SESSION 1. Air Connectivity & Airport Competitiveness

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1 SESSION 1. Air Connectivity & Airport Competitiveness Transformations in Global Air Route Networks and Narita Airport's Network Strategies Tatsuya HAMADA Senior Vice President, Narita International Airport Corporation (NAA)

2 2 Table of Contents Transformations in Global Air Transport Networks Narita Airport's Network Strategies Expanding Air Transport Market in Asia and Towards Strengthening Connectivity in the Region

3 Transformations in Global Air Transport Networks

4 4 Conventional Network Structure Traditionally, air network in Asia was expanded by the s and extended laterally to North America and Europe and vertically to Oceania. Europe Asia North America Oceania

5 Changing Network Structures With the economic growth in Asia, the networks in the region have undergone a structural change in recent years brought about by 1 Geographical factors, 2 Improved

5 5 Changing Network Structures With the economic growth in Asia, the networks in the region have undergone a structural change in recent years brought about by 1 Geographical factors, 2 Improved aircraft performance, and 3 Changes in airline strategies (emergence of Middle East airlines and S). Networks in Asia extending laterally and vertically have undergone enormous changes brought about by direct flights from South East Asia to North America, network configurations with services via the Middle East and the dramatic growth of S. Europe Middle East Rise of the Middle East Asia Economic Growth in Asia Emergence of direct flights to North America North America To South America Oceania

6 Geographical Factors - Narita Airport's locational advantage - Located in Asia's Far East, Japan is at the most East end in Asia when looking to North America.

6 6 Geographical Factors - Narita Airport's locational advantage - Located in Asia's Far East, Japan is at the most East end in Asia when looking to North America. Narita Airport has, and remains to be geographically advantageous in being the linchpin flight connection point between Asia and North America. (Example) 17:00 Dep. Narita 09:45 Arr. Los Angeles: A very convenient time schedule for both ends connection Asia North America Direct flights not possible Direct flights possible The Linchpin Between Asia and North America Singapore

Aircraft Performance Improvements - Game Changer in Competition Between Airports - Emergence of B787 and other new mid-size aircraft amidst a downturn for larger aircraft.

7 Aircraft Performance Improvements - Game Changer in Competition Between Airports - Emergence of B787 and other new mid-size aircraft amidst a downturn for larger aircraft. Lightweight air frames and improved engine performance, etc. means parity with large aircraft on flight range This has enabled direct services to smaller demand cities where non-stop services were not offered before. Emergence of New Type of Aircraft (B787) Mid-size ( seats) Composite carbon fiber used in 50% of total weight Contributes to reduced aircraft weight (further weight reduction possible if designs optimize the use of composite materials) Material properties have improved humidity and air pressure and enabled larger windows Improved engine performance Improved fuel consumption and speed Reduced noise and gas emissions (CO2, NOx) Fuel efficiency is 20% better than previous models of the same size Small than large aircraft but with the same range (15,190 km): Can link secondary demand cities. (New destinations on Narita's network) Boston, Denver, Dusseldorf, Mexico-city, Melbourne etc. 7

8 Aircraft Performance Improvements - Trends in Passenger Traffic Between Asia and the US - With improved aircraft performance, there has been an acceleration in launching direct flight services between the hub airports in Asia and North America. Incheon and Hong Kong are steadily making strong growth by capturing the rapidly growing China market demand. With Asia's economic growth there are more demand for connecting flights and Asian hubs and Middle East airports have emerged as connection points which is seen as Middle East airports capturing connection traffic from the India Market Transit Point Direct Flights (Including North American Connections) Pax (Thous.) 14,060 Transit Pax Ratio Transit Point Direct Flights (Including North American Connections) Pax (Thous.) 14,395 Transit Pax Ratio Transit Point Direct Flights (Including North American Connections) Pax (Thous.) Transit Pax Ratio Compare to , % 1 Narita 2, % 1 Narita 2, % 1 Narita 2, % 84.0% 2 Taipei (Taoyuan) 1, % 2 Incheon 1, % 2 Dubai 1, % 331.1% 3 Incheon % 3 Taipei (Taoyuan) % 3 Incheon 1, % 113.7% 4 Hong Kong % 4 Hong Kong % 4 Hong Kong 1, % 149.8% 5 Frankfurt % 5 Frankfurt % 5 Taipei (Taoyuan) 1, % 143.8% 6 Kansai % 6 Dubai % 6 Beijing 1, % 415.3% 7 London Heathrow % 7 London Heathrow % 7 Doha % 287.7% 8 Charles de Gaulle % 8 Doha % 8 Abu Dhabi % 351.9% 9 Singapore (Changi) % 9 Guam % 9 Shanghai % 601.7% 10 Mumbai % 10 Beijing % 10 London Heathrow % 123.1% 11 Beijing % 11 Abu Dhabi % 11 Frankfurt % 62.4% 12 Chubu Centrair % 12 Mumbai % 12 Guangzhou % % 13 Amsterdam % 13 Charles de Gaulle % 13 Haneda % 663.6% 14 Dubai % 14 Singapore (Changi) % 14 Delhi % 210.1% 15 Manchester % 15 Amsterdam % 15 Istanbul % % 16 Bangkok % 16 Delhi % 16 Mumbai % 113.3% 17 Shanghai % 17 Shanghai % 17 Manila % 197.7% 18 Manila % 18 Brussels % 18 Charles de Gaulle % 96.7% 19 Haneda % 19 Chubu Centrair % 19 Amsterdam % 83.2% Others % Others % Others % Total Connections 9,284 Total Connections 10,266 Total Connections 15,766 Total 23,345 Total 24,660 Total 34,603 Source: Compiled by NAA from MI data from Sabre 8

