W16023 ALL NIPPON AIRWAYS ARE DUAL BUSINESS .docx

W16023
ALL NIPPON AIRWAYS: ARE DUAL BUSINESS MODELS
SUSTAINABLE?1
Wiboon Kittilaksanawong and Elise Perrin wrote this case
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Copyright © 2016, Richard Ivey School of Business Foundation
Version: 2016-01-15

In 2014, All Nippon Airways (ANA), a flag and full-service
carrier (FSC) of Japan, was facing several
major challenges on the development and sustainability of its
two low-cost carriers (LCC): Peach Aviation
(Peach) and AirAsia Japan (AAJ). Both LCCs were launched in
2012, Peach in March and AAJ in August.2
ANA held 38.67 per cent of shares in Peach and 51 per cent of
shares in AAJ. Peach made a great start in
March with 67,000 passengers boarding its flights and with a
load factor reaching 83 per cent, which was
more than the 75 to 80 per cent it had expected.3
However, in May 2014, only two years following the launch,
Peach announced that it was cancelling 894
flights in July and August, which represented 20 per cent of its
overall flights.4 AAJ had instead suffered from
a slow start that failed to meet its initial targets,5 so ANA
decided to acquire full ownership of AAJ in October
2013, thus ending joint operation with AirAsia.6 ANA
rebranded the ceased AAJ as Vanilla Air (Vanilla),
which started operations in November 2013. Was ANA too
ambitious in launching two LCCs in the same
market at the same time? Would the company be able to
successfully run the dual business models of FSC
and LCC in the same market in the long run? Would more
synergies be required between ANA and its two
LCC subsidiaries to embrace the concurrent differentiation and
low-cost strategy?
HISTORY
ANA celebrated its 60th anniversary as a prominent Japanese

air transportation company in 2012. Since its
first passenger flight in 1953, the company had diversified into
air transportation (e.g., cargo and passenger
services), travel, and other businesses (e.g., information
technology, trading, and product sales). ANA
operated regional flights by creating a wholly owned subsidiary,
Air Nippon, in 1974. It opened the first
international route in 1986 between Narita International Airport
and Guam Island. Since then, ANA had
enjoyed the advantage of deregulation in Japan’s airline
industry. The company developed a code-sharing
system with the first wave of Japanese LCCs, including Air Do
and Sky Net Asia. This collaboration
enabled ANA to become a direct shareholder in the LCCs. To
strengthen international expansion and to
compete with its main competitor, Japan Airlines International
(JAL), ANA entered the Star Alliance in
1999. In 2004, ANA launched Air Next, a low-cost carrier based
in Fukuoka. In 2010, the entity was merged
into ANA, operating under ANA flight numbers.
For the exclusive use of H. KASSA, 2018.
This document is authorized for use only by HAIMANOT
KASSA in FA18-MGT362-Strategy-1-1 taught by LY PHAM,
Golden Gate University from Aug 2018 to Dec 2018.
Page 2 9B16M007
In 2012, ANA entered the second wave of LCCs by holding
38.67 per cent and 51 per cent of equity in
Peach and AAJ respectively. The two LCCs began operations in
March and August 2012 accordingly.

Along with this important diversification strategy, ANA created
a new corporate structure — ANA
Holdings — to reinforce integration and efficient management
among affiliated companies and to adapt to
the dynamic airline market.7 ANA operated four main business
lines: air transportation, airline related
business, travel services, and trade and retail (see Exhibit 1).
The company derived 73.5 per cent of revenues
from air transportation. The shareholding structure was largely
diversified with Japanese financial
institutions and individuals representing 19.77 per cent and
58.68 per cent respectively.8
CHARACTERISTICS
ANA was ranked as one of the top 10 best airlines and one of
eight five-star airlines worldwide in 2014.9 The
key success factor for such high recognition was the truly
consistent and high-standard delivery of airport ground
and on-board services. The company was a pioneer in quality of
service and innovation. Remaining true to its
motto, “Trustworthy, Heart-Warming, Energetic,”10 ANA
strove to provide high-end services that maximized
customer satisfaction. Although its regular airfares were higher
than the industry average (JP¥23,00011 for
Tokyo–Osaka and ¥41,000 for Tokyo–Okinawa),12 ANA
offered unique in-flight experiences such as the
MyChoice program, on-board women-only toilets, and wireless
mobile phone chargers.13
ANA boasted a strong operating and sales network, as well as
industry knowledge and experience. These
resources allowed ANA to build reputation and to clearly
differentiate itself from other Japanese airlines.
During its fiscal year for 2013, the company dominated the

domestic market, with 42.5 per cent, followed
by JAL with 33.7 per cent.14 Efficiency in its fleet operations
and management allowed the company to
achieve high levels of asset utilization, on-time performance,
and market penetration. That same year ANA
achieved a resounding on-time performance rate of 83 per cent
and glowing reports for in-flight service
experience at 85 per cent. Its flight cancellation rate was a very
low 0.22 per cent.15
ROUTES AND REVENUES
ANA operated over 1,000 daily flights on 49 international and
132 domestic routes.16 In FY2013, ANA’s
available seat kilometres (ASK) 17 increased by 61,000 million
domestically and 41,000 million
internationally. ANA’s revenues were primarily derived from
passenger air transportation in the domestic
market, where its market share was ¥675 billion (of a total
¥1,395 billion), accounting for almost 50 per cent
of total market revenue.18 That same year ANA acknowledged
an increase in overall revenues of ¥102.4
billion, but declared a decrease in overall profits of ¥23.7
billion over the previous year.
STRATEGIC DIRECTIONS
ANA focused on international expansion via alliance
networks.19 The expansion of Tokyo International
Airport (Haneda Airport) would allow for new operating slots
from 2015. By 2016, ANA expected the ASK
in international flights to overtake that of domestic flights.
While ANA was relying on the domestic market,
its diversification into the LCC market would create new

