Japanese airport investment opportunities Hiroki Yasui Director for Policy Planning and Coordination Airport Governance Reform Unit Japan Civil Aviation Bureau (JCAB) The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) Ministry of Land, Infrastructure, Transport and Tourism
1. Circumstance, Trend and Target 2. Airport concessions in Japan 3. Upcoming transactions 1
Circumstance around airports in Japan Decreasing of population + Centralization in urban areas Capturing a rapidly growing demand in Asia Shifted focus of airport policy development to management Deregulation and the proliferation of LCCs Vastly expanded Open Skies Agreements Positive support by Japanese government 2
Trends in domestic air passenger transport The demand for domestic air passenger transport in Japan started to decline in FY2007 due to increased fuel prices. As a result of the global economic recession after the Lehman crisis in 2008 and the Great East Japan Earthquake in 2011, the demand continued to decline. However, the demand started to increase again in FY2012 due to LCCs starting to compete with major airlines. Approximately 60% of domestic airline users start from Haneda Airport. (10,000 ( 万人 ) persons) 10 000 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 羽田便利用者 Haneda Airport flight passengers 関空または伊丹便利用者 Kansai or Itami Airports flight passengers 中部または名古屋便利用者 Chubu or Nagoya Airports flight passengers その他 Other 2 545 16%, 402 5%, 118 28%, 711 52%, 1,314 4 042 19%, 754 6%, 259 25%, 1,013 50%, 2,016 4 378 17%, 751 5%, 239 22%, 960 55%, 2,427 6 525 7%, 532 16%, 1,026 6%, 378 20%, 1,312 58%, 3,809 7 810 17%, 1,324 21%, 1,652 55%, 4,302 9 198 7%, 650 18%, 1,674 60%, 5,477 9 458 15%, 1,452 15%, 1,441 15%, 1,428 14%, 1,356 15%, 1,472 15%, 1,418 14%, 1,281 15%, 1,398 14%, 1,305 7%, 637 18%, 1,679 62%, 5,701 9 666 7%, 645 17%, 1,620 62%, 5,949 9 549 7%, 648 16%, 1,532 62%, 5,941 国内航空旅客数の推移 Numbers of Domestic Air Transport Passengers 9 279 7%, 632 8%, 712 16% 1,461 64%, 5,905 9 449 15%, 1,434 63%, 5,947 9 697 7%, 674 14%, 1,335 64%, 6,216 9 485 7%, 644 14%, 1,287 13%, 1,205 65%, 6,136 9 066 7%, 597 8 387 15%, 1,256 15%, 1,248 6%, 513 13%, 1,072 66%, 5,959 66%, 5,546 8 221 6%, 484 13%, 1,033 12%, 945 66%, 5,456 7 905 16%, 1,243 6%, 460 67%, 5,258 8 600 17%, 1,488 6%, 498 13%, 1,124 64%, 5,490 9 249 19%, 1,918 18%, 1,73818%, 1,738 18%, 1,643 6%, 571 13%, 1,243 63%, 5,792 Total number of passengers in FY2016: 98.12 million 9 520 9 606 6%, 563 6%, 577 14%, 1,340 62%, 5,879 14%, 1,377 9 812 6%, 610 14%, Kansai or Itami 1,376 Airport flight passengers 1975 50 1980 55 1985 60 1990 2 1995 7 2000 12 2001 13 2002 14 2003 15 2004 16 2005 17 2006 18 2007 19 2008 2009 21 2010 22 2011 23 2012 24 2013 25 2014 26 2015 27 2016 28 ( 年度 (FY) ) 61%, 5,824 61%, 5,908 Other Chubu or Nagoya Airport flight passengers Haneda Airport flight passengers 3
