Welcome to Flight Global Focus, the essential podcast for
trusted aviation insight. I'm Lewis Harper, Airlines
Editor for Flight Global. And this week, we are talking
about domestic markets and more specifically the Japanese
domestic market. Joining me to discuss this is
Alfred Cheer Flight Global's Asia Airlines Editor.
Hi, Alfred. Hi, Lewis.
So, Alfred, can you give me a snapshot of how the Japanese
domestic market is performing now?
Yes, Lewis. So if we take a look at the data
from the two largest carriers, Japan Airlines in Eni.
So if we look at the October, December quarter, that's the
third quarter in the Japanese financial calendar, we see that
for Ana it recorded a 4% rise in traffic and on the other hand,
capacity fell 2.8%. And Ana is also saying that it's
passenger volumes for the quarter were up 2.8% to 11.9
million passengers. That's for the domestic network.
If we look at Japan Airlines, they carried 1.5% more
passengers during the quarter. Traffic was up 1.8%, but
passenger capacity was down 0.8%.
So that kind of gives you a bit of a picture of how the two
largest carriers in Japan, how their domestic networks are
performing. Thanks, Alfred.
Yeah. And interesting seeing there
that, yeah, you see a bit of a rise in traffic, but capacity
down in both cases. And I think the the key issue
we're coming round to here is, is demographics, isn't it?
Could you talk a bit more about the impact of the demographic
changes in Japan and maybe the challenges that's creating for
the airline sector? Yes, you're right in saying that
demographics is a is a key challenge.
And you know, Japan's shifting demographics has been widely
documented. We know that the country is
facing a rapidly ageing population and, you know, their
implications across a wide segment of society, not least
the airline sector. And you know, for the airlines,
the kind of changing demographics means, on the one
hand, labour constraints, but more significantly, it kind of
changes to the way we look at domestic travel trends.
And shifting demographics has been one of the key challenges
that has been outlined by Japanese carriers, both Japan
Airlines and Ana. And you know, they've talked
about this since last year, both in the network plans and in the
financial results. And set against this as well is
a regulatory environment that's also becoming increasingly
challenging. So we know that Japan
regulators, they don't impose caps on domestic airfares, but
they have oversight in terms of the range of fares that domestic
carriers can set. And they also provide aid in
some form of subsidies in the form of airport usage chargers
and aviation fuel. So that's one that's one
challenge. Another challenge as well, and
this was raised by A and AI think was that there was a
structural decline in business travel demand according to its
traffic data. I think it's seeing that
business travel demand is down 20 to 30% against pre pandemic
levels. So that's quite a significant
decline. And I think it suggests that,
you know, there's no way that business travel demand is going
to recover to the levels that we're seeing pre COVID.
And then of course, on top of all of this is increasing costs,
which, you know, the airlines have acknowledged that it's
going to make it challenging for them to turn a profit for their
domestic operations. And of course, Ana in August
when it was a, when it kind of released its network outlook for
the rest of the financial year to March this year, it says
that, you know, it will continue to adjust flight frequencies by
adding or reducing flights based on what it called a
comprehensive assessment of demand.
So that's kind of, you know, what the situation is, the
challenges that the the two largest carriers in Japan are
facing. Yeah, it's really interesting.
So yeah, you talk about the demographic challenges
alongside, you know, regulatory and the business travel ones,
which I guess are in the latitude cases probably more
familiar to other airlines globally.
But when we look at how the Japanese carriers are are
seeking to adjust to this, what what are they, what are they
saying in terms of how it's affecting their strategies going
forward? Yep.
So like I said earlier, I mean, Ana says that they would do a
comprehensive assessment of travel demands.
And you know, I've spoken with executives from both Japan
Airlines and A&A at the recent assembly of presidents organised
by the AAPA. And basically what I can get
from having conversations with them is that they are indeed
rethinking their long term domestic network strategy.
So for example, Japan Airlines is saying that the population in
regional centres, that means those outside of your
metropolises like Tokyo, Osaka and Fukuoka.
So the regional centre population is going to be
shrinking at a faster rate than your big cities.
And So what that means then for the airline is that you'll
likely see down gauging of capacity over time.
And the ones that will kind of get the first cut, so to speak,
will be flights between the regional centres, whereas your
trunk routes, for example, like your Tokyo to Osaka or Tokyo to
Fukuoka, these routes demand will still hold in the near
term. So it's not likely, at least for
Japan Airlines, you're not likely to see a kind of major
decrease in capacity for Ana. They also told me what steps
they're taking to manage their domestic operating challenges.
