New airport management model

New Kansai International Airport Co. was established on April 1 and the operations of Kansai and Itami airports will be integrated. It is hoped that the new firm will succeed so that it can serve as a model for privatizing the operations of other airports such as Shin Chitose (Hokkaido), Sendai and Kumamoto.

The government used its stocks in the former Kansai International Airport Co. to set up the new firm, which will receive the land of Itami airport from the government. In July, the operations of Kansai and Itami airports will be integrated. The new firm plans to sell the right to manage the two airports for 30 to 50 years to private-sector investors in fiscal 2014 at the earliest.

Establishment of the new firm — government-owned but with a private firm’s management style — addresses criticism that the former Kansai International Airport Co. is financially weak. The old firm had interest-bearing debts of more than ¥1 trillion and had to pay some ¥20 billion in interest annually. The government provided subsidies of ¥7.5 billion to ¥9 billion every year.

Since Itami airport produces annual profits of about ¥6 billion, the government hopes that the integration of the operations of Kansai and Itami airports will make further subsidies unnecessary. It also hopes that the planned selling of the operation rights will help reduce the interesting-bearing debts.

But prospects for the new firm are not necessarily good. Use of Itami airport is limited to domestic flights and the number of landing and take-off slots there has a ceiling. Kansai airport is remote from central Kansai urban areas. Use of the airport by international low-cost carriers will increase. But a large increase in revenues from landing fees cannot be expected because they use smaller aircraft and rely on discounts. Investors may think that the new firm will not prove to be very profitable and hesitate to buy the operation rights at a high price.

It will be vital for the new firm to work out a strategy to increase profits. Such a strategy should include efforts to attract tourists from China and other neighboring countries by means of short-distance regional flights and consideration should be given to turning Itami into an international airport. Improving train access to Kansai, making better use of unused land at Itami and streamlining customs, immigration and quarantine procedures would also be helpful.