Trends in international air passenger transport Demand for international air passenger transport in Japan registered a record high in FY2016, despite a temporary decline since 2001 at the time of the 9/11 terrorist attacks, the Lehman crisis and the Great East Japan Earthquake. Passengers using airports in the capital area (Haneda and Narita Airport) account for 60% of the total number. 9 000 (10,000 ( 万人 ) persons) 8 000 首都圏空港 Airports in the ( capital 成田空港 羽田空港 area ) (Narita and Haneda) 関西空港 Kansai Airport 国際線航空旅客数の推移 Numbers of International Air Transport Passengers Total number of passengers in FY2016: 86.54 million 7 904 8 654 Local airports 16%, 1,401 7 000 6 000 5 000 4 000 3 000 中部空港 Chubu Airport 地方空港 Local airports 3 290 9%, 284 6%, 194 5 806 5 831 Kansai 13%, 792 5 540 5 651 5 613 22%, 1,915 Airport 12%, 703 7%, 450 5 302 10%, 567 10%, 563 5 408 5 336 5 440 5 166 9%, 532 9%, 518 10%, 581 7%, 447 22%, 1,728 10%, 514 11%, 577 7%, 449 10%, 534 4 777 10%, 532 10%, 505 9%, 547 10%, 556 8%, 449 9%, 533 8%, 451 20%, 1,352 4 415 4 453 9%, 498 8%, 437 8%, 430 8%, 438 10%, 488 8%, 420 19%, 1,205 8%, 364 19%, 1,143 11%, 467 20%, 1,11620%, 1,114 19%, 1,123 19%, 1,101 9%, 414 19%, 1,041 7%, 332 19%, 1,011 18%, 957 19%, 1,011 8%, 348 24%, 1,285 20%, 1,044 Airports in the capital 23%, 1,098 19%, 854 area 21%, 937 (Haneda and Narita) 6 069 6 329 6 849 14%, 956 16%, 1,230 6%, 490 6%, 524 Chubu Airport 2 000 1 000 0 827 8%, 66 8%, 1%, 145 9 73%, 607 1 339 9%, 118 2%, 26 22%, 294 67%, 901 1 930 6%, 118 3%, 50 20%, 382 72%, 1380 16%, 533 69%, 2279 60% 2663 57%, 3046 58%, 2777 56%, 4814 56%, 4456 60%, 4091 62%, 3457 61%, 3472 61%, 3569 62%, 3611 63%, 3385 64%, 3417 63%, 3540 62%, 3774 61%, 3885 63%, 3414 62%, 3197 65%, 2903 1975 50 1980 55 1985 60 1990 2 1995 7 2000 12 2001 13 2002 14 2003 15 2004 16 2005 17 2006 18 2007 19 2008 2009 21 2010 22 2011 23 2012 24 2013 25 2014 26 2015 27 2016 28 ( 年度 (FY) ) ( 昭和 ) ( 平成 ) 4
Foreign visitors to Japan The number of foreign visitors to Japan rose to a record high of over 28 million in 2017 with a national ambition to increase further. million 48 44 40 Target 36 32 28 24 20 16 12 8 4 0 24,0 19,7 8,6 5,2 6,1 6,7 7,3 8,3 8,4 6,8 6,2 8,4 10,4 13,4 60,0 40,0 28,7 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2020 2030
Breakdown of int l visitors by country/region of origin Italy 13 (0.4%) Germany 20 (0.7%) France 27 (0.9%) U.K. 31 (1.1%) Canada 31 (1.1%) India 13 (0.5%) Vietnam 31 (1.1%) Philippines 42 (1.5%) Indonesia 35 (1.2%) Malaysia 44 (1.5%) Singapore 40 (1.4%) Russia 8 (0.3%) 6 Thailand 99 (3.4%) 4 Hong Kong 223 (7.8%) Spain 10 (0.3%) 5U.S.A. 138 (4.8%) North America 168 (5.9%) 3 Taiwan 456 (15.9%) Note 1: Figures in parentheses are shares of overall visitors. Note 2: Other includes other countries in Asia and Europe. Note 3: Totals may not be the same as the sum of individual values, due to rounding. Note 4: Adapted by the JTA based on material prepared by the JNTO Australia 49 (1.7%) Other 110 (3.8%) 5 major European countries 100 (3.5%) Total 2,869 Asia: 2,434(84.8%) 1 China 736 (25.6%) East Asia: 2,129(74.2%) South-east Asia: 292(10.2%) 2 Republic Of Korea 714 (24.9%) 2017 (Unit: 10,000 people) 6
