How does Kansai International Airport’s new CEO, Shinichi Fukushima, plan to take Japan’s third busiest gateway forward? Geoff Tudor reports.

On July 8, just 14 days after taking over as Kansai International Airport’s new CEO, Shinichi Fukushima took part in his first public ceremony, warmly welcoming the first Chinese tourists to arrive from Beijing using new individual visas, an innovation that will boost Japan’s tourism revenues – and bring many new Chinese customers to the airport.

Flashing his jovial smile, he shook hands and joined in souvenir photo sessions with the new arrivals, practicing what he preaches for all his staff to see, “the customer is number one”.

Fukushima will attend many more ceremonies and events in 2009 as Kansai celebrates its 15th anniversary, although he would have wished to have come onboard during better times for the airport.

For with passenger and cargo traffic down – primarily due to the global financial crisis and Swine Influenza fears – and sizeable debts to pay off these are difficult days for Kansai.

The fact that the gateway continues to compete for domestic traffic against both Osaka International Airport (Itami) – which should have closed after Kansai opened in 1994, but remains open due to public pressure – and nearby Kobe Airport doesn’t help.

In fact Kobe Airport, opened in 2006 to serve the 1.

5 million population of Kobe City, is just a 30-minute high-speed ferry ride away.

Indeed, Itami handled 15.3 million passengers in 2008 – equalling the yearly throughput at Kansai – while Kobe handled 2.58 million passengers.

However, in all cases the 2008 passenger totals were down due to the difficult operating conditions.

Throughput at Itami dropped 3.5% and Kobe by 13% while an 8% fall in domestic numbers at Kansai International Airport (KIX) contributed towards an overall decline in passenger numbers of 7.8%.

KIX’s 2008 total of 15.3 million passengers is more than five million down on its record-breaking year of 2000.

But challenges don’t daunt the former Panasonic executive, who is already beginning to initiate reforms and innovations that he hopes will ensure the gateway is in a healthy position to grow when the market picks up again.

Sensationalist newspaper headlines claiming that Kansai – built on a man-made island in Osaka Bay – was sinking have also dogged the new airport.

The truth of the matter is that the designers always knew that the new island would sink a little as it took time to settle and pushed down on the soft clay of the seabed, they just didn’t predict that it would happen as quickly as it did.

Fukushima is pleased to report that this is not a problem at all, as a system of sand drains have stabilised the clay and ‘settlement’ of the island has slowed from 50 centimetres per year in the early stages to just seven centimetres in 2008.

To prevent damage to the passenger terminal building from uneven settlement, an elaborate system of monitoring devices and hydraulic jacks was installed.

Lessons learned in creating the first island were put to good use when the second, larger 545-hectare island was constructed in deeper water.

So far, settlement there is occurring according to predictions.

However, future development of the second island remains on hold, pending government approval.

Opened in 2007, it currently boasts a 4,000-metre long runway primarily used for landings and one taxiway connecting the two islands.

If Kansai International Airport’s Co Ltd (KIAC) is to capitalise on the new runway, new facilities must be developed.

The second phase of development currently focuses on cargo facilities, as those on island one are stretched to capacity, handling around 800,000 tonnes of freight today.

KIAC expects that 10 years from now, annual cargo traffic will be up to 2.5 million tonnes annually.

In a new cargo area, five stands for large freighter aircraft are already completed and in use, but plans for more warehousing, a new passenger terminal and a second connecting taxiway remain on the drawing board.

The new passenger terminal is necessary because the number of international passengers using the gateway is expected to almost double from the 10.1 million handled in 2008 to up to 20 million by 2017.

Further long-term development plans could include facilities for business jets and Low-Cost Carriers (LCCs).

Fukushima has taken over as CEO from Atsushi Maruyama, also a former Panasonic executive, who joined KIAC in June 2003.

Murayama set out by reforming the airport’s bureaucratic management along private sector lines, emphasising responding to customer needs and reinforcing cost reductions.

His organisation-wide action plan took effect in October 2003.

Specific targets were to make a profit, cut costs by three billion yen and trim 50 jobs by 2005.

In fact KIX went into the black in FY2004, achieved cost cuts of 4.9 billion yen and reduced the payroll by 55.Key features of Murayama’s strategy included: • Improving and expanding Kansai’s duty free shopping area through the addition of 10 new shops that included boutiques for seven global brands.

• The opening of the Kanku Lounge and a more exclusive Kanku Club Lounge for Kanku Club cardholders.

Next to them, on the second floor of the passenger terminal, is an area with an round-the-clock convenience store in a section now labelled ‘Area 24’ • Introducing facilities such as the ‘Sky View’ entertainment complex – complete with flight simulator and observation deck – and revamping the F&B facilities in the passenger terminal to encourage local visitors and boost retail revenue • Opening Japan’s first airport pet hotel So what of the future? Kansai Airport has two main missions.

The first is to become a leading gateway to Asia and the rest of the world; second is to become the first international cargo hub airport in Japan, using its assets as the first Japanese airport with multiple long runways, offering operations round the clock.

“To realise these we must strengthen our international competitiveness as a hub airport by not only maintaining but also by increasing our international flight network,” says Fukushima.

“At the same time, we must develop an airport that our customers appreciate and create an atmosphere that encourages our customers to enjoy the services we provide, and to then return.

I want this to be an international airport that is truly well regarded.

” He believes that the key to success is ensuring that all 15,000 airport staff – including KIAC Group’s 1,000 employees – are highly motivated and sensitive to customer needs.

