16-Jul-2024 11:15 AM

USD5 billion ‘New Narita Airport’ project – in what direction will the investment take it?

Analysis

While there are numerous other cities apart from Tokyo with two main commercial airports, each of them handling both domestic and international traffic, the position there is more complex than in most cases.

Tokyo Haneda was the principal airport until Narita was built in 1978 - 47 years after Haneda, and against the wishes of many local inhabitants. It then went on to be designated as the international airport.

But after an expansion project was completed there, a greater number of international flights were permitted at Haneda, which has the advantage of being closer to the city - that helped it regain international market share, although that is still heavily weighted in favour of Narita.

Latterly the government has tried to direct full service/premium business services and international hub activities to Haneda, leaving Narita to handle full service leisure routes, more often point-to-point, and what has become a growing number of LCC operations as Japan belatedly embraces that marque both domestically and internationally.

Now the time has come for a major revamp at Narita: a USD5 billion project that will decommission one of the three terminals, build a new one and then incorporate all three terminals into one.

The nature of Narita's traffic both now and in the future will dictate the design of these facilities and their operation.

Summary

NIAC proposes a ‘New Narita’ Airport, costing over USD5 billion.
NIAC is the corporatised operator of the airport and has been active in foreign markets.
Now it turns its attention to its home airport as traffic starts to return after the COVID-19 pandemic (but it is still well down on the pre-COVID level).
Eventually three terminals – including a new one – will be consolidated into one.
Narita is the main international airport, while Haneda is domestic-oriented, but their roles have been reversing.
Narita’s main charges to airlines are still lower than Haneda’s.
Narita has the highest level of LCC capacity among a group of international airports and the lowest level of alliance capacity.
That has implications for how the ‘New Narita’ will be configured and for how, if at all, its role will change.

NIAC proposes a 'New Narita' Airport with eventual consolidation of terminals, costing over USD5 billion

NIAC (Narita International Airport Corporation) has submitted a proposal for the 'New Narita Airport' project at Tokyo Narita Airport (NRT) to Japan's Ministry of Land, Infrastructure, Transport and Tourism (MLITT).

Despite the title accorded to it, this is not a greenfield airport project, and not even an extension of this existing one, per se - the new facilities would match existing ones by the commissioning of a new terminal connected to two existing ones, along with the decommissioning of another existing one, and then the consolidation of three terminals into one.

The proposal is a result of work of a panel of experts, a Concept Study Group composed of academics, national and prefectural representatives, and local city and town representatives. The group has met nine times since it was established in Oct-2022 to discuss the future vision of Narita Airport, including passenger terminal construction, enhancing air logistics functions, improving airport access, and integrated development with nearby areas.

Terminal 1 and existing station to be decommissioned: ultimately the consolidation of three terminals into one

NIAC released a draft plan for the proposed 'New Narita Airport' project following a concept review meeting on 06-Jun-2024.

Details include:

Phase 1 would involve constructing a new passenger terminal facility connected to Terminal 2 and Terminal 3. Terminal 1 and the Narita Airport Station on the Keisei and Japan Railway lines would be decommissioned and a new station would be constructed, connected directly to the new terminal. Construction would begin in the late 2020s and be complete by the early 2030s;
Phase 2 would involve construction of a new terminal and consolidation of all terminals into a single facility by the late 2030s;
Phase 3, involving development of a new building and concourse at the T1 site, would be considered based on passenger demand and business conditions.

The cost of developing passenger and cargo facilities alone is estimated at JPY800 billion (USD5.1 billion), excluding the new rail station.

Traffic returning after the COVID-19 pandemic

The move comes as the capital's main international airport continues to see an upturn in passengers following the COVID-19 pandemic.

Narita Airport also plans to build its third runway in 2029, which is expected to significantly raise the facility's capacity, and it requires modernised terminal facilities to match.

NIAC is the corporatised operator at Narita since 2004

NIAC is Narita's operator and has been since 2004 when the airport was corporatised rather than privatised (a separate privatisation exercise has been underway for around a decade now, aimed mainly at Japan's many regional airports), corporatisation meaning that the airport is publicly owned but operated and managed on a commercial basis.

Prior to that Narita was owned and managed by a public corporation, the New Tokyo International Airport Authority. The Narita International Airport Corporation Act (2003) was adopted to prepare the corporatisation of the airport and a new authority, NIAC, took over the responsibility of owning and managing the airport in 2004. NIAC is still a 100% government-owned public corporation. It could still be privatised but may require a change in the law.