demands for the long run.20 ANA made three key
strategic moves for the period of 2014 to 2016: (1) strengthen
and develop revenue platforms to achieve
higher revenues and profitability; (2) emphasize domains that
would bring higher revenues, such as
choosing international routes, sharing group knowledge and
experience, and strengthening brand
reputation; and (3) pursue cost restructuring via new key
performance indicators.21 These strategic goals
would be particularly challenging, considering ANA’s
diversification into the LCC markets.
Page 3 9B16M007
JAPANESE AIRLINE INDUSTRY
The Japanese Ministry of Transport (MOT) had long held strong
power over the country’s airline industry.22
In 1985, it allowed two companies to operate on routes with
more than 700,000 annual passengers and three
companies on routes with more than 1 million annual
passengers.23 This increased competition among
airline companies operating in the same route. It also allowed
new airline companies to enter the market.
However, this deregulation policy was unable to break the
monopoly of ANA and JAL. Legacy carriers
continued to cannibalize market share from new entrants. For

example, ANA suffered a loss in the high-
end market share, but deregulation allowed it to gain profits
from its subsidiary Air Nippon (ANK), which
operated in the domestic market.
The domestic airline industry experienced a market boom before
1990. To re-establish competitiveness in
the industry, the MOT adopted a zone fare system in 1996.24
The new system created discount fares that
were about 25 to 35 per cent lower than regular fares, enabling
airline companies to deal with peak and off-
peak periods. New entrants such as Air Do and Skymark, which
had entered the low-cost domestic market,
successfully achieved a high load factor. In 1996, the MOT
ended the supply/demand regulation in the
domestic air transportation market.25 More LCCs, such as Sky
Net Asia and Star Flyer, were created in
2000, but the MOT still controlled licencing for new routes.
In international routes, the Council for Transportation Policy
allowed carriers from Japan to enter the United
States domestic market and U.S. carriers to enter the Japan
domestic market in 1986. Until then, JAL had
been the only carrier to operate overseas flights, as well as
some domestic flights. That same year ANA
began international services with the Tokyo–Guam route and
competition continued to rise between the
two airline companies in overseas routes. In 1996, Japan and the
United States agreed to allow U.S. airline
companies to operate more point-to-point flights in Asia, and
for Japanese airline companies to be given
more opportunities to enter the U.S. market.26
Japan was the third largest aviation market in the world in terms
of market turnover.27 However, in 2012,
the LCC market represented less than 10 per cent of the

industry.28 The LCC market was expected to grow
significantly due to expensive FSC airfares. The Japanese
government saw the aviation industry as a means
to stimulate economic growth, so it invested in Peach, through
the Innovation Network Corporation of
Japan (INCJ), to boost the country’s innovation and
competitiveness. Japan planned to attract 25 million
inbound tourists by 2019, and a year later the 2020 Tokyo
Olympic Games would be a key event to stimulate
demands in the country’s airline industry.29
In Europe, LCCs had operated for 30 years with Ryanair as the
first mover in 1985. These LCCs were able to
drastically cut costs because less costly secondary airports were
available to serve major metropolitan and
regional areas. The deregulation also reduced taxes on LCCs
and allowed them to simplify operation procedures,
such as refuelling while boarding passengers, for example.
Simplified operations allowed European LCCs to
focus more on sales and distribution. The LCC markets in
Europe were the first to implement full online booking
services and charge additional fees for extra services such as
reserved seating, extra baggage weights, and extra
on-board services including foods and beverages.30 To defend
their market share, European FSCs had tried to
reduce costs, while many were considering adopting the dual-
pronged strategy.
Of Japan’s major airports (see Exhibit 2), Narita was the leader
in international flights, and Haneda in
domestic flights. However, LCC operations began in the second
terminal of Kansai International Airport.31
Unlike airports in the European airline industry that operated 24
hours a day, both FSCs and LCCs in Japan
operated during limited hours, which created entry barriers for
LCCs, who were charged the same high

government taxes and airport fees as their FSC counterparts.32
Page 4 9B16M007
Although in many countries non-qualified staff could operate
the opening and closing of aircraft doors, in
Japan only qualified engineers were allowed to perform this
ancillary task. Moreover, passenger boarding
was not allowed while refuelling the plane. This security
measure hindered a 25-minute inter-flight
connecting time, which LCCs in other countries could achieve
to reduce operational costs. Also, high and
regulated labour costs associated with such tightened security
measures and higher costs of other operations
all continued to add to the cost of operating an LCC in Japan.
The main cost gaps between FSCs and LCCs
in Japan was mainly achieved by reducing the number of
workers on services and wages for some key
functions (e.g., pilots).33
COMPETITIVE SITUATION OF LCC MARKET IN JAPAN
ANA and JAL were the two main players in the industry. JAL
was more specialized in international flights,
which represented 57.6 per cent of the company’s revenue
passenger kilometres (RPK).34 During the

different phases of deregulation, JAL had continued to expand
its market share. However, in 2010, the
company faced huge losses and was about to go bankrupt. After
a government bail-out, the company
rebranded in 2011 to help restore its image. In 2012, JAL
formed a joint venture with Qantas with equal
equity of 45.7 per cent to launch Jetstar Japan in the LCC
market.35 Code sharing and other synergies were
key factors for operating in the domestic market.
LCCs such as Air Do and Sky Net Asia tried to compete, but
their airfares were still not competitive enough
due to particularities of the Japanese airline industry. To defend
market share, legacy carriers also
differentiated and adjusted their prices to the marginal cost to
drive out new entrants. ANA later developed a
non-equity alliance with Air Do36 to become one of the main
shareholders of Sky Net Asia. 37 Of the
independent Japanese LCCs, only Skymark survived the
competition through its hybrid business model of
low cost and differentiation. Deregulation had given
competitive advantage to the incumbent FSCs, whereas
consumers had partly suffered from the continuing high
airfares.38 The new wave of LCCs, with further
deregulations in 2012, had come with a broader competitive
scale and scope. However, the two main players
ANA (with Peach and AAJ) and JAL (with Jetstar Japan) still
largely drove this wave.
Boeing and Airbus were the main suppliers in Japan’s airlines
industry. Boeing provided 82 per cent of
ANA’s fleet and contributed to the company’s overall
innovation. ANA was also the first company to use
the Boeing 787 in September 2011.39 General Electric and
other suppliers developed leasing supply
contracts in the market. Therefore, in terms of aircraft and

engine manufacturing, supply in Japan’s airline
industry was largely oligopolistic.40
Shinkansen high-speed trains were the most utilized
transportation means among Japanese passengers because
of their convenience and reliability. The train stations were
situated in downtown locations that were well
connected to airports. Trains and airport routes were
appropriately scheduled. The number of local trains was
also increasing, in an effort to compete with Shinkansen, which
together became a potential substitute for
airline travel. However, that substitute had to be considerably
reduced if airfares were to become cheaper, and
if the airline companies strengthened their consumer awareness
and promotion strategies.
Japanese consumers still had strong loyalty to legacy carriers.
Quality and safety were the main criteria for
the success of LCCs in Japan. Japanese consumers were
sensitive to price, but they were willing to pay
more for service quality and safety. Japanese consumers relied
on the airline’s experience and brand
reputation, implying that switching costs were rather high.
However, with the Japanese economy in
recession for many years, an increasing number of consumers
had become more open to low-cost options.
In fact, Japanese passengers had increasingly been using foreign
LCCs.41

