ANA to merge Peach, Vanilla units to create Japan's largest budget carrier

TOKYO (Reuters) - ANA Holdings Inc 9202.T, Japan's biggest airline by revenue, said on Thursday it would merge its units Peach Aviation and Vanilla Air by March 2020, to sharpen the competitive edge of its budget carrier business and tap growing travel demand in Asia.

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The integrated low-cost carrier business, which will be known as Peach and become Japan’s largest budget carrier, plans to enter the medium-length international market by the fiscal year starting in April 2020.

ANA is a major player in the growing budget aviation market in Japan with Tokyo-based Vanilla and Osaka-based Peach competing against Jetstar Japan, a joint venture between Japan Airlines Co Ltd 9201.T (JAL) and Australia's Qantas Airways Ltd QAN.AX, as well as a newly re-launched AirAsia Japan.

“Competition is becoming increasingly fierce with the entry of overseas airlines and we thought now was the time to combine our strengths,” Vanilla President Katsuya Goto told reporters.

Low-cost carriers from other parts of the region, such as Hong Kong Express and Singapore’s Scoot, have been adding flights to Japan as the nation becomes an increasingly popular tourist destination for Asian travelers.

Japan, dominated by the two big airlines ANA and JAL and with an extensive bullet train network crisscrossing the country, has lagged other countries in the growth of budget airlines.

ANA has pledged to double its operating income from its low-cost business over the next five years.

The company said it would spend 11.3 billion yen ($107 million) to boost its stake in Peach to 77.9 percent from 67 percent now, with Far Eastern Aviation’s share to fall to 7.0 percent. It already owns all of Vanilla.

The majority control is significant when compared with arch rival JAL, which owns only a third of Jetstar Japan, said CAPA Centre for Aviation senior analyst Will Horton.

“As ANA uses (Peach) to reach strategic objectives and fly longer than Jetstar Japan’s aircraft can, JAL has to be wondering if it needs to change its low-cost carrier strategy.”

Peach plans to boost its fleet to more than 50 post-intergration, up from 35 now, and to add more routes as it looks to expand into medium-length international flights.

The airline has not decided the model of jets it would order for its expansion, Peach CEO Shinichi Inoue said, adding he would favor widebody models.

ANA separately announced on Thursday that it would purchase two widebody Boeing Co BA.N 777F freighters amid a resurgence in the air cargo market.

($1 = 105.8100 yen)

Reporting by Sam Nussey, Chris Gallagher, Chang-Ran Kim in Tokyo; additional reporting by Jamie Freed in Singapore; Editing by Muralikumar Anantharaman & Shri Navaratnam