With South Korea's Incheon International soon to open and more new Asian airports on the way, competition for the region's transit traffic is heating up
Brent Hannon/INCHEON
Asia will gain its sixth brand-new airport in less than a decade on 29 March when Incheon International Airport opens. The airport (formerly Inchon) is about 60km (37 miles) from the centre of Seoul, South Korea, and it joins Kansai International Airport near Osaka, Japan, which opened in 1994, Hong Kong International Airport which went into operation in 1998, and Kuala Lumpur International Airport (KLIA) which opened in 1998, as major airports with hub ambitions.
At the same time, new regional airports opened in Macau in 1995 and in Pudong near Shanghai, China, in 1999, while Beijing added a $1 billion terminal to its Capital Airport in 1999. Taipei, Taiwan, added a second terminal to CKS International Airport last year.
The building boom is set to continue: Bangkok, Thailand's Suwannabhumi (Golden Land) Airport is due to be completed in late 2004; Chubu Airport in central Japan will be finished in 2005; China's Guangzhou New International Airport is moving slowly toward a completion date within years; while Singapore Changi Airport's Terminal 3 opens in 2006.
It is the battle for lucrative transit traffic that is likely to mean the difference between profit and loss. "Our success largely depends on how many transit and transfer passengers Incheon will have," says Dong-Suk Kang, Incheon International Airport's chairman and chief executive. "We hope at least 30% of our total passengers will be transfer and transit passengers."
Competing airports
Asia's new airports face varying degrees of competition. KLIA competes directly with Bangkok and Singapore for traffic on the busy corridor between Europe and Australia/New Zealand, operating from a relatively undeveloped country with a small population base. Two airlines have pulled out of Kuala Lumpur since the $2.8 billion airport opened, even before the new facilities in Thailand and Singapore come on line.
KLIA opened with an initial capacity of 25 million passengers a year, but it has yet to serve more than 15 million passengers annually. Customers complain of the travelling time from Kuala Lumpur, which should be reduced when a rail link to the airport is completed.
Some Malaysians save money by driving to Singapore and flying from Changi, which is acknowledged as one of the world's best airports. Changi broke ground on its S$1.5 billion ($870 million), 350,000m² (3.7 million ft²) Terminal 3 in October. The new terminal will process 20 million passengers a year, bringing Changi's total annual capacity to 64 million.
Thailand hopes to finish the long-delayed Suwannabhumi by December 2004, before Changi completes its new terminal. Groundwork is almost complete at the Nong Ngu Hao site 30km east of Bangkok and the design is being finalised. Thai Airways International is making plans to move into the new airport. Although airline executives are doubtful that the December 2004 deadline will be met, Sittagpong Thanitayawong, Thai's senior vice-president of corporate planning, says "we have to stick to that date" for planning purposes. When the new airport opens, crowded Don Muang Airport will close, and Suwannabhumi will become the country's primary international gateway.
Thailand's central location and powerful tourism industry make it an attractive stopover for airlines, but the facilities, capacity, and landing charges at the new airport are still to be decided, and it remains to be seen whether the Thai Government will loosen its restrictive aviation policy that limits the number of inbound flights to help protect Thai Airways.
Japan's $13.5 billion Kansai Airport near Osaka opened with just one runway. The airport has already reached capacity, a reflection of Japan's poor airport infrastructure. A second runway planned at Kansai is not due for completion until 2007. Similarly, a second runway at Tokyo Narita - which reached its full capacity in 1998 - will not be ready for at least two years.
Relieving pressure
Chubu International Airport's opening in early 2005 near Nagoya should take some pressure off Kansai. Chubu is being built on a 470Ha (1,160 acre) artificial island with one runway and an initial capacity of 20 million passengers a year. A 700Ha reclamation is in the works, which would provide room for two more runways. Nagoya, Japan's fourth-largest city, is in central Japan midway between Osaka and Tokyo.
Shanghai's Pudong International Airport opened with little fanfare in September 1999, and although it is larger than the city's other international airport, Hongqiao, it is not as busy. Pudong has a single runway and a 725,200km2 terminal, and can handle 20 million passengers annually.
The huge new airport at Incheon provides a sharp contrast to the smaller airports in Japan and China. The artificial island is two-thirds the size of Manhattan, the site is six times larger than the Hong Kong airport and 12 times bigger than Kansai. There is plenty of room for expansion: Incheon could build up to five runways and four more satellite terminals, if demand required.