9B16M007
A RISKY BET ON A DUAL LAUNCH IN THE SAME
MARKET
ANA’s decision in 2012 to enter the LCC market was based on
several factors. The Japanese national and
local governments had increasingly deregulated, granting more
licenses and providing more support for
domestic LCC operations. The number of landing slots,
particularly in Tokyo areas, had increased with the
improvement of airport infrastructure.42 Airline companies
were trying to secure a sufficient number of
slots to meet a growing number of passengers.
In Asia, 47 LCCs already existed, while new entrants were
expected in the coming years.43 However, an
increasing number of aging consumers and a decreasing number
of working populations had clearly signalled
the overall decline in the number of airline passengers in Japan.
Airline companies had to target the right
consumers while looking for other sources of revenues. The
entry of Asian LCCs (e.g., AirAsia and Tigerair)
would increase competition in Japan and international markets.
In international markets, ANA would also be
competing with traditional FSCs such as Singapore Airlines,
Cathay Pacific Airways, and Korean Air, among
other foreign LCCs. Particularly, the collaboration between JAL
and Jetstar would be a significant threat to
ANA, so it had to move quickly into the LCC market to defend
and extend its market position.
It was in response to these challenges that ANA launched Peach

and AAJ in 2012, a joint venture with
AirAsia. This new multi-brand strategy aimed at capturing
markets not already covered by its current
customer segments.44 However, ANA had to appropriately
position each brand in each customer segment
to maximize overall earnings. The two LCCs were based in
Kansai International Airport and in Narita
International Airport. In August 2012, Peach was operating four
domestic routes (Sapporo, Kagoshima,
Nagasaki, and Fukuoka) and two international routes (Hong
Kong and Seoul); AAJ was flying three
domestic routes (Okinawa, Fukuoka, and Sapporo).
Peach was jointly founded by ANA, INCJ, and First Eastern;
each held an almost equal proportion of equity
and voting shares. INCJ was a public-private partnership
between the Japanese government and 19 major
corporations with the objective of promoting the
competitiveness of Japanese enterprises through capital and
managerial support. First Eastern was a private equity and a
venture capital firm based in Hong Kong investing
in the airline industry for the first time. Despite Peach’s
marketing team promotion of “low price,” Junya
Okamura, chief financial officer and legal director of Peach,
also underlined “differentiation” from typical
LCCs as its strategy. Differentiation included “taste of Japan”
features such as cuteness, contemporary
brightness, hospitality, reliability, safety, cleanliness, and the
characteristic Kansai humour.45
The management structure of Peach was rather independent
from ANA.46 Peach mostly decided its own
strategic directions, business planning, and branding. However,
on operational issues, ANA staff was asked
to join Peach’s human resources.47 Both companies shared the
best legacy operational practices, including

safety. The scope of such supports was prescribed in an
agreement, and ceased as soon as the LCC was able
to operate independently. By then, ANA would stop dispatching
its employees to Peach and would enhance
the independence of the two entities. Peach leveraged its
operational costs through ANA at the beginning,
but management emphasized that independence was the long-run
plan, and to establish Peach as a proper
LCC with an equal relationship toward its three major
shareholders.
To move further quickly into the LCC business, on August 2011
AAJ was founded as a joint venture between
ANA and the Malaysia-based AirAsia Group, which held 49 per
cent of equity in the venture, while ANA held
51 per cent.48 ANA obtained majority control over the venture
and kept 67 per cent of the voting rights shares
and 84 per cent of non-voting shares. Throughout the joint
venture, ANA was able to leverage the resources
(including aircraft) and brand strength of AirAsia. The joint
venture also provided ANA with the opportunity
to learn the LCC business, to extend international markets, and
to share costs between the partners. AirAsia
Page 6 9B16M007
could also quickly enter the highly regulated Japanese market.

However, this joint venture was seen as an
experimental attempt for ANA to readily tackle the LCC
segment.49
In-flight experience, including fun and good humour, was an
expectation of passengers of Peach and AAJ.
Both LCCs provided exceptional quality services (see Exhibit 3)
with low-price tickets in their attempt to
increase competitiveness over FSCs and market substitutes
(e.g., Shinkansen and local trains). Peach’s
tickets were roughly 50 per cent lower than those of ANA on
some routes. ANA hoped that its low-cost
and differentiation business model would make the two LCCs
successful in the highly competitive airline
market. However, their fare price was quite low compared to
Japanese FSCs, but not as low as the price of
foreign LCCs such as AirAsia and Ryanair.
Peach targeted a new customer segment including female
passengers (half of the overall customers), and
first-time travellers who wanted to try out low-cost flights. In
Japan, about 40 per cent of women stayed at
home and were not in the formal employment system.50 It was
believed that this potential customer segment
might be attracted by the colourful and fun atmosphere Peach
was promoting. The company tried to attract
this customer segment through advertising campaigns to create
impulsive purchases, including affordable
day trips.51 AAJ did not target a specific customer segment, but
instead offered low-price airfares to attract
a broad range of customers who were not willing to pay for
more expensive legacy carriers and other means
of transportation.
ANA, Peach, and AAJ realized some synergies. Consignment of
ground handling services among these