9 Airline Strategies - Emergence of Middle East Airlines - On routes between Oceania and Europe, there is not a large difference in distance when flying via Asia and via the Middle East.

market, globally. Sydney London (10,574 miles) Middle East Carriers Seat Supply via Narita: 10,820 mi. Airline Seats available weekly (International) London Dubai via Dubai: 10,902 mi.

9 9 Airline Strategies - Emergence of Middle East Airlines - On routes between Oceania and Europe, there is not a large difference in distance when flying via Asia and via the Middle East. Using the plentiful supply of fuel, Middle Eastern airlines have used their dominant geopolitical positions midway between Asia, Europe and Africa, and have rapidly tapped into the transit passenger market, globally. Sydney London (10,574 miles) Middle East Carriers Seat Supply via Narita: 10,820 mi. Airline Seats available weekly (International) London Dubai via Dubai: 10,902 mi. Sydney Inbound/Outbound Flights by Time (Dubai) Narita Japan Airlines 220,007 All Nippon Airways 264,477 Emirates 1,484,864 Etihad Airways 444,010 Qatar Airways 819,312 (Source: CAPA Aviation Data) Departures Arrivals 00:00 24:00 Flights arriving and departing each day 4 flight connection bank opportunities in the morning, mid-day, evening and at night

Passenger Air Transport Growth Projections Worldwide 2017-2036 10 Global air transport demand is expected to grow on an average of 4.6% per annam. from 2017 to 2036.

10 Passenger Air Transport Growth Projections Worldwide Global air transport demand is expected to grow on an average of 4.6% per annam. from 2017 to The Asia region in particular carries the greatest number of passengers today and is expected to see growth of an average of 5.5% p.a. and is the driving force in global air transport demand as we cross into the future. 1,777 3,944 6,469 Legend Units: 1 billion passenger-kilometers Passengers carried in 2016 Avg. growth rate per annum ( ) Passengers carried in 2036 (Estimated) Europe +4.1% p.a Africa +4.2% p.a ,245 Middle East +6.2% p.a. 2,198 Asia +5.5% p.a. (Worldwide) +4.6% p.a. 1,694 2,913 North America +2.7% p.a ,035 Latin America +5.1% p.a. (Source: Japan Aircraft Development Corporation)

11 Airline Strategies - Emergence of s - The Asian region has also seen the emergence of s driven by increases in demand for air transport with the economic growth in the

11 11 Airline Strategies - Emergence of s - The Asian region has also seen the emergence of s driven by increases in demand for air transport with the economic growth in the region. With the emergence of s, their point-to-point operations have joined the hub and spoke operations in our networks and diversified. Europe Asia North America Oceania

Stage 1: Passenger Traffic Grows in Asia with the Expansion of s 12 The recent economic growth in the Asia region has steadily increased the proportion

In 2013, the ratio of flights in East Asia stood at 9% while that ratio in South East Asia had already surpassed 50% and we can expect to see continued

12 Stage 1: Passenger Traffic Grows in Asia with the Expansion of s 12 The recent economic growth in the Asia region has steadily increased the proportion of the middle class households and we can expect to see continued passenger traffic growth in point to point travel in the region. In 2013, the ratio of flights in East Asia stood at 9% while that ratio in South East Asia had already surpassed 50% and we can expect to see continued increases in the ratio of s in the Asia region. Global Market Share by Region Asia 60% '01 '13 More growth 58% 40% 30% 38% 34% 20% 0% 18% 5% 16% 9% 3% 0% 0% 0% 16% 3% 0% 11%