Strategic relaxation of visa requirements Date 2013 July 1 2014 July 3 September 30 Country Thailand Malaysia Philippines Vietnam Indonesia India Indonesia Philippines November 20 Vietnam December 1 Indonesia 2015 January 19 China January 11 India 2016 February 15 Vietnam India October 17 China January 1 Russia 2017 February 1 India May 8 China January 1 India 2018 August 1 Philippines Growth in numbers of international visitors after the substantial relaxation of visa requirements 250,000 万 200,000 万 150,000 万 100,000 万 550,000 万 0 万 80,000 60,000 40,000 20,000 0 Number of visitors to Japan from the Philippines Approx.158,000 people After the substantial relaxation of visa requirements (September 30, 2014) 54% year-on-year increase 0 2013.10~2014.09 Number of visitors to Japan from Russia Approx. 55,000 people Approx.243,000 people 2014.10~2015.09 Approx. 77,000 people After the substantial relaxation of visa requirements (January 1, 2017) 41% year-on-year increase 2016.01~12 2017.01~12 7
Change in JTA budget (Units: billions of yen) 300 250 Initial 当初予算 budget Supplementary 補正予算 budget 24.8 200 21.0 20.0 20.0 150 15 100 10 Japan Tourism Agency was inaugurated (Oct 2008) 12.7 10.1 10.0 9.7 9.8 9.9 9.1 50 5 6.5 6.4 6.3 6.3 5.5 4.2 2.6 2.6 1.9 1.5 0.9 0.05 0 0 H18(2006) H19(2007) H20(2008) 2008 H21(2009) 2009 H22(2010) 2010 H23(2011) 2011 2012 H24(2012) 2013 H25(2013) 2014 H26(2014) 2015 H27(2015) 2016 H28(2016) 2017 H29(2017) H30(2018) 8
1. Circumstance, Trend and Target 2. Airport concessions in Japan 3. Upcoming transactions 9
Airports in Japan National airports (19) Corporate airports (4) Local airports (65) Defense / Civil airports (9) Sapporo Asahikawa Chitose Wakkanai Obihiro Shin-Chitose Hakodate Memanbetsu Kushiro Misawa Kobe Hiroshima Iwakuni Matsuyama Miho Kitakyushu Fukuoka Niigata Sendai Komatsu Hyakuri Narita Haneda Itami Chubu Kansai Yao Oita Nagasaki Kochi Tokushima )Kumamoto Shizuoka Takamatsu Kagoshima Miyazaki 97 airports 127 million people Naha 10
Four types of airport management system in Japan 1 National airports (ex. Haneda(Tokyo), Hiroshima) Ownership: MLIT Operation: a) Aerodrome (development and maintenance of runways, navigation aids, etc.) MLIT b) Non-aerodrome (construction and maintenance of terminal buildings, services to air passengers, etc.) Private sectors 2 Corporate airports (ex. Narita, Kansai) Ownership: Private sectors Operation: a) Aerodrome Private sectors b) Non-aerodrome Private sectors 3 Local airports (ex. Kobe, Shizuoka) Ownership: Local governments (Prefectures, Cities) Operation: a) Aerodrome Local governments b) Non-aerodrome Private sectors 4 airports 65 airports 4 Defense / Civil airports (ex. Tokushima, Ibaraki) Ownership: Ministry of Defense (MOD) Operation: a) Aerodrome MOD b) Non-aerodrome Private sectors 19 airports 9 airports Air traffic control is conducted by MLIT in every airport 11
Aim of airport concession i) Separated management Current system MLIT : Aeronautical activities (Runways, Apron etc) Private companies : Non-aeronautical activities (Terminal Buildings etc) After concession Integrated management of the whole airport. ii) Profit pooling of multiple airports The revenue and expenditure of 28 national airports are managed together in a single accounting system. Incentivized individual airports working closer in tandem with the local community to promote growth. developed network stimulated air transportation industry Improved accessibility Revitalization of local communities 12
Framework of airport concession Before MLIT - Air traffic control After MLIT SPC - Ownership and operations of the runways and related facilities (aprons, taxiways, lights, etc.) Provision of operating right bidding Integrated operations under private management Financial Institutions Terminal building company Acquisition of shares MLIT monitoring Investors Pre-determined 13