airlines was implemented to economize operations costs, as was
the flow of human resources. ANA’s
employees were transferred to join Peach’s employees. Cross-
training programs were also implemented,
particularly for crewmembers. The chief executive officers of
AAJ and Peach were assigned from ANA.52
ANA and AirAsia shared best practices in the joint venture, so
ANA learned the best practices of operating
LCCs from AirAsia. Meanwhile, Peach also enjoyed technical
knowhow spillovers from ANA. The
creation of ANA Holdings in April 2013 was expected to
promote flexible, efficient operations, and optimal
allocation of resources within the ANA group. 53 However, the
main challenges underlying ANA’s
diversification into the LCC market was the multi-brand
strategy and the risk that both Peach and AAJ
would like to operate from Kansai Airport in the long term.
In FY2012, the cost per available seat kilometre (CASK) of
Peach was relatively high, 29 per cent higher than
that its competitor Skymark. Peach achieved its high CASK rate
through on-time time performance (73 per
cent), high load factor (78 per cent), and low cancellation rate
(1 per cent on domestic flights). AAJ, however,
had a low reputation with respect to on-time performance (64
per cent on domestic flights in FY2012), lower
load factor (67 per cent), and higher cancellation rate (2.1 per
cent), and its operating costs were 16 per cent
higher than Peach. AAJ focused on a low-cost strategy, which
was AirAsia’s key success factor. However,
with Tokyo’s two airports as ANA’s main operational base, the
risk of cannibalization by AAJ was very high.
ANA had expected AAJ to attract new customers, instead of
cannibalizing ANA’s existing customer base.
However, ANA was still a major shareholder of AAJ, so the loss
was not expected to be serious.

TROUBLES IN THE SKY
Positive forecasts did not last long. AAJ ceased its operations in
October 2013, underlining the dissolution of
the joint venture between ANA and AirAsia. AAJ’s performance
decreased below that of other Japanese
LCCs. AAJ’s low-cost strategy failed to meet the needs of the
Japanese airline market. In particular, AAJ was
not able expand its customer base at an early stage by utilizing
available slots at Narita International Airport,
and to leverage AirAsia’s brand and resources. The online
booking system was not adapted for Japanese
consumers, so it was not available in Japanese. AAJ also had
difficulty finding local travel agents, which was
Page 7 9B16M007
one of the main sales channels for flight tickets in Japan.54
The alliance, therefore, hardly achieved its
objectives, as far as operations management was concerned.
Both partners also had different views for the future of the LCC
market. In order to succeed in Japan AAJ
needed to leverage the best practices of AirAsia, which was a
model that was proven successful in

Asia,55and adapt them to the specific operating environment of
the Japanese market. AirAsia wanted to
follow its successful LCC expansion strategy by focusing
mainly on the very low cost of operations
management, but ANA was more focused on differentiation of
the LCC in the Japanese market, trying to
satisfy the highly demanding Japanese customers with a hybrid
model. Ultimately, AAJ was not able to
achieve concurrent cost leadership and differentiation. Both
partners spent considerable time and effort
trying to resolve their disagreements. Since this was AirAsia’s
first attempt at an FSC partnership, the lack
of experience itself might have been a factor causing conflicts
between the partners.
Jetstar Japan benefited from the dire situation of AAJ. More
slots became available in Narita International
Airport, enabling Jetstar to expand its market share.56 At the
time, Peach was rumoured to take over AAJ,
but because Peach was an independent entity of ANA, the
acquisition process would take a very long time.
As the main shareholder of AAJ, ANA finally decided to
acquire 49 per cent equity from AirAsia in AAJ,
and dissolve the joint venture to establish a new company.
Vanilla was created as a wholly owned subsidiary
of ANA in October 2013, and began operations in November
2013.
Like AAJ, Vanilla operated from Narita International Airport on
three domestic routes (Sapporo, Okinawa,
and Amami) and two international routes (Seoul and Taipei).
ANA seemed to have learned from the failure
of its joint venture with AirAsia, so unlike AAJ, Vanilla
targeted specific customer segments, similar to
Peach’s approach, promoting its services to families, retirees,
groups, and couples. Vanilla seemed to

emerge as a profitable new LCC venture for ANA, with its new
ownership structure and market approach,
similar to Peach, but with more integrated operations. However,
it was too premature to rule out a second
failure with Vanilla still in its early stages. There were several
changes in the operation of Vanilla, but ANA
was still its major shareholder, as had been the case with AAJ.
The newly appointed president of Vanilla,
Tomonori Ishii, had an international background and was known
for his bottom-up management style.57 He
was also a former ANA employee and a fervent supporter of the
radical management practices.
Since its launch in March 2012, Peach had cannibalized some
passengers from ANA,58 but after one year
of operations, it was recognized as the first “real” LCC to
successfully enter the Japanese air transportation
market, and as the most successful venture among the three new
LCCs launched in the same year (Peach,
AAJ, and Jetstar Japan). Its key performance indicators (e.g.,
on-time performance, load factor, cancellation
rate, and in-flight experience) showed great promise. However,
Peach’s financial performance was less
successful. In FY2012, Peach had an operating loss of ¥900
million and a net loss of ¥1.2 billion.59
In terms of operations management, an April 2014 incident was
a concern. One of its planes reached an
unusually low altitude before landing in Okinawa due to
miscommunication between the pilot and air traffic
controllers.60 The company later announced that it would
cancel a number of flights operating in May and
June.61 Later it would cancel 894 flights for July and August
due to pilot shortage. Peach had to act fast to find
ways to keep up its reputation and brand image. The pilot
shortage problem was linked to low wages in the

LCC industry, which further led to a decrease in overall
performance.
Meanwhile, Vanilla grew very slowly from the dissolution of
AAJ62 and planned to operate 10 aircraft by
March 2016. This was considered by industry specialists as the
slowest rise among Japan’s LCCs, including
Peach, AAJ, and Jetstar.
Page 8 9B16M007
STRATEGIC CHALLENGES AND FUTURE CHOICES
ANA faced upheavals in what was supposed to be a promising
business for LCCs in Japan. The first concern
was the decline in its overall brand image following the
collapse of its joint venture. The second concern
was a latent risk of misunderstanding from the customers who
were not able to differentiate between brands.
The third concern was how to apply potential synergies among
its companies. Vanilla had been operating
since November 2013, but experienced difficulties in expanding
its operations due to ANA’s conservative
management style. In particular, Vanilla expected a slow fleet
development of only 10 aircraft in two-and-

a-half years, in contrast to Peach’s development of 12 aircraft in
two years. ANA was unsure how to make
use of synergies with Peach, Vanilla, or both. Should ANA
introduce code sharing, as JAL was doing with
Jetstar? The pilot shortage problem called for an opportunity to
leverage costs and share resources among
the ANA companies.
QUESTIONABLE MOVE TOWARD SUSTAINABILITY
The LCC market in Japan became increasingly crowded with
new companies entering the LCC market,
such as Spring Airlines Japan, which was 33.3 per cent owned
by a Chinese LCC. The question of LCCs
operating over the long term was of great concern. The LCC
boom in the Japan airline market created a
new competitive landscape for the industry. Sustainability was a
critical question for incumbents and new
entrants in this relatively young market. ANA might not survive
another failure of either of its two LCCs.
The company had to find the right strategies to ensure
sustainability, having to choose between increasing
its commitment for success in the low-cost airline segment, or
discontinuing this experimentation phase.