And as I mentioned earlier, I think they did say that you
know, one of the the core issues was a slower than expected
recovery of business travel demand.
And also given the shrinking population, they are also
flagging an oversupply of seats, basically an overcapacity.
And so to this end, I think for them their priority is really in
right sizing their operations that kind of led to them
ordering the Embraer E 190 E twos at the Paris Air Show last
year. And of course, you know when
they placed that order, they did mention that one of the key
reasons for doing so was in anticipation of a shrinking
population in the second and third tier cities and therefore
they kind of want to look to right size their domestic
operations. Thanks, Alfred.
Jen, it's, it's really interesting because we're
obviously in a a global industry and the narrative is always
around growth and where that's coming from.
As you say, the this isn't necessarily about capacity cuts
at this point. It is unusual and interesting to
be talking about airlines having to adjust to this demographic
change and thinking in terms of not necessarily growing, but
moderating capacity on certain routes and things like that.
And of course, the obvious point, as you, as you said
earlier, Japan is I guess globally ahead of most other
countries in this regard in terms of the demographic
challenge. But it perhaps does serve as a,
as a template for what what might be to come in, in certain
other markets and, and on that topic.
So how does you know Japan's experience in the domestic
market compare with with markets elsewhere?
Yeah. So I looked at, you know, iatus
data for global traffic demand, which also tracks domestic
traffic and capacity for some of the key markets in the world.
So if we look at iatus data, I think for 2025, domestic freer
demand across the different markets it tracks, it hit a
record high for both passenger number and load factors.
But IATA also notes that growth has slowed down compared to a
very strong domestic rebound that it saw in 2024.
And these markets, these domestic markets that it tracks,
these includes geographies like Brazil, the US, and of course,
in Asia, we have mainland China, Australia, India, and of course,
Japan. So if we just look at Japan's
data, that's from IATA, of course, the domestic traffic in
2025 was up 4.8% and capacity kept steady at just 0.4% growth.
Now if we look at the traffic growth for Japan, that's kind of
one of the lowest growth rates amongst the market that it
tracks. And if we look at IATA's data
for 2024, just for Japan, of course, traffic was up 3.2%.
Well, we saw that capacity shrunk slightly.
Now in contrast, in India for 2025, traffic was up 5.2%
contrasted with a 6.2 increase in capacity.
While in mainland China capacity was up 2.8% and that was
outpaced by a 4.7% increase in traffic.
So India and China of course with a relatively younger
population compared to Japan definitely has the demographic
advantage. And you know, we will probably
see that they will continue to still be domestic travel demand
in the near term. And of course, there are other
factors at play as well, including a growing middle class
and of course the the rise of a lot of first time travellers,
particularly in India. So, you know, the overall data
from Ayatta suggests that domestic travel demand is still
quite healthy globally, especially in Asia Pacific.
But if we look at Japan's slow capacity growth, you know, it
suggests that there will probably be some kind of
structural changes to the way the domestic market functions in
the future. Thanks, Alfred.
Yeah, it's, as I say, a really interesting topic and as you you
talk about, I think the broad theme when you speak to IARTA
and hear them talking about global trends, it's still one of
growth in domestic markets. As you talked about the whole
narrative in India, for example, is the growing middle class
driving a huge rise in demand for, for air travel.
China sort of similar story about the the middle class.
And when we talk about the demographics, I would say it's
not something that's brought up that proactively at the moment
when associations like IATA are looking at longer term trends.
But that said, I think it's something it's really good to
flag it. And as, as, as we know, Japan is
maybe a Canary in the coal mine a bit on, on some of this
because, you know, other more advanced economies might be
facing similar challenges. Not all of them, of course, will
have a, a domestic market where perhaps they will show through
quite more strongly, but certainly something to keep an
eye on. And I think it, it also reminds
me a bit of the sustainability debate where of course, when you
have advanced economies, keen or what?
Maybe not at the moment, not all of them, but certainly the, the
narrative has been a bit about more advanced economies pushing
for, for more action on the environment.
You know, they've kind of done their growth, they're sort of
through the, the, the boom years of, of the growth of air travel,
for example, they've settled into something much more slow in
terms of, you know, year on year capacity growth.
Whereas, you know, other markets like India, China, Africa, for
example, where there's so much more potential for growth, say
that it's not necessarily fair that advanced economies get to
dictate what happens elsewhere in sustainability terms.
So it kind of, yeah, has echoes of that as well.
So it's a it's a topic that that touches on, on lots of things
there as you, as you nicely outlined.
So thanks for your time, Alfred. Thanks, Lewis.
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