Japan-tastic: Business traffic is up. Tourism is booming. These are good times for Japanese airlines

It’s a good time to be a Japanese airline. The country’s two dominant carriers, All Nippon and Japan Airlines, both earned solid if not spectacular profits last year, fueled by strong demand. Both, meanwhile, are becoming strategically bolder, in a market that’s becoming strategically more important to many foreign airlines. It’s also becoming transformed by a new set of emerging forces.

The most powerful of these forces is inbound tourism. The story here is a stunning one, even by the standards of a wider boom in tourism throughout East Asia. In 2010, Japan welcomed what was then a record number of overseas visitors, almost 9m, according to JTB Tourism. That figure dropped sharply in 2011 because of a tsunami. But the following year marked the start of a remarkable run, fueled by a cheap yen, a surge in Chinese visitors, disruptions in competing tourist markets, the rise of low-cost carriers, liberalized air service agreements, visa relaxation and airport capacity expansion, all of which ushered in new overseas flights. Last year, Japan received not 9m visitors but 29m! That was up 19% from just the year before. And guess what? During the first two months of 2018, arrivals are up another 23%.

Roughly half of all overseas visitors to Japan come from just two neighboring countries: mainland China and South Korea. Include Taiwan and Hong Kong, and the percentage rises to almost three-quarters. All four markets have seen enormous growth, but none more so than mainland China, whose 7m -plus arrivals last year were up 421% from the start of the decade. In 2015, Mainland China overtook South Korea as the largest source of arrivals to Japan. Beyond northeast Asia, Japan’s largest source market is the U.S., from which visitors increased a robust 12% last year and 94% since 2010. Other sizable sources of demand include the ASEAN region, Europe and Australasia.

And it’s not just inbound leisure demand. Outbound leisure demand is strong too. Almost 18m Japanese passengers flew abroad last year, buttressed by Japan’s recent run of solid economic growth, the growing availability of low-cost flights and the influence of the coun…

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