9B16M007
EXHIBIT 1: THE ANA GROUP (AS OF MARCH 31, 2014)
Company Name Amount of
Capital
(¥ in Billions)
Ratio of Voting
Rights Holding
(%)
Principal Business
Air Transportation
Business
All Nippon Airways 25 100 Air transportation
Air Japan 0.05 100 Air transportation
ANA Wings 0.05 100 Air transportation
Vanilla Air 7.5 100 Air transportation
Airline Related
Business
Overseas Courier Service 0.12 73.4 Express shipping business
ANA Systems 0.08 100 Innovation and operation of IT systems
Travel Services
Business
ANA Sales 1 100 Planning and sales of travel packages, etc.
Trade and Retail
Business
All Nippon Airways

Trading 1 100 Trading and retailing
Source: All Nippon Airways Co., Ltd., “Annual Report 2014,”
www.anahd.co.jp/en/investors/data/pdf/annual/14/14_00.pdf,
accessed January 8, 2016.
EXHIBIT 2: NUMBERS FOR JAPAN’S MAJOR AIRPORTS
(AS OF MARCH 2014)
Rank Airport City Served Region Passenger Aircraft Cargo
1 Haneda Airport Tōkyō Kantō 68,577,825 403,242 954,359
2 Narita International Airport Tōkyō Kantō 32,465,439 223,388
2,019,844
3 Fukuoka Airport Fukuoka Kyūshū 18,951,652 170,640
253,797
4 New Chitose Airport Sapporo Hokkaidō 18,674,344 134,312
226,905
5 Kansai International Airport Ōsaka Kansai 17,660,809
131,930 682,343
6 Naha Airport Naha Okinawa 16,039,825 147,302 388,387
7 Osaka International Airport Ōsaka Kansai 13,823,922 136,132
137,824
8
Chūbu Centrair
International Airport Nagoya Chūbu 9,552,867 88,578 168,993
9 Kagoshima Airport Kagoshima Kyūshū 5,042,755 65,830
34,806
10 Sendai Airport Sendai Tōhoku 3,075,633 54,554 7,006
Source: Ministry of Land, Infrastructure, Transport and

Tourism, www.mlit.go.jp/en/index.html, accessed April 30th,
2014.
Page 10 9B16M007
EXHIBIT 3: ANA BUSINESS MODEL’S KEY POINTS FOR
LOW-COST CARRIERS
wer
medium-body aircraft
-to-point routes with
the pre-set turnaround time at
airports
plified reservations and sales through the Internet
-in and boarding through automated
procedures
-flight services and additional charges for
ancillary services such as baggage
fees and in-flight foods and beverages

Straightforward fares and promotional sales
-board services and optional amenities to ensure
high customer satisfaction
All Nippon Airways Co., Ltd., “ANA Holdings Inc. Annual
Report,” www.anahd.co.jp/en/investors/data/pdf/annual/
12/12_11.pdf, accessed December 5, 2015; Airline Trends,
“Innovative Airlines 2012: #10 All Nippon Airways,” May 14,
2012,
www.airlinetrends.com/2012/05/14/innovative-airlines-2012-
all-nippon-airways/, accessed December 5, 2015.
Page 11 9B16M007
ENDNOTES
1 This case has been written on the basis of published sources
only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of All Nippon
Airways Co., Ltd., or any of their employees.
2 All Nippon Airways Co., Ltd., “Annual Report 2014,”
www.anahd.co.jp/en/investors/irdata/annual/, accessed
December 5, 2015.
3 The Japan Times, “Make Way for Low-cost Carriers,” April

18, 2012, www.japantimes.co.jp/opinion/2012/04/18/editorials/
make-way-for-low-cost-carriers/#.VL-5a6k6YUs, accessed
December 5, 2015.
4 Kyodo, “Peach to Cancel 894 Flights in July and August Due
to Pilot Shortage,” May 20, 2014, www.japantimes.co.jp/news
/2014/05/20/business/corporate-business/peach-cancel-894-
flights-july-august-due-pilot-shortage/#.VL-9r6k6YUs, accessed
December 5, 2015.
5 CAPA Centre for Aviation, “Japan's LCCs' Financial and
Performance Results in: How Did They Fare in Their First
Year?”
August 29, 2013, http://centreforaviation.com/analysis/japans-
lccs-financial-and-performance-results-in-how-did-they-fare-in-
their-first-year-124410, accessed December 5, 2015.
6 CAPA Centre for Aviation, “Vanilla Air’ New Name for
AirAsia Japan under ANA's Control — Will it be Sweet or Plain
Vanilla?” August 21, 2013,
http://centreforaviation.com/analysis/vanilla-air-new-name-for-
airasia-japan-under-anas-control--
will-it-be-sweet-or-plain-vanilla-124409, accessed December 5,
2015.
7 All Nippon Airways Co., Ltd., “ANA 2012–13 Corporate
Plan,” www.ana.co.jp/eng/aboutana/corporate/ir/stream/
201202/index.html, accessed December 5, 2015.
8 “Annual Report 2014,” op. cit.
9 Skytrax, “The World’s 5-Star Airlines,”
www.airlinequality.com/StarRanking/5star.htm, accessed
December 5, 2015.
10 All Nippon Airways Co., Ltd., “Our Mission Statement and
Management Vision,” www.anahd.co.jp/en/company/vision/,
accessed December 5, 2015.
11 ¥ = JPY = Japanese yen; All currencies in JPY unless
otherwise stated; JP¥1 = US$0.0082 on December 9, 2015.
12 Japan Guide, “Domestic Air Travel,” www.japan-
guide.com/e/e2365.html, accessed December 5, 2015.
13 Airline trends, “ANA to Monetize Business Class Perks with

