AirAsia Japan will turn a profit within a year: Fernandes

As budget carrier AirAsia gets set to re-enter Japanese skies through a joint venture, CEO Tony Fernandes is optimistic the new low-cost airline - AirAsia Japan - will be profitable within one year of operation.

"We've very optimistic. We've had a one-year learning experience," Fernandes told CNBC on Tuesday.

After pulling out of a partnership with the country's biggest carrier All Nippon Airways (ANA) last year due to differences over strategy, Malaysian-based AirAsia announced on Tuesday it's teaming up with Japanese e-commerce giant Rakuten, diversified conglomerate Noevir Holdings, Octave Japan Infrastructure Fund will and sports firm Alpen to launch a low-cost airline.

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"You've got to have the right partners to share your vision in trying to make change and we've got the best here," he said.

Air Asia Japan, which will fly to both domestic and international destinations, will begin operations in about a year with a fleet of five Airbus A320 aircraft.

Low cost carriers account for just 3 percent of travel in Japan, compared with 30 percent in the U.S. and 50 percent in Southeast Asia, according to Rakuten CEO Hiroshi Mikitani, highlighting the growth potential in the country's budget travel market.

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"Inbound travelers are growing very, very rapidly. I think we're going to reach 20 million by 2020," he said. Over 11 million international travelers visited the country in 2013.

Regulatory environment to improve

Japan's aviation market remains tightly controlled by the government which has created barriers for both domestic and foreign competitors through protectionist policies and by limiting landing slots and airport access.

Adek Berry | AFP | Getty Images

As such, the country's two national carriers, Japan Airlines (JAL) and ANA, have long dominated the industry.

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However, Mikitani is confident Prime Minister Shinzo Abe's government will deregulate the market to the point that it will create direct competition to legacy carriers.

"Now JAL is healthy, ANA is healthy so it's time for the Japanese government to take a strong approach," he said.

JAL filed for bankruptcy protection in 2010 and was later bailed out by the government.