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AirAsia Finds Partners for Return to Japan

Malaysian Budget Carrier Plans to Start Flights Under the Joint Venture Next Year

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By GAU R AV R AGH U VAN SH I

Updated July 1, 2014 7:32 a.m. ET

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Tony Fernandes, chief executive of AirAsia, left, and Hiroshi Mikitani, chairman and chief executive of
Rakuten, greet each other at a news conference in Tokyo. Bloomb erg News

Malaysian budget carrier AirAsia 5099.KU 0.00% Bhd. said Tuesday that it will return to
Japan with new local partners that include the nation's biggest online retailer, a
cosmetics firm and a ski-equipment maker.
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AirAsia, which ended a partnership with the parent of Japan's All Nippon Airways
9202.TO 0.00% in June last year, plans to start flights under the new joint venture next
year.

AirAsia said it would own a 49% stake in the new company, while Rakuten Inc.,
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4755.TO +1.54% controlled by Japanese Internet billionaire Hiroshi Mikitani, will hold an
18% stake. Rakuten aims to boost its online travel site—already one of the biggest in
Japan—through the partnership.

Brendan Sobie, an analyst with CAPA - Centre for Aviation, said the most important 5 On July 4, the
Words Heard
factor in the venture is that Rakuten is from outside the airline industry. "They bring Around World
another kind of expertise to the table—knowledge of the Japanese customer," Mr. Sobie
said.

4928.TO +0.81%
Other stakeholders include Noevir Holdings Co. 4928.TO +0.81% —a Japanese VIDEO
company whose interests range from cosmetics to aircraft leasing—which will hold a 9%
stake, and Alpen Co. 3028.TO +0.06% , a sports-equipment maker, which will hold a 5%
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stake in the venture. Alpen also manages ski resorts, golf courses and fitness clubs,
according to its website.

Octave Japan Co., which was incorporated in Japan in May to acquire and own AirAsia
Japan's shares, will hold 19% of the airline, according to AirAsia. Octave is a private- 2 Pentagon Grounds
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equity firm that is coming into the venture as an investor, an AirAsia spokeswoman said. Fighter Fleet

"We are the only airline in this partnership so yes, we expect the relationship to be
completely different this time," she said in response to a query on whether the partners
are willing to accept the AirAsia business model. She described the new partners as "like
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AirAsia would be better off with partners that are "more passive and will let them (AirAsia)
run the airline and apply their model. This way, there won't be a repeat of the ANA saga,"
CAPA's Mr. Sobie said.

AirAsia's initial foray into the Japanese market, where budget air travel is less developed
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compared with the airline's base in Southeast Asia, was short-lived because of what the
company's founder and Group Chief Executive Tony Fernandes said were "differences of
opinion" with partner ANA, parent of All Nippon Airways.

The venture with ANA, in which AirAsia held a 33% equity stake, started flights in 2012 5 58% of Jobs Created
in 2014 Pay Over
but failed to attract passengers. ANA blamed poor marketing and a website that was $24 an Hour, and
difficult to navigate for Japanese customers. That budget airline has since been More
rebranded as Vanilla Air and is wholly owned by ANA, with its hub at Tokyo's Narita
airport.

AirAsia Japan is now working to get the necessary operational approvals, Mr. Fernandes
said. The new carrier aims to fly on both domestic and international routes, he said. The
company's spokeswoman said the Japanese airline will start with two Airbus Group
EADSY +0.81% A320 jets and plans to have four planes by the end of 2015.

AirAsia is eager to enter Japan again to connect short- and long-haul segments and
exploit synergies with its long-haul associate AirAsia X 5238.KU -0.72% Bhd., said
Timothy Ross, the head of transport research in Asia Pacific at Credit Suisse.
CSGN.VX -0.30% AirAsia X currently flies to Japanese cities including Tokyo, Nagoya
and Osaka.

However, other budget airlines such as Jetstar Japan, the affiliate of Australia's Qantas
Airways Ltd. QAN.AU +1.60% , and Vanilla are struggling, Mr. Ross said. "This is by no
means a slam dunk" for AirAsia, he said.

Budget airlines have had a spotty track record in Japan. A slew of budget startups
appeared after deregulation removed price controls in the late 1990s. But they struggled
to gain market share as full-service carriers such as ANA and Japan Airlines Co.
9201.TO +1.96% battled back by discounting fares. Budget airlines account for about
16% of total air passengers in Japan.

Write to Gaurav Raghuvanshi at gaurav.raghuvanshi@wsj.com

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