‘MyChoice’ Program,” November 4, 2009,
www.airlinetrends.com/2009/11/04/ana-mychoice/, accessed
December 5, 2015.
14 HatenaBlog, “Domestic Flight Passengers Market Share in
Japan, 2013,” November 13, 2014,
http://nbakki.hatenablog.com/entry/2014/11/13/125332,
15 CAPA Centre for Aviation, “AirAsia Japan Collapses,” June
26, 2013, http://centreforaviation.com/analysis/airasia-japan-
collapses-after-airasia-group-was-too-bearish-while-ana-lacked-
experience-114196, accessed December 5, 2015.
16 Armagebedar, “Domestic Flight Passengers Market Share in
Japan, 2013,” November 13, 2014, www.flyertalk.com
/forum/all-nippon-airways-ana-mileage-club/1353616-read-first-
all-nippon-airways-amc-master-thread.html, accessed
December 5, 2015.
17 ASK is a measure of an airline flight’s passenger carrying
capacity and is calculated by multiplying the number of
available
seats by the number of kilometres flown.
December 5, 2015.
19 CAPA Centre for Aviation, “All Nippon Airways to Have
More International than Domestic Capacity — But Revenue Still
in
Japan,” March 5, 2014,
http://centreforaviation.com/analysis/all-nippon-airways-to-
have-more-international-than-domestic-
capacity---but-revenue-still-in-japan-154191, accessed
December 5, 2015.
20 “Annual Report 2012,” op. cit.
21 All Nippon Airways Co., Ltd., “ANA Group Corporate
Strategy 2014-16,” www.anahd.co.jp/en/company/pickup/
pickup_strategy2014_1.html, accessed December 5, 2015.
22 H. Yamauchi, “Toward a More Liberal Sky in Japan”,

January 2000, www.nber.org/chapters/c8481.pdf, accessed
December 5, 2015.
23 Center on Japanese Economy and Business — Columbia
Business School, “Air Transport Policy in Japan,” September
1996, www8.gsb.columbia.edu/rtfiles/japan/WP%20124.pdf,
24 Ibid.
25 Y. Ohara, “Competition in Industries Recently Deregulated
in Japan,” 1999, http://ir.lawnet.fordham.edu/
cgi/viewcontent.cgi?article=1711&context=ilj, accessed
December 5, 2015.
26 U.S. Department of State, “Memorandum of Understanding
Between the Government of Japan and the Government of the
United States of America,” January 20, 2009, http://2001-
2009.state.gov/e/eeb/rls/othr/63081.htm, accessed December 5,
2015.
27 International Air Transport Association (IATA),
“Strengthening Japan’s Aviation Competitiveness — Reducing
Cost of
Infrastructure,” September 19, 2012,
www.iata.org/pressroom/pr/pages/2012-09-19-01.aspx, accessed
December 5, 2015.
28 CAPA Centre for Aviation, “LCCS Help Japanese Domestic
Market Grow for First Time in Six Years but Market Situation
Still Dire,” August 8, 2013,
http://centreforaviation.com/analysis/lccs-help-japanese-
domestic-market-grow-for-first-time-in-
six-years-but-market-situation-still-dire-121716, accessed
December 5, 2015.
29 Nikkei, “Japan Looking to Expand Airport Network Ahead of
Olympics,” August 6, 2014, http://asia.nikkei.com/Politics-
Economy/Policy-Politics/Japan-looking-to-expand-airport-
network-ahead-of-Olympics, accessed December 5, 2015.
30 International Air Transport Authority, “Airline Cost
Performance,” July 2006, www.iata.org/whatwedo/Documents
/economics/airline_cost_performance.pdf, accessed December 5,

2015.
31 Ministry of Land, Infrastructure, Transport and Tourism,
“Tokyo International (Haneda) Airport,”
www.mlit.go.jp/koku/15_hf
_000051.html, accessed December 5, 2015.
Page 12 9B16M007
32 H. Murakami, “Empirical Analysis of Inter-firm Rivalry
between Japanese Full-Service and Low-Cost carriers,” Pacific
Economic Review, 2011, 103–119,
http://econpapers.repec.org/article/blapacecr/v_3a16_3ay_3a201
1_3ai_3a1_3ap_
3a103-119.htm, accessed December 5, 2015.
33 International Air Transport Authority, “Airline Cost
Performance,” July 2006, www.iata.org/whatwedo/Documents/
economics/airline_cost_performance.pdf, accessed December 5,
2015.
34 RPK is a measure of traffic for an airline flight and is
calculated by multiplying the number of revenue-paying
passengers
aboard the airline by the distance traveled; Japan Airlines, “JAL
Annual Report 2013,” https://www.jal.com/en/investor/
library/report/pdf/index_2013.pdf, accessed December 5, 2015.
35 Jetstar, “Qantas Increases Share in Jetstar Japan,” October

31, 2013, www.jetstar.com/mediacentre/latest-
announcements/detail?id=6d2f01e8-d9b4-4889-ac8e-
a5d6937fbb1e&language=en, accessed December 5, 2015.
36 CAPA Centre for Aviation, “Air Do, Product of Japan’s
Quixotic Airline Market, Likely to Remain Independent Pending
Reform,” September 18, 2013,
http://centreforaviation.com/analysis/air-do-product-of-japans-
quixotic-airline-market-likely-to-
remain-independent-pending-reform-128487, accessed
December 5, 2015.
37 Zipanguflyer, “CoachFlyer 6J034: NGS — HND on Solaseed
Air's Boeing 737,” February 6, 2014, http://zipanguflyer
.blogspot.jp/2014/02/flying-lq34-ngs-hnd-with-solaseed-
air.html, accessed December 5, 2015.
38 H. Murakami, op. cit.
39 Usine nouvelle, “Boeing Délivre Enfin son Premier 787,”
September 26, 2011, www.usinenouvelle.com/article/boeing-
delivre-enfin-son-premier-787.N159540, accessed December 5,
2015.
40 International Air Transport Authority, “Profitability and the
Air Transport Value Chain,” June 2013,
www.iata.org/whatwedo/
Documents/economics/profitability-and-the-air-transport-
value%20chain.pdf, accessed December 5, 2015.
41 CAPA Centre for Aviation, “AirAsia Expansion,” December
14, 2012, http://centreforaviation.com/analysis/airasia-
accelerates-fleet-expansion-as-battle-with-indonesias-lion-air-
moves-up-a-gear-91790, accessed December 5, 2015.
42 S. Nomura, “Keys to the Success of LCC Business in Japan,”
Japan Tourism Marketing Co, October 6, 2011,
www.tourism.jp/en/column-opinion/success-lcc-business/,
43 CAPA Centre for Aviation, “Eight North Asian Low-cost
Airline Trends to Watch in 2013,” December 31, 2012,
http://centreforaviation.com/analysis/eight-north-asian-low-
cost-airline-trends-to-watch-in-2013-92301, accessed December

