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Narita airport prepares for battle with Asian hubs

NARITA, Chiba Pref. — When Masatoshi Uchida joined New Tokyo International Airport Authority, the quasi-governmental organ that operates Narita airport, in 1977, he never dreamed he’d end up selling Hermes goods.

Uchida, 49, was seconded from the now-defunct Passenger Terminal Department to the New Tokyo International Airport Promotion Foundation to take charge of the brand’s duty-free shop for two years through last June. The purpose was to learn retail knowhow.

“I found it challenging to deal with customers and make money,” he said. As a store manager, he dealt in popular items such as tote bags, jewelry, and watches worth up to some 1 million yen a piece, as well as less popular products like beach towels and tableware.

“I’ve learned what kinds of goods will sell at an airport,” said Uchida, now in charge of the authority’s newly established retail planning office.

Uchida’s mission was part of the airport operator’s effort to prepare for privatization. On April 1, the airport authority will become Narita International Airport Corp., a government-owned stock company, and operate on a self-paying basis with an eye to going public in three years.

Narita will try its hand at profit-making businesses by directly operating duty-free shops and other retail outlets, a practice that is restricted under its current status.

“Success of the new businesses will be the touchstone of privatization,” said Mitsuyoshi Nomata, vice president of corporate planning at the authority.

Narita is expected to become more profitable — like the privatized Heathrow Airport in London — and ultimately lower the world’s most expensive landing fees.

“Privatization will help revitalize the airport operator and attract more people from in and out of the country,” said Shinichi Ishii, a senior consultant at Nomura Research Institute. “That will have a considerable ripple effect on local areas, with which the airport must live in harmony.”

Experts expect that reduced landing fees will strengthen Japan’s industrial competitiveness by encouraging carriers to reduce fares for passengers and goods entering the nation.

Failing to lower the fees timely and sufficiently would ultimately undermine Narita’s competitive edge over growing hub airports in Asia as well as the adjacent

Haneda airport, they said. Haneda, officially a domestic airport, will become an international airport for short-distance Asia-bound flights by 2009.

Two other major international airport operators — Kansai International Airport Co., and Central Japan International Airport Co., which will open an airport in Aichi Prefecture in 2005 — were established as joint stock companies by the private sector and the central and local governments.

After being privatized, the Narita airport authority expects its share of nonaviation services to account for more than 50 percent of overall revenues, up from the current 30 percent. The new company will develop commercial facilities in the South Wing of Passenger Terminal 1 that will be completed in fiscal 2005.

Nonaviation sales accounted for 45 billion yen of Narita’s total annual sales of 140 billion yen as of the end of fiscal 2002. Rental fees for land and buildings accounted for 19 billion yen, sales commissions from tenants 11 billion yen and utility rental fees 7 billion yen.

The airport authority hopes to increase nonaviation sales by 10 billion yen with the establishment of a dozen duty-free shops, retail outlets and restaurants in the South Wing.

The new company will start establishing several joint ventures with some of the tenants currently running the existing 190 shops and restaurants, while taking a live-and-let-live stance toward them.

“Because we have long lived in harmony with the existing tenants, there’s no way for us to tell them to wind up their business just because we became privatized,” said Kashiwa Takahashi, director of Passenger Business Department 1. Besides, the airport operator can learn from the tenants’ experience and knowhow, he said.

Privatization will not automatically lead to reduced landing fees, however.

The International Air Transport Association — the major international representative body of the airline industry — has urged Narita to cut its landing fees by 21 percent from the current 2,400 yen per ton to 1,900 yen. But the airport authority has not decided when or by how much it will reduce its landing charges because it wants to wait and see how the new company performs.

According to experts, Narita should accumulate profit reserves in readiness for the time when it will be pressed to lower landing charges to compete with other hub airports.

“Considering the current strong demand for air traffic at Narita, the airport authority appears to see few incentives to lower landing fees right now,” Ishii of NRI said. The annual number of arrivals and departures totaled 176,000 at Narita as of the end of March, and more than 30 countries are waiting for permission to let their airlines enter service there.

But this situation is likely to change.

Haneda will become an international airport serving Asia-bound airlines. Hub airports in Asia are expected to grow rapidly. One opened in Shanghai in 1999 and another followed in Inchon, South Korea, in 2001.

Hirotaka Yamauchi, a professor at Hitotsubashi University’s graduate school of commerce and management, urged Narita to make the most of privatization and increase its financial base in readiness for the anticipated competition.

Narita must come up with a more cost-effective way of running the airport after reviewing operational costs related to personnel expenses and the procurement of building materials, Yamauchi said.

According to IATA, Asia-Pacific air passenger traffic is forecast to be more than 800 million a year by 2014 — almost double the current number.

Yamauchi compared the current situation with that of Heathrow Airport, which was privatized in 1987.

The professor said Heathrow’s privatization gave it an edge over other neighboring international airports, including Charles de Gaulle in Paris and Schiphol in Amsterdam, in competition to become the gateway to Europe.

Ever since BAA PLC took over Heathrow from the British Air Authority in 1986 under the administration of then Prime Minister Margaret Thatcher, the company has extended its business to retail, real estate and land development.

As of the end of March, Heathrow’s total annual sales were £787 million, of which retail revenue accounted for £412 million.

Yamauchi said a larger share of Heathrow’s revenue from nonaviation services has helped keep landing charges low, at about 90,000 yen per jumbo jet. Narita charges about 950,000 yen.

Charles de Gaulle in Paris charges a landing fee of about 300,000 yen, Chek Lap Kok in Hong Kong 450,000 yen, Changi in Singapore 264,000 yen and Inchon in South Korea 314,000 yen.

Japan meanwhile claims that considering overall costs for a flight, including taxes and facility charges for passengers — Narita is actually cheaper than some other airports.

According to the transport ministry, the total charge for a jumbo jet and its passengers is 1.62 million yen at Narita, compared with 2.26 million yen at Heathrow and 3.16 million yen at John F. Kennedy of New York.

Hiroshi Mori, general manager of Mitsubishi Research Institute’s privatization business department, said Narita should make the most of its privatization to provide better services at lower prices to airlines and their customers.

“That will ultimately prevent an exodus of businesses from Japan to other parts of Asia.”