Cablegate: New Kitakyushu Airport: Good Start, but Uncertain Future

VZCZCXRO5272
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHFK #0047/01 2120622
ZNR UUUUU ZZH
R 310622Z JUL 06
FM AMCONSUL FUKUOKA
TO RUEHC/SECSTATE WASHDC 0206
INFO RUCPDOC/USDOC WASHDC 0001
RUEHKO/AMEMBASSY TOKYO 0215
RUEHNH/AMCONSUL NAHA 0085
RUEHOK/AMCONSUL OSAKA KOBE 0089
RUEHKSO/AMCONSUL SAPPORO 0081
RUEHNAG/AMCONSUL NAGOYA 0080
RUEHFK/AMCONSUL FUKUOKA 0227

UNCLAS SECTION 01 OF 03 FUKUOKA 000047

SIPDIS

TOKYO FOR ECON AND FCS
STATE FOR E, EB AND EAP/J
USDOC FOR ITA/IEP/OJ
SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EAIR ECON ETRD JA
SUBJECT: NEW KITAKYUSHU AIRPORT: GOOD START, BUT UNCERTAIN FUTURE

Sensitive but Unclassified -- Not for Internet Distribution.

SUMMARY

1. (SBU) The new Kitakyushu Airport, which opened to much local
fanfare on March 16, is facing a gradual decline in flight load
factors as the initial novelty wanes. According to Kitakyushu
Air Terminal Co. President Teruaki Okuno, the airport's
long-term success will depend on its ability to strengthen air
cargo services and cultivate niche markets untapped by nearby
Fukuoka Airport, Kyushu's largest. Moreover, Kitakyushu
Airport's role cannot be fully charted until the debate over a
new Fukuoka Airport is settled, a process that will take several
more years. While Fukuoka's existing airport is near capacity,
there is much skepticism over the accuracy of the Ministry of
Land, Infrastructure, and Transport's (MLIT) projections for
future passenger demand in northern Kyushu. In addition, there
is concern over the lack of a comprehensive strategy at both the
national and local levels regarding regional airport
construction. End Summary.

NEW AIRPORT'S NOVELTY WEARING OFF

2. (U) On March 16, Kitakyushu City (Fukuoka Prefecture's second
largest city) inaugurated a new airport located on an artificial
island two miles offshore from the previous airport. Built over
12 years at a cost of 170 billion yen (US $1.5 billion), the
facility is equipped with a single 2,500-meter runway.
Currently, scheduled services include one international
(Shanghai) and three domestic (Tokyo/Haneda, Nagoya, Naha)
destinations, including 12 daily roundtrips to Tokyo by Star
Flyer, a start-up carrier with financial backing from the
Kitakyushu business community. While modest, these operations
are nevertheless a big improvement over the old airport, which
only offered limited service to Tokyo/Haneda. Kitakyushu
officials have forecast one million passengers in the airport's
first year of operations on the assumption that: 1) Kitakyushu
residents who use Fukuoka Airport will largely switch to the new
facility, and 2) the new airport will draw additional passengers
from Fukuoka, Yamaguchi, and Oita prefectures.

3. (SBU) According to statistics obtained from Kitakyushu Air
Terminal Co. (KATC), the airport's operating authority, users of
the new airport totaled some 370,000 between March 16 - June 30.
On domestic flights, these figures resulted in an average load
factor of 55.7% per flight. If this level of usage is
maintained, the one-million-passenger forecast should be easily
achieved in the first year. However, KATC President Teruaki
Okuno told post it is still too soon for Kitakyushu to claim
success. Specifically, he noted that it is not yet clear
whether the new airport is drawing passengers from Fukuoka and
elsewhere, or creating new demand. He also pointed to the trend
of the load factors (L/F) on all three domestic routes steadily
declining with the waning of the airport's novelty:

Period 3/16-5/7 3/16-5/31
3/16-6/30
Destination L/F(%) L/F(%)
L/F(%)

Tokyo/Haneda 60.7% 58.1% 55.2%
Nagoya 67.6% 62.2% 57.5%
Okinawa 69.7% 64.5% 62.8%

Average L/F 61.4% 58.6% 55.7%

Okuno indicated that China Southern Airlines' service to
Shanghai (three weekly roundtrips) has fared even worse, with
load factors hovering under 40% most likely as a result of
inconvenient afternoon flight times for business travelers.

KEY TO SUCCESS - DIFFERENTIATION FROM FUKUOKA

4. (SBU) Okuno opined that in order for Kitakyushu Airport to
succeed in the long run, it must: 1) take advantage of its
24-hour operations to strengthen cargo services, and 2)
cultivate niche markets untapped by Fukuoka Airport. In both
cases, the key is Kitakyushu Airport's ability to differentiate
itself from the much larger Fukuoka Airport, where nighttime
operations are restricted because of its close-in urban
location.