5, 2015; CAPA Centre for Aviation, “Southeast Asia Low-cost
Airline Fleet to Expand by Almost 20% in 2014. Are More
Deferrals Needed?” March 11, 2014,
http://centreforaviation.com/analysis/southeast-asia-low-cost-
airline-fleet-to-expand-by-
almost-20-in-2014-are-more-deferrals-needed-156726, accessed
December 5, 2015.
44 All Nippon Airways Co., Ltd., “Annual Report 2012-2013,”
December 5, 2015.
45 J. Okamura, “Peach Aviation Limited Business Summary,”
January 8, 2013, www.pp.utokyo.ac.jp/ITPU/en/seminar/2013-
01-08/documents/itpu20130108-Okamura.pdf, accessed
December 5, 2015.
46 CAPA Centre for Aviation, “AirAsia Japan Collapses after
AirAsia Group was too Bearish while ANA Lacked Experience,”
June 26, 2013, http://centreforaviation.com/analysis/airasia-
japan-collapses-after-airasia-group-was-too-bearish-while-ana-
lacked-experience-114196, accessed December 5, 2015.
47 All Nippon Airways Co., Ltd., “Creating New Demand:
Development of the LCC Business,”
www.anahd.co.jp/en/investors/
data/pdf/annual/12/12_11.pdf, accessed December 5, 2015.
December 5, 2015.
49 AirAsia, “ANA Part Ways Over Management Clashes,” June
25, 2013, www.japantoday.com/category/business/view/
airasia-ana-part-ways-over-management-clashes, accessed
December 5, 2015.
50 The Economist, “Japanese Women and Work,” March 29,
2014, www.economist.com/news/briefing/21599763-womens-
lowly-status-japanese-workplace-has-barely-improved-decades-
and-country, accessed December 5, 2015.
51 J. Okamura, “Peach Aviation Limited Business Summary,”
January 2013, http://www.pp.u-

tokyo.ac.jp/ITPU/en/seminar/2013-01-
08/documents/itpu20130108-Okamura.pdf, accessed December
5, 2015.
52 CAPA Centre for Aviation, “AirAsia Japan Launches as
Country's Third New LCC and Positive Force of Change for
Partner ANA,” August 1, 2012,
http://centreforaviation.com/analysis/airasia-japan-launches-as-
countrys-third-new-lcc-and-
positive-force-of-change-for-partner-ana-79360, accessed
December 5, 2015.
53 All Nippon Airways Co., Ltd., “Annual Report 2012-2013,”
December 5, 2015.
54 World Finance, “Lost in Translation,” September 13, 2013,
www.worldfinance.com/strategy/investor-relations/lost-in-
translation, accessed December 5, 2015.
55 B. Forrey, A. Schotter, J. Doh, and T. Lawton, “AirAsia X:
Can the Low Cost Model Go Long Haul?” Ivey Publishing,
February 2012, Ivey product no. 9B12M013, available at
https://www.iveycases.com/ProductView.aspx?id=53634,
accessed
December 5, 2015.
56 CAPA Centre for Aviation, “Jetstar Japan Settles in for the
Long Term as AirAsia’s Departure Eases Domestic Market
Competition,” September 24, 2013,
http://centreforaviation.com/analysis/jetstar-japan-settles-in-
for-the-long-term-as-
airasias-departure-eases-domestic-market-competition-129445,
57 CAPA Centre for Aviation, “ANA to Re-launch AirAsia
Japan with New Brand, Oversight — Can ANA Get it Right This
Time Around?” August 1, 2013,
http://centreforaviation.com/analysis/ana-to-re-launch-airasia-
japan-with-new-brand-
oversight--can-ana-get-it-right-this-time-around-121471,

58 CAPA Centre for Aviation, “Spring Airlines Moves to
Establish Japanese Base While ANA Sees Cannibalisation from
New
LCCs,” December 7, 2012,
http://centreforaviation.com/analysis/spring-airlines-moves-to-
establish-japanese-base-while-
ana-sees-cannibalisation-from-new-lccs-90656, accessed
December 5, 2015.
Page 13 9B16M007
59 Kyodo, “Peach Aviation Logs ¥1.2 Billion Loss,” August 17,
2013, www.japantimes.co.jp/news/2013/08/17/national/peach-
aviation-logs-¥1-2-billion-loss/#.VfQVUKmXwUs, accessed
December 5, 2015.
60 S. Hradecky, “Incident: Peach A320 at Okinawa on Apr 28th
2014, Descended below Minimum Safe Height,” April 30,
2014, http://avherald.com/h?article=473b1d49, accessed
December 5, 2015.
61 Kyodo, “Peach to Cancel 894 Flights in July and August Due
to Pilot Shortage,” May 20, 2014, www.japantimes.co.jp
/news/2014/05/20/business/corporate-business/peach-cancel-
894-flights-july-august-due-pilot-shortage/#.VUOSS6k6aRs,
62 CAPA Centre for Aviation, “Japan’s Expanding LCCs Drive
Growth but Need Cultivating; Spring Airlines and AirAsia Re-

entry Loom,” April 5, 2014,
http://centreforaviation.com/analysis/japans-expanding-lccs-
drive-growth-but-need-cultivating-
spring-airlines-and-airasia-re-entry-loom-160039, accessed
December 5, 2015.
One-Page MemoWhat you need to do to complete this
assignment:
1. Read Case: W16023-PDF-ENG, All Nippon Airways: Are
Dual Business Models Sustainable?
2. Develop a one-page memo (500 words maximum, excluding
the title, reference pages and appendices.) to answer these
questions:
1) What challenges does ANA face in choosing the run two
different business models? How should ANA overcome these
challenges to ensure the sustainability of both its premium and
low-cost airlines?
2) Going forward, should ANA discontinue its experimentation
phase in the LCC market or should it continue to run dual
business models, striving for future success? What would be
the likely action plan and outcome for each scenario?
3) Review the rubric for the common requirements for one-page
memos (posted under Course Documents in eLearning
classroom) to make sure that you have completed those
requirements too.How to format your document:
· You don't need a title page in APA6th. Simply use the same
headings as in a typical memo or email: Date, To, From,
Subject.

