ANA Holdings has confirmed it will merge its two low-cost carriers units, with Peach Aviation (MM, Osaka Kansai) set to absorb its Vanilla Air (Tokyo Narita) sister.

The Japanese carrier holding said in a disclosure to the Tokyo stock exchange on Thursday, March 22, that the integration process is planned to start during the second half of FY2018 (i.e. between October 1, 2018, and April 1, 2019) and is expected to be completed by the end of FY2019 (i.e. March 31, 2020).

"It's an option to survive intense competition with overseas LCC etc." Peach's CEO Shinichi Inoue said during a press conference in Tokyo.

ANA controls Peach's shareholding with a 67% stake. The remaining 33% is split between Hong Kong-based First Eastern Aviation Holdings (FEAH) with 17.9% and Innovation Network Corp. of Japan (INCJ) with 15.1%. ANA will acquire a 10.9% stake from FEAH in April for JPY11.3 billion (USD106.3 million). Once the sale is completed, subject to regulatory approvals, ANA will control 77.9% of Peach, FEAH 7%, with the INCJ retaining its 15.1% stake. ANA will then finalize the details of the merger with Vanilla Air, its wholly-owned subsidiary formed following AirAsia Group's sale to ANA of its 49% stake in the first iteration of AirAsia Japan (Nagoya Chubu) in 2013.

Peach Aviation focusses primarily on the Osaka Kansai and Southern Japanese markets while Vanilla Air caters more to Tokyo Narita/Northern Japanese demand. Both employ A320ceo fleets (twenty and fourteen aircraft respectively). In terms of international networks, Peach serves South Korea, Taiwan, China, Hong Kong, and Thailand while Vanilla Air serves the Philippines, Taiwan, Vietnam, and Hong Kong.

Following the integration, the consolidated airline will serve as a foundation for further fleet growth and network expansion out of Osaka Kansai as well as from Tokyo Narita. In addition, ANA said the consolidated airline would stimulate potential demand in Japan and from abroad through attractive service, various innovations and competitive fares.

From April 2021 onwards, the enlarged LCC plans to operate more than 50 aircraft on more than 50 routes, up from the existing 34 aircraft and the 39 routes currently served.

In terms of network, come April 2020, the integrated LCC plans to enter the mid-haul LCC market where it will aggressively pursue opportunities in the Asia travel market.

In terms of revenue, the airline will target revenue inflows of JPY150 billion Japanese yen (USD1.41 billion) and an operating profit of JPY15 billion (USD141 million) for FY2020.

Despite its consolidation, ANA says it will maintain the carrier's strategic independence, positioning it for new opportunities for future expansion, while becoming the leading LCC in Asia.