13 Narita Airport's Network Strategies

14 Connectivity Issues at Narita Airport NAA's greatest strength is its network to North America which uses Narita's geographical advantage. In adding further strength to the network at Narita Airport, we will need to attract s and the dramatic growth that they are expected to continue experiencing to boost connectivity to mid-size cities in Asia (and China in particular) where growth is expected and which did not have direct flight services before, while also improving connectivity between international and Japan domestic services. Number of North America Non-Stop Services Number of Asian and Domestic Flights Narita 成田 Narita 成田 Incheon 仁川 Make use of this advantage Incheon 仁川 Where Narita needs to enrich Shanghai 海 ( 浦東 ) Pudong Shanghai Pudong 上海 ( 浦東 ) Hong Kong 香港 Hong Kong 香港 Changi チャンギ Including Canada but excluding Guam and Saipan Changi チャンギ Asian Domestic (Weekly) 0 1,000 2,000 3,000 4,000 (Source: Compiled by NAA from Sabre MI/GDD schedule data for the period 3-9 April 2017) 14

15 15 Business Model on Network Structure s realize low costs and substantial network expansion by focusing on high-frequency, short to medium-haul routes (up to 4,000 km). Item Network Point to point Few connecting flights Hub and spoke Convenient connecting flights A/c type Mainly small aircraft (B737, A320) Single type of aircraft; young fleet High aircraft usage rate Various types of aircraft Aircraft of varying age Low usage rate (compared to s) Distance of routes Short to medium-haul (4,000 km or less) Medium to long-haul Frequency of flights High-frequency operations Flights spread throughout the day Many flights concentrated at popular peak hours Fare structures Relatively few and simple Diverse and complicated Fare Low priced High priced (compared to s) Desired airport facilities Facilities that enable low cost operations Facilities that enable to offer high quality services

16 Narita Airport's Targets for Connectivity Improvements within Asia For further improvement of NRT s network to Asia, we will seek to improve our connectivity to cities in Asia with a sizeable

16 16 Narita Airport's Targets for Connectivity Improvements within Asia For further improvement of NRT s network to Asia, we will seek to improve our connectivity to cities in Asia with a sizeable economy and prospects of future growth (population of over 1 million) within the short to mediumhaul range (4,000 km or less) covered by s that have services to other airports but not yet to Narita. Cities within 4,000 km with Scope for Expansion Yantai Hohhot Shijiazhuang Yangzhou Jinan Yanji Taiyuan Wuxi Yinchuan Nantong Lanzhou Luoyang Hefei Guiyang Kunming Changzhou Ningbo Fuzhou 4,000 km from Narita Sanya Laoag Haiphong Kalibo Iloilo Puerto Princesa Tagbilaran

17 Construction of Terminal 3 ( Terminal) Passenger Terminal 3 at Narita Airport was built for the exclusive use by s to suit their

Since its opening in April 2015, this terminal is presently used by 5 carriers including 3 Japanese s that are based at Narita.

to Asia, thereby improving Narita's international=domestic transit convenience.

17 17 Construction of Terminal 3 ( Terminal) Passenger Terminal 3 at Narita Airport was built for the exclusive use by s to suit their low-cost, highfrequency operation business model. Since its opening in April 2015, this terminal is presently used by 5 carriers including 3 Japanese s that are based at Narita. These 3 Japanese s first launched domestic services in 2012 and then expanded their operations to provide short to medium-haul services to Asia, thereby improving Narita's international=domestic transit convenience. There are also some s at Narita that operate in Terminals 1 and 2 with a focus on connectivity with services. Trends in Domestic Passenger Traffic at Narita Airport (x 10,000 pax) Domestic Service 年度 2012 年度 2013 年度 2014 年度 2015 年度 2016 年度

18 Trends in Ratio of Services at Narita Airport Ratio of services at Narita has since increased rapidly and s have become indispensable to the future growth and development of the airport as operators of short-haul international flights to Asia and domestic flights in Japan. At the same time, s continue to be an important presence in maintaining our biggest advantage of a large number of routes to North America and connectivity with long-haul flights to Europe and other destinations, operating approximately 70% of flights at Narita. Aircraft Movements 75% 72% 68% 93% 7% 25% 28% 32% FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Launch of services by Japanese s Opening of Terminal 3 18

19 Measures to Improve Aircraft Utilization Rates - Expansion of Approved Operating Hours - Improvement of aircraft utilization rates is an issue for s based at Narita Airport in need to achieve

19 19 Measures to Improve Aircraft Utilization Rates - Expansion of Approved Operating Hours - Improvement of aircraft utilization rates is an issue for s based at Narita Airport in need to achieve further growth. Under the present airport operating hours, it is difficult to operate aircraft throughout the day. Therefore, NAA is currently putting forward proposals to the community regarding possibilities of expanding the operating hours along with proposal for additional living environment measures Present Nighttime parking Narita Regional airport Regional airport Narita Regional airport Narita Limit on no. of flights Relaxed restrictions Nighttime parking With the limited operational hours, difficult to further raise aircraft utilization rates Late evening flight restrictions hinder s to return to NRT base in the evening. As a consequence, s need to schedule to return their aircraft to NRT base between 19:00 and 21:00 avoiding peak and restricted hours and park aircrafts until the next morning. +1 hour +2.5 hours

20 20 Stage 2: Growth in Passenger Traffic to Regions Beyond Asia through Collaborations between s and s As the second stage of development, with rapid economic growth, passenger traffic in Asia is expected to expand outwards to other regions. At present, a long-haul business model is yet to be fully established. As such, increased connectivity between and services is essential if passenger traffic are to expand beyond Asia. Long-haul routes Long-haul routes Europe Asia North America Short to medium-haul routes Oceania

between s and s, and the establishment of an alliance.

