Japan's All Nippon Airways and AirAsia said Tuesday they have agreed to terminate their budget carrier joint venture as business slumped amid management clashes, dealing a blow to the country's fledgling low-cost sector.
Malaysia-based AirAsia said AirAsia Japan would cut service by the end of October, just over a year after it started flying out of Tokyo's Narita airport in August.
"The joint venture... faced many challenges since its launch," AirAsia said in a statement.
It cited 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".
AirAsia chief executive and founder Tony Fernandes added that "it is time for us to part ways and focus our attention on what we do best, which is running a true LCC (low-cost carrier)".
Fernandes hinted AirAsia may return to Japan, saying its brand had "resonated with Japanese customers".
"I remain positive on the Japanese market and believe there is tremendous opportunity for an LCC to succeed," he added.
However Shinzo Shimizu, senior vice president of ANA Holdings, told a press briefing in Tokyo on Tuesday that the venture dissolved because "its name didn't spread in Japan and it couldn't make profits".
The airline booked an operating loss of about 3.5 billion yen ($36 million), he said.
Another problem was that the carrier focused on online sales -- a key strategy for AirAsia -- but many Japanese travellers still book flights through travel agents, Shimizu said.
"We think that there is a limit to the strategy of simply bringing AirAsia's operation into the Japanese market," he added
ANA would launch a new budget brand in November, he said, although the airplanes leased by AirAsia Japan would be returned to the Malaysian firm.
"We will announce details of which brand and aircraft to use, as well as routes, in July," Shimizu said.
News reports said a new airline could fly under ANA's other budget carrier joint venture, Peach Aviation, which flies out of Osaka.
AirAsia Japan was one of three budget airlines to come online in Japan over the past couple of years, promising to shake up a sector long controlled by ANA and rival Japan Airlines.
But a key constraint for budget carriers is that they were shut out of Haneda airport, just a short train ride from downtown Tokyo and the staging point for the most profitable domestic routes.
Flying out of Narita requires a one-hour train ride from the city centre, a long-standing headache for travellers including passengers with AirAsia Japan and Jetstar Japan, a joint venture between JAL and Australia's Qantas.
The Japanese aviation industry has long been notorious for sky-high landing fees and fuel taxes.
Another no-frills carrier, Skymark Airlines, has struggled to offer the kind of heavily discounted fares seen in Europe and North America due to high operating costs.