Geoff Tudor finds out more about the business development strategy of Japan’s newest airport.

When Nagoya’s Central Japan International Airport opened in February 2005, its management team modestly forecast that it would turn a profit in its fifth year of operations.

The assumption was based on the fact that the $7 billion airport, built on a man-made island in Ise Bay some 35 kilometres from downtown Nagoya, was a bold new venture for the region.

However, they couldn't have been more wrong, as thanks to a combination of showmanship and a truly entrepreneurial spirit, the offshore successor to Nagoya's Komaki Airport, locally dubbed Centrair, showed profits for its first three full fiscal years.

“That’s unprecedented for a civil project of such magnitude,” says CEO Yoshimi Inaba, a former Toyota Motor Corporation board member, who since June 2007 has been piloting the new airport.

The challenge now is to keep this up by boosting flagging domestic and international passenger numbers and rewriting the book on air cargo distribution in the industrial region centred on Nagoya in Aichi Prefecture.

Aichi Expo in 2005 was a major contributor to the first year success, attracting millions of visitors from all over Japan. Apart from passengers, 10 million local sightseers visited Centrair.

But in the second and third years, with Expo’s crowds gone, Centrair – sometimes referred to as Chubu Airport after the Chubu, or central district of Japan – maintained profitability by minimising operation costs and developing commercial activities.

Of the airport’s total income, only 40% is from the aviation side – passenger service charges, landing fees, fuelling services and related activities.

The other 60% is provided by a dazzling range of commercial operations that include everything from car parking to weddings, souvenir sales, duty free shops and food and beverage businesses. There’s even Centrair popcorn.

Since the airport’s conception, it was pitched to the regional community as an attraction. In April this year it reached the 50 million-visitor mark. And when sightseers come to the airport they spend almost $15 each, according to Inaba.

It’s not hard to grasp why. On the fourth floor of the main terminal building two themed shopping and eating areas contain 30 food outlets and 30 shops, five managed directly by Centrair.

Airport amusements Chochin Yokocho or Lantern Alley has the ambiance of an 18th century Japanese post-town, complete with traditional noodle and sushi vendors, but brought up to date with a Starbucks. In a traditional Japanese bathhouse you can soak while watching aircraft take off and land.

Across the floor Renga Dori, or Brick Street, has a distinctly European feel, presenting an attractive mixture of shopping and dining.

Outside is the open air 315-metre long wooden floored Sky Deck, a plane-spotter’s paradise. In summer part of this becomes a beer garden. This season visitors quaffed some 14,000 bottles of ‘Airbrau’, brewed at sister airport Munich and flown in twice weekly by Lufthansa Cargo.

Below the deck is an indoor garden leading to an art gallery zone and a stage area where Toyota robots – hit attractions at the 2005 Expo – give demonstrations four times daily. Revenue raising events take place almost every week featuring concerts, film previews and conferences. “We're not only an airport but also an amusement park,” jokes Inaba.

A new community related project is a ‘Kids Club’, with the idea of nurturing the customers of the future. The club started with a membership limited to 1,000, but demand was so great that it had to be raised to 2,000.

When plans for the airport were being drawn up, three key objectives were laid down. The new airport would be the most eco-friendly, “barrier free” and customer friendly airport in Japan. These principles guided the design and construction.

Subsequently Centrair has quickly received global recognition for its excellence in customer satisfaction. Pick of its awards was being named the world’s best airport handling between 5mppa and 15mppa for three successive years in ACI’s Airport Service Quality (ASQ) awards.

The gateway also received the top award in the 2008 Air Cargo Excellence Survey conducted by Air Cargo World magazine for gateways handling up to 500,000 tonnes of freight yearly.

Inaba claims that Centrair is the only Japanese airport with a “seamless connection” between domestic and international flights, and insists that it is the country’s “only true hub” due to connections to 21 other Japanese cities. And the volume of transit passengers is growing year by year.

But while accolades have accumulated, clouds have been forming in Centrair’s skies.

Since 2005, domestic passenger demand has fallen by about 10%. Original estimates were based on an annual throughput of nearly 8.2 million domestic passengers, but the figure was just 6.5 million last year. In a bid to make up for the shortfall in revenue, Centrair increased the domestic passenger facility charge from $2 to $3 from October.

Komaki Airport actually remains open for domestic scheduled flights by small aircraft, but Inaba insists that this is not a big concern, as long as the balance between the airports is kept as it is now.

