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Tuesday, Feb. 7, 2012
ECONOMICS OF AIRPORTS
Bubble era's aviation legacy: Too many airports, all ailing
Nation should have focused on select hubs
By MIZUHO AOKI
Japan has 98 airports, and most of them are operating in the red as a result of exaggerated demand forecasts and rampant, costly and arguably pork-barrel construction projects.
The transport ministry hopes to mitigate the problem by selling off the management rights to 27 state-owned airports as soon as 2014. The ministry also plans to issue an airport reform blueprint by summer.
Following are questions and answers about Japan's airports:
Who runs the airports?
In most cases, the central and local governments manage the runways, aircraft aprons and other regulated facilities while private companies or joint public-private ventures run the terminal buildings and parking lots. Of the 98 airports, 28 are run by the central government and 67 by local governments.
In the case of Tokyo's Haneda airport, for example, the state is in charge of the runways while the terminal buildings and parking lots are managed by Japan Airport Terminal Co.
Three main international airports also involve mixed types of management.
The facilities at Narita airport in Chiba Prefecture, including its runways and terminals, are managed by state- and local government-backed corporations, as is Kansai airport in Osaka Bay.
Private companies are also part of the equation at Kansai and at Central Japan International Airport, or Chubu.
Are they all operating in the red?
Not all but most facilities specifically linked to flight operations are running at a loss, even though most terminal buildings and parking lots are turning profits.
Most of the income to cover the operations of runways, aprons and other aircraft-related facilities, however, comes from landing fees, which have suffered for years at airports nationwide amid the sluggish economy and lack of passengers.
In many cases, exorbitant fees have kept airlines from using some airports, like Kansai airport.
In terms of overall airport management, the aircraft- and flight-related facilities are run by entities separate from the ones that manage the terminals and parking lots.
How bad is the airport business?
According to the transport ministry, of the 25 solely state-run airports, only three — Tokyo's Haneda, Sapporo's Shin-Chitose and Ishikawa Prefecture's Komatsu — logged operating profits in their aircraft facility-related businesses in fiscal 2009, mainly thanks to landing fees. Haneda posted ¥16.232 billion, Shin-Chitose ¥1.851 billion and Komatsu ¥499 million.
The rest are losing money, with Fukuoka Airport's flight operations deficit the biggest at ¥5.973 billion, and Okinawa's Naha Airport running up a loss of ¥5.481 billion. The ministry began disclosing calculations in 2009, due to mounting public demands for financial disclosure.
Most of the aircraft-related operations at municipal-run airports are also believed to be in the red. Kyodo News reported in 2009 that most of them were losing money in fiscal 2007.
But most terminal buildings and parking lots turned profits, apparently because their concessions attract consumers even when passenger numbers are running low.
According to a survey by Tokyo Shoko Research, among 50 major terminal management firms, 45 posted profits in fiscal 2009. But only five expect to post a profit in the business year to March and five face deficits.
Why are they losing money?
One key reason is overcapacity. The government built too many airports based on overrated demand projections, experts say.
Because airports are considered public infrastructure, profit is not the only consideration taken into account when building them.
The nation has many remote islands whose only transportation link to the outside world is by air, even when demand for travel is minimal and steers aviation operations into the red.
But the situation was compounded in large part by politics, with decisions made to build airports in rural, virtually no-traffic areas where turning a profit was never a realistic proposition but just a way to get voters government-backed jobs from more pork-barrel projects.
Another drawback has been the "pool system" of state budgetary allocation, a one-size-fits-all policy for financing airport operations that did little to clarify which airports were at risk of habitually losing money, experts say.
The more or less blanket operations of all state-run airports provided little incentive for individual hubs to seek more efficient operations, Sayuri Hirai, a senior consultant at Daiwa Institute of Research, told The Japan Times.
What about Kansai airport?
Kansai airport posted an operating profit in fiscal 2010, but it still has an interest-bearing debt load that exceeds ¥1 trillion.
To alleviate the burden, Kansai is scheduled to integrate management with Osaka's state-run Itami Airport in July. Land-locked Itami, which is dozens of kilometers from the offshore Kansai facility, is a thriving domestic hub.
Have municipalities or the government taken steps to improve airport earnings?
Yes. A case in point is Noto airport run by Ishikawa Prefecture. The airport opened in 2003 with two daily round-trip flights to Haneda airport by Air Nippon, an All Nippon Airways subsidiary.
The prefecture adopted a so-called capacity guarantee system under which it pays Air Nippon up to ¥200 million a year to make up for any shortfall in its guaranteed seat occupancy rate.
The system is expected to lure airlines as well as encourage the local government to adopt measures to boost business.
Thanks to efforts by the tourism industry to attract people to Ishikawa, as well as measures the prefecture took, the flight occupancy rate has exceeded the agreed percentages for the seventh consecutive year.
The prefecture also relocated some administrative functions to the airport to draw more users.
How does the government plan to turn things around?
The government is hoping to sell the management and operating rights of the 27 state-run airports to turn around their money-losing operations. It will submit a bill on the proposal to the Diet this year.
Under the plan, private firms would gain the rights to manage airports — both flight-related facilities and terminal buildings — for between 30 and 50 years, while the public sector continues to own the property rights of the airports.
Some municipal-run airports are meanwhile reportedly looking for private-sector help.
"People may think it will be very difficult to turn money-losing airports into profitable ones amid Japan's shrinking population . . . but there is a good chance to boost potential demand by (launching) low-cost carriers," Hirai of Daiwa Securities said.
She stressed that losing money — even taxpayer money — could be permissible in some cases if an unprofitable airport's existence can be justified in terms of the role it plays in a community.
This is arguable, however, if other viable forms of transport, such as shinkansen, are readily at hand, she said. "In that case, municipalities must judge whether to continue operating airports."
The Weekly FYI appears Tuesdays. Readers are encouraged to send ideas, questions and opinions to email@example.com