AirAsia Japan confirmed that it has ceased operation as of Oct. 5 after the COVID-19 crisis compounded the carrier’s challenges in the competitive Japanese LCC market.

“Despite our unrelenting efforts to sustain operations through successive and wide-ranging cost reduction initiatives, we have concluded that it would be an extremely challenging feat for us to continue operating without any visibility and certainty of a post-pandemic recovery path,” AirAsia Japan representative director and COO Jun Aida said. “This painful decision to cease operations was decided neither in haste nor taken lightly … it was agreed upon after conducting a thorough business review.”

Travel restrictions have cut demand for business and leisure travel and caused flight reductions, cancellations and the grounding of aircraft, AirAsia Japan said. “These factors have weighed heavily on the Company’s ability to continue operations,” the airline said.  

However, AirAsia Japan stressed that despite the carrier’s shutdown, other AirAsia Group carriers expect to eventually restore flights to and from Japan. “International services to Japan, from Malaysia, Thailand and the Philippines will resume in the future after travel restrictions are lifted and borders with Japan are reopened,” AirAsia Japan said.

AirAsia Japan operated three Airbus A320s on international and domestic routes. The AirAsia Group holds a 66.9% equity stake in AirAsia Japan and 33% of the voting rights. Other major shareholders include Japanese online retailer Rakuten.

The joint venture was launched in 2017 but has yet to be profitable. The COVID-19 crisis further hurt earnings, with AirAsia Japan reporting a net loss of ¥1.1 billion ($10.4 million) in the quarter ending June 30. The carrier temporarily suspended its operations because of the pandemic, resuming flights on Aug. 1.

Japan’s LCC market has become increasingly competitive in recent years. All Nippon Airways has its Peach LCC subsidiary while Japan Airlines is part-owner of Jetstar Japan. Other LCCs include Spring Airlines Japan. All these carriers are larger than AirAsia Japan.

The AirAsia Group is expected to focus its resources on its core Southeast Asian franchises as it looks to raise enough funds to survive the pandemic. 

AirAsia’s only other joint venture outside Southeast Asia is AirAsia India. The Times of India and other local media have reported that the group is holding discussions about selling its stake to AirAsia India co-owner Tata Group. AirAsia Group is not commenting on these reports.