· Use AP6th to cite all references
· Format document using Single spaced
· Use 11-point font Arial
· Have a maximum of three attachments as appendices
· Name your MS Word filename in this format: FirstLast-
CaseName.docx. For example: JonDo-ANA.docx. This will
help avoiding duplicating names when I download the
submissions. Thank you!
· Your submitted paper must be in Microsoft Word format
How your paper will be evaluated:
· Please review the enclosed rubric for this one-page memo for
your convenience (it is the same document posted under 'Course
documents')
To: Management 362 Participants
From: Jone Do
Subject: One-page memo paper instructions, case analysis
guide, and rubric
Expressing your ideas clearly can make a difference between
having your ideas accepted or
rejected. How well you express your ideas in your writing
assignments will also affect the
outcome of your grade and success in this course. In the
business world, complex ideas
must be presented quickly in a clear and concise manner, often
in the form of a one-page
memo, or an email. Important decisions are made often through
these one-page memos
which may be shared with others as part of the decision making
process. To make your
memo stand out, you need to present your case concisely and

supported by facts and not
opinions.
Evaluation criterion (see rubric below) are as follows:
1) Content: You have described what tools should be used to
identified the key issues,
cited three benchmark companies that face similar issues, and
related your discussions to
the reading materials of the week. This is worth 10% out of
100% scale.
2) Analysis and critical thinking: You have identified and
prioritized key issues for firms to
focus and answered all assignment questions. Your key issues
are correctly identified as
root causes and not symptoms of something deeper. You have
stated your position and
recommendations clearly. Your recommendations and arguments
are supported by facts, not
just opinions. You make your assumptions explicit. This is
worth 80% out of 100% scale.
3) Clarity and presentation: Your writing is clear and concise,
free from spelling and
grammatical errors. Your topic sentences logically follow the
objective and cite references
using the correct APA format. Your entire memo looks
professional and follows the format
provided as illustrated by this memo. This is worth 10% out of
100% scale.
The memos are to be
1) a maximum of one page in length,
2) single spaced, and
3) in Arial, 11-point font. You are allowed to include up to
three appendices to present the facts
arranged in a table format or chart. NOTE: Your one page

memos should be approximately
500-words in length, excluding the title section (i.e., the first
five line of this memo), the
reference page and appendices.
All memos will be submitted via Dropbox by the due dates. Late
memos are accepted, but
subject to penalty. We will be discussing some of the cases in
class, and if you wish to refer to
your memo during the class discussion, you will need to include
it in your post.
Writing is a painful process, but if you are serious about a
successful career in business, it is
vital that you master the ability to write clearly. This course
requirement is designed to help.
CASE ANALYSIS GUIDE
I. Why we study using cases
• Develop your critical thinking skills, including analytical and
judgmental skills.
• Learn how to ask and identify the right questions based on the
facts cited in the
case.
• Develop insights through managerial situations in other real
life firms.
• Enhance oral and written communications skills.
II. What to expect in a case.
• The critical issues are often not explicitly identified
o You need to identify them!
• Sometimes, the information can be ambiguous, contradictory,
redundant or
irrelevant.
o You need to sort through them to identify the critical issues.
• There is no unique or right answer.
o Don’t assume that there is only RIGHT answer.
III. How to approach a case.
• Read the case through quickly to get a general feel for what

the case is about and
what information is given.
o You should be able to give a 1-3 lines to summarize the case,
as if somebody
asks you at a cocktail party “what is this case about?”
• Start identifying primary and secondary questions to hone in
the one or two KEY
questions of the case:
o Reread the case carefully, noting the key facts and important
information.
o Develop a sense of the important issues and basic problems.
o Decide what issues must be resolved and provide answers to
them. Use and
analyze the data and information in the case.
• Develop a set of recommendations that are supported by your
analysis. Evaluate
and reject alternate courses of action based upon your analysis.
Address
implementation issues.
o Consider: goal consistency, strategic relevance, organizational
capability,
political feasibility as you develop your recommendations.
o Again, don’t assume that there is only one RIGHT answer.
What is important is
that your recommendations are consistent with your perceived
problems and that
you can defend your positions using facts from the case and not
just opinions. I
am looking for your rationale and how you connect the dots
(facts) together.
IV. How to participate in a Class case discussion:
• Take a stand on the assigned issues.
• Keep an open mind.
• Bring in your outside experience, previous cases, text
material, outside reading, and
outside research (similar problems in today’s environment)

• Be concise and to the point.
• Don't be shy.
• Learn from other students.
V. How to write a case analysis - suggestions:
• Don't start writing until you have completed your analysis. If
you need to use a tool
or a framework to analyze the situation then actually conduct it.
For example, don’t
just say that ‘we should do a Five Force analysis to…” you need
to go ahead and
actually conduct a Five Forces Analysis. Attach your analyses
as appendices.
• Study the results of the analysis and ask ‘what is the
implication of these results” –
don’t just report the findings without discussing the
implications. Focus your
discussion on the implications and how they lead you to certain
recommendations.
• Take a stand on the assigned issues.
• Address the assigned issues. Organize your paper to give the
most words to
discuss the key questions or recommendations. Use the answers
of supporting
questions to help craft your rationale for your recommendations
or arguments.
• Avoid extensive restatement of the case material. NO book
report!
• Make judicious use of tables and graphs as appendixes.
• Eliminate spelling and grammatical errors.

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