will be to
continue the price erosion in international airfreight.
This will encourage more on-demand shipments of goods that
are not yet available in Japan, and give consumers a
plethora of choices.

* International employee flows
Off-shoring of manufacturing, back office work, and
technology services is already in full swing in Japan, and
the LCCs are simply going to make it even easier to do. In
particular, it will be possible for companies to maintain
operations bases in China (Dalian and Shanghai) or in
Malaysia or Singapore, keep employees on low local
salaries, then fly them in for temporary assignments on
tourist visas. So long as they are paid in their base
country, and they are present for short periods of time,
the Japanese authorities so far have no problem with them
being here.

* International residencies
The long-term trend that we're most interested in seeing,
is where foreigners active in business in Asia start to see
Japan as a desirable place to live in again. The acceptance
of some international schools into the Japanese education
system (enabling subsidies), the quality of air, food,
shopping, and general safety, will at some point start to
overcome the fear of not living in an English-speaking (or
Chinese-speaking) country -- as is proved by France's
allure to British expats. Yes, taxes will still be an
issue, but for a senior multinational manager based in
Japan for 5 years, their international income is not taxed
by the Japanese, thus presenting a useful window to base
someone and their family here. We could think of few better
places to live if low cost of living is not a major
objective.

...The information janitors/

***------------------------****-------------------------***

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-----------------------------------------------------------

+++ NEWS

- 22 VC-backed companies IPO'd in 2011
- China visitors recover, Singapore still off 38%
- Oil-fired power proves costly
- Internet life insurance firm to IPO
- Government debt rises to record amount

-> 22 VC-backed companies IPO'd in 2011

Tokyo VC research consultancy Japan Venture Research has
put out a report stating that 22 VC-invested companies did
IPOs in 2011, up from just 9 IPOs in 2010, despite the
impact of the 3/11 disaster. The biggest sector represented
was biotech/health. The average IPO saw book building
valuations of about 2.2x investment costs, representing a
modest but consistent return to later stage investors.
(Source: TT commentary from original press release, Feb 8,
2012)

http://www.jvr.jp/news-press-releases/press-releases/20120208

-> China visitors recover, Singapore still off 38%

The Japan National Tourism Organization (JNTO) has
published data showing that while the number of tourists
from China have recovered by 32% compared to the same
time a year ago, travelers from Singapore are still down
by 38.5% from the peak of 180,000 last year. In fact
Singaporeans were one of the biggest stay-aways after the
3/11 disaster with April 2011 numbers down a massive 83%
over the same month in 2010. ***Ed: That's what happens
when you have tourists rich enough to accept the
cancellation fees and a radiation scare to keep them
away.** (Source: TT commentary from japantimes.co.jp, Feb
11, 2012)

http://www.japantimes.co.jp/text/nn20120211f2.html

-> Oil-fired power proves costly

In the absence of nuclear power, Japan's utilities are
having to consume an additional 465,000 barrels of oil a
day to maintain electricity output levels. This means that
Japan's overall daily consumption has risen 0.9% to 4.5m
barrels. There are now just 3 nuclear power plants still
operating, supplying 6.4% of the nation's electricity.
***Ed: Well, let's hope that the Iranian situation in the
Middle East can be contained, else Japan is going to be in
trouble this summer.** (Source: TT commentary from
bloomberg.com, Feb 10, 2012)

http://bloom.bg/z4wLPu

-> Internet life insurance firm to IPO

Japan's first all-web life insurance company, called
Lifenet Insurance, has announced that it plans to list on
the Mother's Market on March 15th. The company is hoping to
raise JPY9.2bn from the IPO, and receive a valuation of
around JPY50bn. Lifenet started operations in 2008 and is
the largest online provider of life insurance. The
company's revenues will double this year to around
JPY3.77bn, but it is still making a net loss (projected to
be around JPY1.15bn this year). (Source: TT commentary from
e.nikkei.com, Feb 11, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120210D1002N01.htm

-> Government debt rises to record amount

The Finance Ministry has revealed that the central
government debt hit a record JPY958trn in December, up 0.4%
from September 2011. The per capita debt is now JPY7.59m
per person, up from JPY7.56m in April 2011. Broken down,
the debt is around JPY782trn of government bonds, JPY52trn
in bank borrowings, and JPY123trn in short-term fundings.
Most of the increase in debt went to cover reconstruction
of the Tohoku area (even though this hasn't really started
in earnest yet) and financing to back up TEPCO after the
Fukushima disaster. (Source: TT commentary from
e.nikkei.com, Feb 10, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120210D10JF080.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

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marketing the following positions for customers setting up
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Remuneration is JPY3.5m – JPY4.5m depending on your
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** POSITIONS VACANT

- Bilingual Infra Engr, global telco, JPY4M – JPY4.5M
- Tech Support Engr, global medical co, JPY4.5M – JPY5M
- Account Mgr (Business Development), BiOS, JPY4M – JPY5M
- Wintel Engineer, global IT co, JPY4M – JPY5M
- Administration Assistant (Osaka), BiOS, JPY3M – JPY3.5M

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***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

----------------- Start a Company in Japan ----------------

Entrepreneur's Handbook Seminar 18th of February, 2012

This seminar has been postponed. Further details to come
soon.
-----------------------------------------------------------

----------------- ICA Event - February 16 -----------------

Speaker: James Hollow
Title: Harness Social Media for your Business - for Free

Details: Complete event details at http://www.icajapan.jp/
(RSVP Required)

Date: Thursday, February 16, 2012
Time: 6:30 Doors open, Drinks and Snacks
Cost: 2,000 yen (members), 3,000 yen (non-members)
Open to all, venue is Wall Street Associates

http://bit.ly/yIn2sE
-----------------------------------------------------------

------------- Tokyo Teacher Training Academy --------------

Starting from February. For each program, workshops are
held once a month on Sundays in central Tokyo.
Programs offered: TESOL Certificate, TESOL Certificate
(Young Learners)
Trainers include: David Paul, Rob Waring, Alastair
Graham-Marr, Robert S. Murphy

Information: http://ltprofessionals.com/en/tta.html
-----------------------------------------------------------

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

=> Reader comment:

Great piece on bicycles in Tokyo. I was wondering is there
anything in English that actually describes the key rules
for cyclists (I have looked but never found anything)

Also, you "forgot" to mention one of the more mature cycle
groups here, the "Tokyo Cranks". We cycle every Sunday
morning at 7:30am around Tama river. We have quite a few
Austrialians... If you're interested:

http://www.facebook.com/groups/tokyocranks/

*** Our response

Although we've not found anything specifically translating
those laws relating to bicycles, some good commentary on
the subject can be found here:

http://bit.ly/wPWLoR
http://www.japancycling.org/v2/info/biking.shtml

***********************************************************
END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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