5. (U) New cargo carrier Galaxy Airlines is scheduled to

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inaugurate late-night service between Kitakyushu and
Tokyo/Haneda later this year. China Southern also plans to add
cargo services to Shanghai starting this summer. To facilitate
these services, MLIT has approved the extension of Kitakyushu's
operations to a full 24 hours. This new competition poses
concerns for struggling Saga Airport, which opened in 1998; Saga
recently carved out a successful niche for itself by offering
northern Kyushu's first nighttime air cargo service to Tokyo.
In terms of new passenger services, Russia's Vladivostok
Airlines is awaiting MLIT approval to operate
Kitakyushu-Vladivostok flights twice a week during the summer
months.

CONTINUING CONTROVERSY: A NEW AIRPORT FOR FUKUOKA?

6. (U) According to Okuno, Kitakyushu Airport's future course
cannot be fully planned out until the long-standing debate over
whether to build a new airport for Fukuoka is settled. The
existing Fukuoka Airport, located close to the city center,
handles nearly 19 million passengers a year and is near
capacity. The airport ranks first in Japan in the frequency of
per runway takeoffs and landings (137,510 in 2005) from its
single 2,800-meter strip. MLIT growth projections released in
early June show Fukuoka far exceeding its effective capacity in
takeoffs/landings by 2012, with large increases in passenger
numbers.

7. (U) MLIT's projections are part of a joint research project
initiated in 2003 with Fukuoka prefecture and city to assess
future demand at Fukuoka Airport. The committee is expected to
decide by the end of JFY 2007 (i.e., March 2008) whether to
recommend the construction of a new airport. If a
recommendation for construction is made, that result may be
included in the GOJ's National Airport Improvement Plan for JFY
2008-2012. Other alternatives being suggested are an expansion
of the current airport or greater cooperation with the
neighboring Kitakyushu and Saga airports to divide up the
northern Kyushu market.

8. (SBU) All of these options face substantial obstacles. The
cost of building a new airport, assuming a suitable location can
even be found, may be prohibitive. For environmental and safety
reasons, expanding the current airport - which would require
further encroachment into the surrounding, densely built-up
urban area - also does not appear feasible. And while officials
have talked about "cooperation" among the region's three
airports, no one has provided any concrete ideas on how that
would work.

9. (SBU) Since the argument that Fukuoka needs a new airport is
premised in part on expectations for future growth, MLIT's
projections are drawing heightened scrutiny. MLIT forecasts
growing demand for international traffic as a result of economic
growth in, and stronger business ties with, other Asian
countries. It also foresees a continuation of the recent trend
toward using smaller aircraft (with a big resulting rise in the
frequency of takeoffs/landings). However, industry observers
are skeptical, as the growth in the frequency of
takeoffs/landings and the number of passengers at Fukuoka
Airport have leveled off in recent years. Furthermore, Ministry
of Public Management, Home Affairs, Posts and Telecommunications
(MPHPT) data show that nine of the fifteen Japanese airports
which opened or expanded from 1989-1999 have performed below
MLIT's projections. At four of these airports the level is less
than 50% of what was projected.

10. (SBU) Okuno criticized the debates over airport construction
in Kyushu as politically charged. He said the issue illustrates
the drawbacks in Japan's existing administrative structure, in
which big projects like airports have been pursued for parochial
political interests with little connection to real economic
need. He also opined that airport projects should be undertaken
more strategically and efficiently in a broader administrative
framework, such as the "doshusei" proposals to combine existing
prefectures into larger regional blocs. This would shift the
issue beyond prefectural jurisdictions to better promote both
regional and national economic interests, he underscored.

COMMENT

11. (SBU) The debate over the construction of a new northern
Kyushu "hub airport" centered on Fukuoka has been bogged down
for years due to squabbling among the governors and prefectures
involved. Despite Okuno's criticisms, airport construction will

FUKUOKA 00000047 003 OF 003

primarily remain a political rather than economic issue in
Kyushu. For instance, Fukuoka Mayor Hirotaro Yamasaki is the
primary mover behind Fukuoka's bid to be Japan's candidate for
host city of the 2016 Summer Olympics, and he has publicly tied
the Olympics bid with the need to build a new airport in
Fukuoka. Local cynics point out that, even if Fukuoka were
selected for the Olympics, getting agreement on a new airport
and completing construction could not be accomplished by 2016.
Still, building a new airport will be part of Mayor Yamasaki's
campaign for re-election in November 2006. End Comment.
WONG

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