21 21 Changes in the Airline Tie-up Strategies Amidst calls for better connectivity between and flights, there is increasing diversification in airline tieup strategies as exemplified by cross-alliance ties by s, ties between s and s, and the establishment of an alliance. Cross Alliance Ties Value Alliance Star Alliance SkyTeam Business and capital tie-ups Reciprocal mileage programs oneworld Code sharing and reciprocal mileage programs

22 22 Narita Airport's Network Strategies - The Linchpin Between Asia and North America - To achieve further growth, Narita must use its extensive network, particularly its function as the linchpin between Asia and North America, to the full, tap into the air transport demand of the growing market of Asia using both and services, and actively absorb the transit demand between Asia and North America. Develop and Expand Asia Routes Asia - North America Routes Asia NRT Targeting OD (Origin and Destination, point-to-point) and transit demand in growing markets North America Maintain and Expand North America Routes

Measures to Improve Connection Convenience ① - Under One

Airport has a finely balanced mix of the three major airline

Each airline alliance is assigned to a different terminal to

Terminal 2 Alliance flight ratio Int l : Doms.

23 Measures to Improve Connection Convenience ① - Under One Roof Concept for Consolidating Alliance Members (-) Narita Airport has a finely balanced mix of the three major airline alliances services. Each airline alliance is assigned to a different terminal to offer transit convenience among members of the same alliance. Terminal 2 Alliance flight ratio Int l : Doms. : Others 22% Star Alliance 34% Oneworld 25% SkyTeam 19% Terminal 3 () Terminal 1, North Wing Terminal 1, South Wing 23

Gatwick Airport offers a connection service called Gatwick Connects for passengers connecting between flights where baggage transfer

24 24 Measures to Improve Connection Convenience 2 - NRT to consider = and = connection convenience - Presently in Asia, passenger and baggage transfer is not offered between = or =. Gatwick Airport offers a connection service called Gatwick Connects for passengers connecting between flights where baggage transfer services, etc. are not available, as a way of improving convenience when connecting between and flights. Discussions are underway with the airlines for the provision of a similar service at Narita Airport to improve - flight connection convenience.

25 Measures to Improve Connection Convenience 3 - More Flights

the peak hour where the airline demands are high, we will also

and North America, which is Narita's greatest advantage.

hours Enhance traffic control capacity (completed):64/hour

25 25 Measures to Improve Connection Convenience 3 - More Flights Per Hour - By increasing the runway movement per hour during the peak hour where the airline demands are high, we will also improve our transit convenience as the linchpin between Asia and North America, which is Narita's greatest advantage. Departures Arrivals Increase runway movement capacity at peak hours Enhance traffic control capacity (completed):64/hour 68/hour Construct high speed exit taxiways:68/hour 72/hour 06:00 12:00 18:00 23:00

26 Measures for Further Functional Enhancement - Airport Capacity Expansion - Narita Airport is driving forward with specific measures to add greater capacity to the airport by constructing a

26 26 Measures for Further Functional Enhancement - Airport Capacity Expansion - Narita Airport is driving forward with specific measures to add greater capacity to the airport by constructing a additional runway and extending a existing runway, in order to further expand NRT s aviation network and adequately accommodate the strong aviation demand of Tokyo Metropolitan Area. N Extension of existing runway (2,500m 3,500m) Shorten the Taxiing time Runway B (2,500m) Construction of additional runway (3,500m) Runway A (4,000m) Higashi-Kanto Expressway Proposed construction site Achieve 500,000 aircraft movements per annum. (98 per hour) by using Runways B and the proposed additional runway C independently, one for departing flights only and the other for arrival flights. Shorten the taxiing time to the runway ends to ensure flight punctuality and improve operational efficiency, thereby supporting airline operations.

27 Expanding Air Transport Market in Asia and Towards Strengthening Connectivity in Asia Region

28 Towards an Expanding Air Transport Market in Asia and Increasing Connectivity in the Region 28 Europe Asia North America Middle East In view of the future increase in demand for air transport in Asia, it is important that the airports in the region seek to grow together by improving the connectivity of the Asia region as a whole within the global aviation network. This can be achieved if airports that are closer to Europe develop their network to Europe and those that are closer to North America develop their network to North America, drawing on their individual strengths.

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