Transaction timeline T-21m Market sounding T-14m T-12m T-9m T-0m T+3m T+6m T + 9m Publication of the implementation policy Publication of the application guideline Screening process by the government First screening committee Competitive dialogue Second screening committee Selection of preferred negotiation right holder Grant of the operating rights Commencement of the terminal building operations Commencement of the airside operations Handover period Training provided by the government Upon the commencement of the airside operations, government staff will be reduced but may be utilized for a period of 3 5 years. * Example; timeline for actual transactions will be tailored accordingly 14
Main characteristics of Japanese concession Takeaway from prior transactions have been incorporated to ensure a smoother process and better incentives. Understanding of historical and cultural aspects are key to success. Bidding process Not simply a privatization integration of airside operations with landside operations Need to replace MLIT employees Structure Concession rights designated on runway (and parking). No holding periods Investment incentive throughout the concession Local initiative Many of the larger airports are owned by a central government Decision to utilize the concession scheme is deeply influenced by the local governments Bids based on 1) price and 2) proposal Proposals on Air service development, Service quality, Operations, Safety etc. Items unique to each airport added based on the situation Third party selection committees 15
Overview of transactions National Airports (19) administered by the National Government Military Airports (9) It s open for private aviation within an extent that doesn t hinder the defense activities (3)Wakkanai (20)Sapporo (21)Chitose (4)Kushiro (2)Shin-Chitose (5)Hakodate Kansai Airport (private operation started) Number of passengers : 28.7mil in 2017 Location: Osaka Pref. (population 8.8mil) (28)Iwakuni (7)Niigata (26)Misawa (6)Sendai Sendai Airport (private operation started) Number of passengers : 3.4mil in 2017 Location: Miyagi Pref. (population 2.3mil) (10)Matsuyama (13)Kitakyushu (8)Hiroshima (23)Komatsu (24)Miho (22)Hyakuri (1)Haneda (12)Fukuoka Fukuoka Airport (Agreement signed) Number of passengers : 24.0mil in 2017 Location: Fukuoka Pref. (population 5.1mil) (27)Yao (16)Oita (14)Nagasaki (11)Kochi (25)Tokushima (15)Kumamoto (9)Takamatsu (18)Kagoshima (17)Miyazaki (19)Naha Takamatsu Airport (private operation started) Number of passengers : 2.0mil in 2017 Location: Kagawa Pref. (population 1.0mil) 16
Overview of transactions National Airports (19) administered by the National Government Military Airports (9) It s open for private aviation within an extent that doesn t hinder the defense activities (3)Wakkanai (20)Sapporo (21)Chitose (4)Kushiro (2)Shin-Chitose (5)Hakodate Airports in Hokkaido (2020 commencement) Number of passengers : around 28mil* in 2017 Location: Hokkaido Pref. (population 5.4mil) * Total of 7 major airports Kansai Airport (private operation started) Number of passengers : 