Incheon has a favourable location between China, a large emerging market, and Japan, a mature market that suffers from congested airports. While China and Japan pursue restrictive aviation policies, South Korea has a relatively liberal aviation regime that should make Incheon an attractive hub. Most US carriers would prefer to use Narita Airport near Tokyo as a transit point, but that airport is severely slot constrained, owing to protests from local farmers which continue to delay the second runway.
From Incheon, a Boeing 747 can fly non-stop to the US East Coast, which will help the airport attract US-bound traffic from South-East Asia. "With this type of location benefit, on top of our economic value, we have great potential," says Kang.
Incheon has worked to make itself attractive to airlines. The abundance of space allows airlines to build their own facilities within the airport area. Incheon will provide land and apron facilities and the buildings will be provided by the airlines. Three cargo terminals have been planned: one each by Korean Air and Asiana and one by a consortium of airlines, including FedEx and UPS. "We are also trying to attract aviation-linked businesses including engine maintenance and overhaul, and aircraft spare parts depots," says Kang.
The airport is building a 99Ha (expandable to 264Ha) free-trade zone within the airport facility, next to the cargo area. Construction of the trade zone access roads and utilities will begin next year and space will be available by early 2003. The trade zone is hoped to attract manufacturers of semi-finished products from China and elsewhere. The products would be finished and packed at Incheon, then shipped to Europe or the USA. All such activity would be tax free.
The first phase of Incheon, two runways and the terminal building, cost $5.1 billion - compared with Kansai at $13.5 billion, Hong Kong at $9 billion, Pudong at $1.4 billion, and Kuala Lumpur at $2.8 billion. Incheon's low price tag has allowed it to set competitive rates. Turnaround charges have been tentatively set at $3,400 for a 747 - less than the Asian average, which runs from $5,000 at Hong Kong to about $9,000 at Kansai. The charges are still higher, however, than the $2,300 that airlines now pay at Kimpo Airport, near Seoul, and airlines are fighting to get the Incheon charges reduced to the same rate as Kimpo.
Like Kansai, Hong Kong, Macau and Chubu, Incheon is built on an artificial island. But Incheon was reclaimed from a tide flat with an average sea depth of just 4m (13ft), unlike Kansai, which struggled with water up to 80m deep, plus another 20m of soft mud. Kansai's reclaimed land has already subsided 10m and may sink another 1.5m over the next 20 years. Incheon expects its subsidence to be a little as 20- 30mm over the next 20 years. "The cost of our reclaimed land was relatively low, which means Incheon can provide space at a lower cost than any other airport," Kang says.
Kick-start for cargo
To kick-start its cargo business, Incheon will offer a 20-25% discount to freighter flights that land between 24.00 and 05.30. The airport authority considered offering a similar discount to passenger flights, but decided against it because of South Korea's economic crisis and the subsequent higher borrowing costs. The International Air Transport Association is unhappy with the cargo discount. "They want the same benefits to be offered to passenger flights as well," says Hyo-Joon Kim, chief operating officer of Incheon's operational readiness group. "They say this is a kind of discrimination, but we see it as an incentive."
Incheon expects the South Korean passenger and cargo markets to provide a strong customer base, which it will supplement by attracting hub traffic. "The Asian market has recorded double-digit growth for a long time, and we are relatively confident that during the next decade we will have the same growth rate," says Kang.
Since 1990, international cargo traffic at Kimpo Airport has increased at an average rate of 9% each year, reaching 1.7 million tonnes in 1999. International passenger traffic has grown 7%, reaching 15.5 million people in 1999. The airport is ranked ninth in the world in passenger movements, and sixth in cargo.
Meanwhile, Incheon is proceeding with privatisation. South Korea's economic slowdown has created an opportunity for foreign investors and managers, as most South Korean companies are debt-ridden and unable to invest in the airport. "We are going to make this airport private, period," says Kang, adding that the degree of managerial control is related to the amount of equity the management company puts in.
At first the airport wanted to sell 30% of its equity, but it later increased the offer to 50% and managerial control. The airport has held discussions with UK airport operator BAA, and with Frankfurt airports. BAA has also attracted equity investors, says Kang.
The airport corporation's finances were hurt by the Asian downturn, which caused the South Korean currency and stock markets to plunge, raising the price of debt. The government paid 40% of the initial costs, with the remaining 60% borrowed at an average annual interest rate of 8.5%. The airport has asked the government to pay for an additional 20%, but the government has so far refused. The airport will be profitable in eight years, Kang says, and it will take 19 years to pay off the debt.
When Incheon opens for business on 29 March, the airport will be counting on its very presence to boost air traffic into and out of South Korea. "It's the classical theory of transportation from an economic perspective," says Kang. "In this industry, supply can create the demand."
Source: Flight International
