Peach Airlines, a Kansai-based budget airline formed between All Nippon Airways (ANA) and First Eastern Investment Group, said it would operate at lower costs than rival low-cost carrier AirAsia Japan and aimed to become a dominant budget airline on mainland China routes in three to five years. The announcement that ANA will join hands with AirAsia to form a Narita-based budget airline two weeks ago raised concerns about market positioning and a conflict of interest over the plan by the two related, yet competing, low-cost carriers. But Victor Chu, chairman of First Eastern, a Hong Kong-based direct investment fund which has channelled more than US$7 billion in capital into the mainland over 23 years, brushed aside the concerns. 'We position ourselves as a short-haul airline, while AirAsia Japan is a short- to medium-haul operator,' he said. The creation of Peach Air is seen as a wake-up call to Japanese airlines. After its creation was announced last September, Jetstar and Japan Airlines said they were in talks over setting up a budget airline in July, followed by AirAsia Japan. Chu said he was not shocked about AirAsia Japan, as ANA has given him a 'heads-up' notice of the plan before negotiations on Peach Air were concluded. The only thing that annoyed him, he said, was that AirAsia Japan said that Peach Air could not set up a second base in Narita. But he admitted that AirAsia was a respectable and strong competitor for Peach as it had a proven and successful business model. AirAsia Japan said it would break even in the first year of operation while Peach will need three years. AirAsia Japan can reduce costs as it leases aircraft from Air Asia. Its set-up capital amounts to 5 billion yen (HK$494 million), which is just one-third of Peach Air's capital to buy new planes. However, Peach could have lower staff costs than AirAsia Japan. As a new start-up carrier, Peach Air is not subject to union wage agreements, while AirAsia Japan, as a subsidiary of ANA, is. Infrastructure-related costs for Peach would be lower than its competitor, said Chu, as Kansai airport had started building a budget airline terminal and promised to give Peach an 'attractive' incentive in landing and parking fees. 'In three to five years, we would also like to be on the mainland,' said Chu, who projected that the number of mainland visitors to Japan would top five million in 2014 from 1.1 million last year. Peach will start flying to mainland cities including Dalian, Beijing and Shanghai in 2013. Leveraging on the existing network of First Eastern on the mainland, Chu believed Peach could bring in a quality service to the mainland. China is experiencing an explosion in out-going travel. Peach will roll out its first two routes - to Sapporo and Fukuoka - next March, followed by Incheon two months later. The carrier has placed 10 firm orders for Airbus 320 aircraft, with an option to purchase six more.