28.7mil in 2017 Location: Osaka Pref. (population 8.8mil) (28)Iwakuni (7)Niigata (26)Misawa (6)Sendai Sendai Airport (private operation started) Number of passengers : 3.4mil in 2017 Location: Miyagi Pref. (population 2.3mil) (10)Matsuyama (13)Kitakyushu (8)Hiroshima (23)Komatsu (24)Miho (22)Hyakuri (1)Haneda Hiroshima Airport (2021 commencement) Number of passengers : 3.0mil in 2017 Location: Hiroshima Pref. (population 2.8mil) (12)Fukuoka (27)Yao (16)Oita (14)Nagasaki (11)Kochi (25)Tokushima (15)Kumamoto (9)Takamatsu (18)Kagoshima (17)Miyazaki Takamatsu Airport (private operation started) Number of passengers : 2.0mil in 2017 Location: Kagawa Pref. (population 1.0mil) Fukuoka Airport (Agreement signed) Number of passengers : 24.0mil in 2017 Location: Fukuoka Pref. (population 5.1mil) (19)Naha Kumamoto Airport (2020 commencement) Number of passengers : 3.3mil in 2017 Location: Kumamoto Pref. (population 1.8mil) 17
Airport Ranking by passenger numbers airport 2016 pax % of (Million) intn'l Stauts Note 1 Haneda 85.7 20% Terminal building listed 2 Narita 39.0 81% Corporate airport 3 Kansai 28.7 76%Concession started Bundled with Osaka 4 Fukuoka 24.0 26%Concession to start in 2019 5 Shin Chitose 23.1 15%In 2 nd phase of bids 7 airports bundle 6 Naha 21.2 17% 7 Osaka 15.7 0%Concession started Bundled with Kansai 8 Chubu 11.5 48% 9 Kagoshima 5.4 6% 10 Sendai 3.4 8%Concession started 11 Kumamoto 3.3 5%In 2 nd phase of bids 12 Miyazaki 3.2 4% 13 Nagasaki 3.2 2% 14 Kobe 3.1 0%Concession started in 2018 Follows Kansa - Osaka 15 Matsuyama 3.1 1% 16 Hiroshima 3.0 17%Implementation Policy in FY2018 17 Shin Ishigaki 2.5 3% 18 Takamatsu 2.0 15%Concession started in 2018 19 Ohita 1.9 7% 20 Hakodate 1.8 11%In 2 nd phase of bids 7 airports bundle * Transaction completed * Pipeline 18
19 1. Circumstance, Trend and Target 2. Airport concession projects in Japan 3. Upcoming transactions
Hiroshima airport (Overview) Route Network Route Network 北京 Beijing 大連 Dalian ソウル Seoul 上海 Shanghai 札幌 ( 新千歳 ) Sapporo New- Chitose 仙台 Sendai 成田 Narita 東京 ( 羽田 ) Tokyo(Haneda) Traffic Trends 3500 3000 2500 2000 ( 000) 台北 Taipei 香港 Hongkong 沖縄 ( 那覇 ) Okinawa(Naha) 1500 1000 500 シンガポール Singapore 0 2013 2014 2015 2016 2017 Haneda Narita Other Dom Intn'l The Hiroshima metropolitan area houses c.2.1 Million inhabitants making it the 8 th biggest metropolitan area in Japan. While Tokyo routes make up c.60% of the traffic, competition is fierce with the bullet train (taking less than 4hours between Tokyo and Shin-Hiroshima station). LCC flights to Narita have reinvigorated the Tokyo routes. 20
Hiroshima airport (Financials, Schedule) Financials Schedule Million JPY 1600 1400 1200 EBITDA FY 2018 Implementation policy Application guideline (RFP) 1000 800 600 400 200 0-200 961 1027 1119 871 1040 469 304 375 320 2012 2013 2014 2015 2016-196 FY2019 Bidding and Screening Selection of Preferred negotiation rights holder -400 Aero Non Aero 21
Hiroshima airport (Growth potential) Tourist demographic Inbound tourism trends Country share of Inbound Touists Hiroshima Prefecture Inbound Tourists ( 000) 100% 90% Others Others 80% Korea 70% Taiwan Korea 60% Hong Kong China 50% Taiwan 3000 2500 2000 1500 40% Europe Hong Kong 30% 20% 10% 0% Oceania Americas Hiroshima China Europe Oceania Americas Japan 1000 500 0 2011 2012 2013 2014 2015 2016 2017 < Source : Hiroshima Prefecture> Hiroshima is an unique tourism destination with high recognition in the Western countries as well as in Asia. This demand is currently served predominantly by high speed rail. 22