In marked contrast to domestic operations, international passenger traffic had been growing steadily until a year-on-year slow down started in mid-2008. Some long-haul airlines have since suspended transpacific and Oceania routes and, of great concern to the airport’s management, air cargo business has not developed as expected.

In March this year Centrair suffered a drastic cut in freighter services when two major Japanese cargo carriers pulled out. From a peak of 54 freighters a week, there are now only 30.

To deal with these issues, Inaba’s team has developed a comprehensive business plan.

Notes Inaba: “Domestic passenger demand decline is a fact, due mainly to competition from high-speed train services. Also, factors deterring international travel include high fuel surcharges and young people are not travelling as much as before. It doesn’t help that many locally based companies are curbing business travel in these difficult economic times.”

Even so, Centrair’s domestic traffic potential is not fully realised and management is working to expand the catchment area. New roads in the region have improved airport access and there are plans to use subsidised bus services from outlying districts.

The biggest international traffic potential, Inaba feels, is for inbound passengers. “This is the most unrealised market we have," he says. The downside is that tourist spots accessible through Nagoya, such as picturesque Takayama and historic Shirakawa, are not well known outside Japan.

“Achieving awareness overseas is going to be a slow, step-by-step process. We have to work together with local authorities, the central government’s Visit Japan Campaign and partner airlines," he says.

Currently the most strategic focus of Centrair’s business planning is cargo. Nagoya and the Chubu area are the industrial heartland of Japan, outstripping Tokyo in the value of the industrial output.

The total estimated air cargo regional demand (export and import) is 700,000 tonnes annually. So airlines expected that there would be huge cargo demand at Centrair, but it did not materialise.

In fact Centrair captures only around 30% today, which amounted to 207,000 tonnes in 2007. According to Inaba, that’s partly due to historical reasons. The old Nagoya airport did little to develop cargo and, when Narita opened in 1978, forwarders built big warehouses there and transported cargo by truck.

This system is now well established and is very difficult to change. The huge economies of scale of this entrenched system mean either more profits for forwarders or cheaper rates for customers.

“But we must change this traditional pattern of goods flow to Narita and to do that we need to do a very convincing job," says Inaba.

Last December Centrair set up a new campaign called ‘Fly Centrair Cargo,’ but just asking shippers to use Centrair is not enough, admits Inaba. “Knowing this, we have developed two new cargo products,” he says. “Centrair Connection Incheon, with Korean Airlines, for goods for destinations in Europe and North America and similarly Centrair Connection Hong Kong with Cathay Pacific to ensure better links in Asia and China.

“Now we can tell customers that although we may not have a direct flight, their cargo can have a connecting flight to many other destinations by just one transit. If we can increase our annual cargo volume to 350,000 to 400,000 tonnes, we can offer better rates.”

As to future expansion, Inaba reports that the future need for a second runway is recognised by local governments, Centrair management and industrial groups in the region, which comprise the Central Japan International Airport Promotion Council. Such a runway would enable 24-hour operation and would boost efficiency, especially at peak times.

“It may take some time to convince the central government and it is difficult to give a timetable,” says Inaba. “We don’t need it in one or two years but we can’t wait 10 years – somewhere in between. Naturally, demand should be there. Most importantly, we also have to ensure that a second runway is sustainable regardless of the investment involved.”

The second runway is planned to be a close parallel to the present runway in order to minimise its environmental impact.

Inaba does, however, concede that the airport’s airline customers could make better use of the gateway’s existing runway by using smaller capacity aircraft on some long-haul routes.

Indeed he even goes as far to say that he believes that some airlines have been guilty of operating aircraft that have been too big for the actual demand at this gateway.

“In future we are counting on the B787, which is the right size for this airport. I believe that many of these ‘lost’ long-haul routes could be revived if the airlines have the proper equipment. That’s why we have to stay in touch with them, hoping that one day they may restore services, including the routes to Australia, New Zealand, the US West Coast, Chicago and Kuala Lumpur that have been suspended."

In fact the B787 is already contributing to the airport. Japanese companies in the Nagoya area supply 35% of the parts of the new ‘Dreamliner’ – huge 'Dreamlifter’ freighters, converted from B747 aircraft, calling regularly at Centrair to collect giant fuselage sections for delivery to the USA.

One day soon, Inaba hopes, the finished aircraft will be returning to Centrair, carrying passengers and freight, like “swallows returning to their nests”.

Asia-Pacific Airports 2008 Issue 3