The backers of AirAsia Japan have revealed they are to end their joint venture although the carrier will continue to operate until the end of October this year when it will revert to a wholly-owned subsidiary of All Nippon Airways after the Japanese carrier confirmed it will buy AirAsia’s stake in the business. The announcement is no surprise after the parties revealed earlier this month that they were exploring “all available options” for the low-cost business after the carrier failed to meet initial growth targets and the planned expectations of its shareholders.

AirAsia Japan was established as a joint venture between AirAsia and All Nippon Airways (ANA) in August 2011 and launched operations last year but has struggled in what is a competitive marketplace. A statement from AirAsia suggests that issues with the business were deeply rooted in the business model. The low-cost airline strategy is new to the Japanese market and AirAsia has suggested that corporate business mentality was at least part of the problem.

It says the joint venture has been “facing some challenges attributed to a difference of opinion in management, most critically on the points of how to operate a low-cost business and operating from Narita,” noting that the management team is predominantly comprised of ANA staff, starting with but not limited to the Chief Executive Officer and Chief Financial Officer positions.

“Issues stemmed from a fundamental difference of opinion between its shareholders on how the business should be managed from cost management to where the domestic business operations should be based,” it added in a formal statement confirming the joint venture termination agreement.

AirAsia, through AirAsia Investment Ltd, had subscribed 25,120 voting shares and 23,880 non-voting shares in the business giving it a 49% share of the paid-up share capital in AirAsia Japan. As part of what appears a fairly amicable split, ANA parent, ANA Holdings, already a 51 per cent shareholder in the low-cost entity will acquire AirAsia’s full stake. Under the terms of the termination, AirAsia Japan will continue to fly until October 31, 2013 at which time the carrier will be rebranded and its existing fleet will return to AirAsia. ANA Holdings says the business will “henceforth operate as a wholly-owned subsidiary of ANA, based at Narita Airport”.

“I have great respect for ANA as the leading legacy airline in Japan but it is time for us to part ways and focus our attention on what we do best, which is running a true LCC,” said Tony Fernandes, Chief Executive Officer, AirAsia Group. “Despite the cost issues, the AirAsia brand has resonated with Japanese customers and the trend we see for July and August is very strong for all of Japan.

“I remain positive on the Japanese market and believe there is tremendous opportunity for a LCC to succeed, as proven by the tremendous success AirAsia X has seen. We have not given up on the dream of changing air travel in Japan and look forward to returning to the market,” he added.

AirAsia Japan initially launched operations from Tokyo Narita to the domestic destinations of Fukuoka, Okinawa and Sapporo on August 1, 2012 subsequently adding international flights from the Japanese capital to Seoul Incheon and Busan in South Korea from October 2012 and November 2012, respectively. A second hub was opened at Chubu Centrair International Airport in Nagoya in March this year with domestic connections to Fukuoka and Sapporo and an international link to Seoul Incheon being introduced. A new link between Tokyo Narita and Taipei Taoyuan has also been planned for launch during the second half of this year.