Hiroshima airport (Growth potential) FUK 2.5h line FUK 2h line 福岡 2h line from HIJ 2.5h line from HIJ 北九州 山口宇部 (reference) Bullet train 1.5h line(from FUK,KIX) < Source : Hiroshima Prefecture> Hiroshima airport(hij) 松山 米子 岡山 高松 KIX2.5h line KIX2h line 関西 Catchment area population Hiroshima prefecture 2,844 '000 drive time Okayama City 719 1:30 Matsuyama City 515 2:20 Kurashiki City 477 1:10 Takamatsu City 421 2:10 Matsue City 206 2:10 Izumo City 172 2:00 Shunan City 145 1:45 Tsuyama City 104 2:30 Tatsuno City 77 2:10 Soujya City 67 1:20 Tamano City 60 1:45 Hamada City 58 1:50 Total 5,865 * Cities with over 50,000 people / sub 2.5h drive time Hiroshima airport(hij) is located 50km east of the city of Hiroshima sitting in between the larger international airports of Fukuoka(FUK) to the west and Kansai(KIX) to the east. Due to this location, the airport has the potential to grow its catchment area serving cities in the wider Chugoku region. 2 時間圏域 ( 福岡空港, 関西国際空港 ) Bus connectivity already 2 spanning 時間圏域 7 cities in the region. 2 時間半圏域 2 時間圏域 2.5 時間圏域 ( 福岡空港, 関西国際空港 ) 23
Hiroshima airport (Tourism Potential) Collaboration with Setouchi DMO Attempt to attract tourists for Hiroshima by providing foreign tourists with tours in the Setouchi region. Long-stay typed cruising and resort (reference:cruise guntû HP http://guntu.jp/cabins/type2) Sanctuary for cyclists Commercialize the food of Setouchi Onomichi City Museum of Art Yayoi Kusama 2004 photography by Mie MORIMOTO YAYOI KUSAMA Paradise of nature and art Offer satisfying stay unique to Setouchi Commercialize the Setouchi local products recognized all over the world 24
Hiroshima airport (Aircrafts operated) JAL B737-800(165seats) Spring Japan SJO B737-800(189seats) China Airlines CAL B737-800(158seats) ANA B777-200(405seats) IBEX Airlines IBX CRJ-700(70seats) Air China CCA B737-800(157seats) B787-8(335seats) CRJ-200(50seats) Air Seoul ASV A321(195seats) Domestic B767-300(270seats) International Hong Kong Express HKE A320(180seats) A321(194seats) China Eastern CES A319(120seats) Silk Air SLK B737-MAX8(156seats) 25
Airports in the Kyushu region 1h20m 1h40m 5h~7h 1h40m 50m Nagoya 1h40m 3h30m~5h30m 3h20m 2h30m Flight time Rail time DOMESTIC Distance from the 3 metropolitan areas (Tokyo, Osaka, Nagoya) bring stable domestic traffic. East Asia Closer in proximity to East Asia with historically deep ties. ASEAN Easily reached by narrow bodies from many ASEAN cities. 26
Airports in the Kyushu region Airports in Kyushu 2 1 3 Current status Airport 2017Traffic (Million) Status 1 Fukuoka 23.8 Concession Agreement signed 7 6 2 Kitakyushu 1.6 Study in progress 3 Oita 1.9 4 Miyazaki 3.2 5 4 5 Kagoshima 5.6 Study in Progress 6 Kumamoto 3.3 In bidding 7 Nagasaki 3.2 Study in progress The Fukuoka and Kumamoto airport concession projects stimulating the other local municipalities to study concessions for their local airports. 27
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