“Immediately after taking over as CEO, I was reminded of how important it is for us to be more internationally minded, so I want to build up the brand of Kansai International Airport,” comments Fukushima.

Proof of high service standards is KIX’s ranking as sixth in the 2009 Skytrax passenger satisfaction survey of the world’s airports, equalling their position the year before

Air Cargo World magazine, a UK trade publication, ranked KIX number one for the third consecutive year in its Air Cargo Excellence Survey in Airports Asia and Middle East category for gateways handling between half a million and a million tonnes of freight annually.

Continuing to improve and innovate, KIAC is investing despite the current poor economic climate.

“We are going ahead with plans to remodel the international transit area because, even in such severe business circumstances, we have to prepare for future demand recovery,” admits Fukushima.

KIAC’s financial base is a major concern.

The airport company has interest bearing debt exceeding $11 billion.

Last year the interest came to a staggering $227 million.

Supported by the local governments and local supporters that include the Kansai Economic Federation, Fukushima would like to talk with the central government on financial restructuring.

Its debt, however, should not be allowed to overshadow the fact that until the start of the global recession, the airport was making a tidy profit from day-to-day operations.

“Up until the first half of FY2008, Kansai was performing very well.

But then came the dramatic and rapid demand decline after the financial crisis,” laments Fukushima.

“We ended FY2008 this March with a net loss of $67.3 million.”

Although KIAC sees revenues declining this year, the company forecasts a consolidated operating profit of $146 million for FY2009, and a net profit of $10 million, which they hope to achieve by keeping costs down.

Despite a glimmer of an improvement in April, in May and June international passenger demand took an additional hit from the fear of Swine Influenza.

Domestic passenger traffic fell as a result of flight cuts.

In May this year, overall international passenger flight frequency was about 8% down on the year before, with the passenger head count down by 26%.

International cargo has been going through a similar slump but is now showing signs of recovery, although the total level of demand remains very low.

May results were 36% down, year on year.

Twice this year, major Japanese carriers Japan Airlines and All Nippon Airways have both cut international and domestic services, citing slack demand.

But some foreign airlines have increased frequency on routes or launched new services.

In the second quarter of the year, historically a period of high vacation travel demand, Fukushima was hoping for better performance.

International passenger flights in the peak month of August marked an all-time record high of 609 per week, due to increased frequency by foreign carriers.

“Currently, as cargo means so much to our future development, I’m focusing on future business trends by checking how automobile and electronic goods manufacturers are faring.

Future cargo recovery depends on how soon manufacturers recover,” states Fukushima.

“Luckily, in the Kansai region there’s a large number of hi-tech manufacturers producing ultra-thin plasma panels; in fact, Osaka Bay has the nickname, ‘Panel Bay’.

Demand for these products is growing fast and we are expecting a great deal of cargo from these plants for airlifting to worldwide markets.”

Indeed, KIAC cargo industry analysts expect that there will be enough cargo for about 20 freighter flights a week from 2015.

Fukushima points out that many more leading Japanese high technology equipment makers, pharmaceutical producers and medical equipment makers – all strong air freight users – also have plants here.

In his view, and he acknowledges this may be too optimistic, Fukushima believes that the Osaka region will begin to experience the first signs of economic recovery in 2010 if all of its manufacturing plants remain open.

“This current year and next year will be critical and will put our management under severe pressure”, he says.

KIAC has not created a specific emergency response plan for the current economic downturn but is concentrating on constant cost reduction, while seeking new revenue.

However, to help airlines, the airport is maintaining its landing fee discounts for the time being.

Fukushima is in no doubt when it comes to listing Kansai’s strengths.

“The first big advantage we have is our interface with Asia – including India.

“Our second strength lies in the fact that for the first time in Japan we have two long runways capable of 24-hours a day operation,” he enthuses.

“We are also pollution-free and environmentally friendly.

These are very important features today but will be even more so in future.”

Fukushima was impressed by a recent visit to Dubai International Airport, revealing that he thought the gateway’s facilities were “world class”.

He also admits to being particularly impressed by its facilities for handling shipments of fresh cut flowers between Africa and Japan (and other markets) and the techniques used to control their blooming until they reached their destination.

“In a smaller way we are doing a similar thing here at Kansai, through the export of Japanese agricultural products – especially fruit,” says Fukushima.

“Japan’s agri-products have a good reputation for cleanliness and high quality and they are very popular in some niche markets.

“Shippers can send such cargos out of here late at night so that by the following morning, when the stores open in Shanghai, for example, you can see these products on display.

I would like to enhance this type of business here.

“I think the most significant contribution I can bring to KIAC is to encourage staff to be more motivated and work together on the management targets we have set ourselves.

The human factor is very important, and from that point of view, my experience in personnel management in Panasonic should be very meaningful.

“I am a firm believer in the motto taught to me by Panasonic’s founder, Konosuke Matsushita, who believes that the customer is always number one.

I want all my staff to follow a similar philosophy.”

Fukushima was born in the historic port city of Nagasaki in 1948 and lived there until finishing high school.

From the mid-17th century to the 1850s, Japan was closed to foreign contact, except for a tiny Dutch trading post on Deshima, a man-made island in Nagasaki Bay, which for all this time was the country’s only window on the outside world and the gateway for foreign goods.

“I’ve always been very conscious of that history, and now I want the man-made island of Kansai International Airport to be a major window to the world for 21st Century Japan as well as a key gateway for passengers and goods.”

Asia-Pacific Airports 2009 Issue 3