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Tuesday, Aug. 21, 2001

Kansai airport ignoring feasibility concerns


Staff writer

OSAKA -- As Kansai International Airport approaches its seventh birthday Sept. 4, a number of serious problems are casting clouds over the occasion.

Once touted as the new "Gateway to Asia," Kansai International today is laden with debt, airlines using the airport have reduced services and runway expansion plans look unsustainable. Not to mention the passenger terminal, which requires structural repairs to stop it from sinking into Osaka Bay.

When it opened in 1994 on an artificial island in Osaka Bay, Kansai International was expected to handle nearly 160,000 flights a year by 2007. There were also plans for a parallel runway and second terminal, as well as a crosswind runway.

During fiscal 2000, the airport handled 124,000 flights and served 58 cities in 28 countries. While officials say they are satisfied with these numbers, the airlines aren't so happy. High landing fees, complaints of poor customer service and a depressed Kansai economy have led many international carriers to cut back services.

British Airways pulled out entirely in 1999, while other carriers either canceled or reduced services drastically.

"Airlines make their profits off business and first-class seating," noted Ray Kruger, president of Osaka travel agent Academy Travel Inc. "Many airlines in competitive markets found that their economy class seats were full but that few business and first class seats out of Kansai International Airport were being sold."

Cutbacks are most clearly seen in services to North America. As of last month, only 18 percent of all flights from Japan to North America originated from Kansai International. Narita airport in Chiba Prefecture accounted for nearly 70 percent.

On a typical day, passengers through Narita have a choice of over 40 flights to the United States or Canada, including seven flights to Los Angeles, six flights to New York and five flights to Chicago. Kansai, by contrast, has 12 flights to the U.S., and no direct flights to New York.

The lack of flights to North America prompted All Nippon Airways to launch a surprise marketing campaign urging Osaka passengers bound for the U.S. to fly to Narita via Osaka's domestic airport at Itami, Hyogo Prefecture. The campaign drew criticism from Kansai International officials but ANA insisted that it was cheaper and more convenient to fly to the U.S. that way.

But the larger problem is the airport's total outstanding debt of nearly 1.2 trillion yen and the fact that second-phase construction of a new runway is progressing despite doubts from the central government and foreign airlines over whether it is necessary.

The Finance Ministry, which strongly opposes using central government funds to finance the second-phase construction, is putting pressure on the Kansai business community to bear more of the debt burden.

For first-phase construction costs, the central government provided about 300 billion yen in funding, with the local government and business community chipping in about 73 billion yen each.

For second-phase construction, the central government previously said it would invest 312 billion yen, local governments in the Kansai region would kick in 114 billion yen, while the local business community would contribute 42 billion yen.

However, negotiations between local government, business officials and the central government over the final amount of investment and who will assume what burdens are still pending. At this stage, it appears both the local government and local business community will have to assume a larger burden.

In a recent concession to central government pressure, Kansai airport officials agreed to reduce total second-phase construction costs by 450 billion yen to roughly 1 trillion yen. This will be carried out by halting plans to reclaim land for a crosswind runway, and by not building a second terminal.

"Other measures to reduce the airport's financial burden, including what to do about the high landing fees, are being discussed and final recommendations will be announced before the end of the year," said Yoshihisa Akiyama, chairman of the Kansai Economic Federation. Akiyama also heads the Committee to Promote the Completion of Kansai International Airport.

With the airport's operating losses reaching 150 billion yen by 2000, there is widespread agreement that Kansai International's management needs restructuring. Apart from funds required for planned second-phase construction, the airport also needs to find up to 20 billion yen to repair its passenger terminal, which is sinking into Osaka Bay.

Observers speculate that the semipublic corporation that runs the airport will eventually declare bankruptcy and seek help from the central government.

"It appears that they are going to wait for the central government to take over and bail them out rather than enact reforms," said Tom Flippen, a governor of the Kansai chapter of the American Chamber of Commerce Japan.

For foreign airlines, the biggest problem with Kansai remains the landing fees. A fully laden Boeing 747 is charged 840,000 yen per landing, 21/2 times the amount charged at the new airport in Inchon, South Korea, and well above other regional airports. Kansai's passenger departure tax is 2,650 yen, among the highest in the world.

The high costs have prompted the Tokyo-based Foreign Airlines Association in Japan, which consists of over 40 foreign carriers, to issue a report questioning the need for a second runway and calling on the airport operator to reduce construction costs. The association said second-phase project costs could further increase the burden on airlines.

That report angered the Osaka business community, with the Osaka Chamber of Commerce and Industry arguing that costs of second phase construction were of no concern to foreigners.

But for all of the discussions going on between airport officials, the local business community and the central government over the future of the airport, there are no attempts to formally include the international community in the regular discussions.

The Committee to Promote the Completion of Kansai International Airport has over 200 Kansai business and government associations as members, but no foreign airlines, business associations or consulates.

"They're still trying to run things behind closed doors," Flippen said. "The foreign airlines are major users of Kansai International and their input and advice needs to be seriously considered if the airport is to have any hope of recovering."



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