AirAsia sets up Japan budget airline with partners including Rakuten

TOKYO (REUTERS) - AirAsia Bhd said on Tuesday that it would set up a low-cost airline with Japan's biggest online retailer Rakuten Inc and other firms, marking the budget carrier's second attempt to tap one of Asia's lucrative air travel markets.

The new carrier, AirAsia Japan, will start flying in about a year with a fleet of five aircraft, the carrier's CEO Yoshinori Odagiri told reporters. The airline will fly to both domestic and international destinations, but has yet to decide which airport it will be based out of, he added.

Rakuten will own an 18 per cent stake in the new airline, while Noevir Holdings Co Ltd, a diversified conglomerate that owns an aircraft leasing business, will own 9 per cent. AirAsia is also partnering with Octave Japan Infrastructure Fund and sports firm Alpen Co Ltd.

The total cost of the venture was not immediately clear.

For AirAsia, the venture is another attempt to expand to Japan after it pulled out of a partnership with the country's biggest carrier ANA Holdings Inc last year. That venture, launched in 2011, failed to woo travellers and ANA blamed poor marketing and a user-unfriendly website. The airline has since been rebranded into Vanilla Air, and is now wholly owned by ANA and based out of Tokyo's Narita airport.

"This is AirAsia part two and I hope there is no part three," Tony Fernandes, the owner and CEO of AirAsia, told reporters in Tokyo.

Rakuten, controlled by Japan's fourth-richest man Hiroshi Mikitani, aims to boost its online travel site through the partnership and create new business to fend off increased competition from the likes of Inc. Rakuten's travel site is already one of the largest in Japan.

Two decades ago, travel company H.I.S pioneered the trend, setting up Skymark Airlines, which is now Japan's leading discount carrier. Mikitani said he saw great potential in the budget travel market in Japan.

"In America, discount carriers account for 30 per cent of travel. In Southeast Asia, it's 50 per cent. In Japan, it's only 3 per cent," he said.