NIAC has been active in foreign markets

NIAC has been active in seeking out opportunities for the management of foreign airports - but not Japanese ones.

Since 2015 it has bid for, or expressed interest in, investing in and/or operating airports in Nepal, Mongolia and Thailand. It additionally bid to be the Strategic Advisor for the New Central Polish Airport.

In that sense, it operates as one might expect a fully privatised entity to do.

In one of these instances (Mongolia) it joined with Japan Air Terminal, which operates Tokyo's other and larger airport, Haneda (there is a third, peripheral one at Ibaraki, 80km/50 miles northeast of downtown), and has also cooperated with Mitsubishi Corporation in this respect.

The Polish bid was in 2020, and there have been no other foreign ones since, implying that NIAC's focus for the future will be on this Narita project.

Narita is the second airport for Tokyo, as judged by passenger numbers.

In 2023 there were 32.7 million of them, more than twice the 2022 figure, which in itself was three times that of 2021, Japan having been hit hard by the pandemic.

Traffic is still well short of that achieved during the record year

But that 2023 figure is still well short (-26%) of the record year of 2019 (44.3 million), and puts Narita roughly where it was in 2010.

Tokyo Narita Airport annual traffic: passenger numbers/growth, 2009-2024 (months 1-5)

Growth has continued in the first five months of 2024 (+33%), but is slowing again, as it is at many other airports.

However, the growth experienced from 2014 to 2019 alone suggests that improved infrastructure is called for.

Haneda is the much busier airport

By comparison, Haneda is the bigger airport by passenger numbers, recording 78.2 million of them in 2023, but with a growth rate that is only half of that of Narita.

The passenger growth rate at Haneda followed a similar path to Narita's from 2009 to 2019, with the exception that it recorded a slight decline (-2%) in numbers in 2019.

Narita and Haneda's roles are opposites, with Narita catering mainly to international traffic

The key difference between the two is that while Narita is an international airport in the ratio of 80% international capacity to 20% domestic, Haneda is close to a mirror of it, with 73% domestic capacity to 27% international.

That international capacity has increased courtesy of the addition of a runway and an international terminal in 2010.

Haneda's international role has been growing, but Narita's charges are lower

There has been a steady switch in international services to Haneda since then, especially as Haneda is closer to the central downtown districts and thus it is preferred by international passengers, but perhaps not to quite the degree that was envisaged.

One of the reasons for that is that Narita is appreciably cheaper to operate at across the board, as the below chart of landing charges suggests, with a difference of minus 30%-38% in favour of Narita, according to the aircraft production group (2023 figures).

Comparable landing charges (USD) for 2023 - Tokyo Narita and Haneda airports

Narita still down on capacity vs. 2019

Narita has not yet quite reached its 2019 seat capacity, ASKs/ASMs, or departing frequency levels yet.

Where seat capacity is concerned, and where the average weekly capacity throughout 2019 was around one million seats a week, it is languishing some 10% down on the 2019 position in the week commencing 08-Jul-2024, with no obvious prospect of that scenario adjusting favourably in the second half of the year, even if the statistic below is only a predicted one (dotted green line based on published future schedules for the next six months).

Tokyo Narita Airport: weekly total system seats capacity, 2019-2024*

The situation at Haneda makes for an interesting comparison.

The seat capacity chart line there for 2024 is ahead of 2019 and 2023 (which was identical to 2019), but that is solely down to the international capacity level, which is 30% up on 2019 in the week commencing 08-Jul-2024, while domestic capacity is slightly down by 3.5%.

One possible interpretation is that where international traffic is concerned, Haneda is proving to be more of an attraction than Narita as Japan continues to come out of the pandemic, although the difference in performance is not yet so great as to set alarm bells ringing.

As to whether capacity will return to 2019 levels in the full year, Narita still has some way to go.

As of the week commencing 08-Jul it amounted to 44,894,000 seats, a modest increase of 11% over 2023 (although capacity can still be added, of course), and still 16.8% down on 2019.

Tokyo Narita Airport: annual system seats capacity(/growth), 2012-2024*

No dominant airline at Narita

Unlike Haneda, where All Nippon Airways (ANA) and Japan Airlines (JAL) between them have 71.5% of capacity, there is no dominant airline at Narita.

The largest airline, the LCC Jetstar Japan, has only 11% of the capacity, with ANA and JAL weighing in with 7.6% and 7.3% respectively, which is just ahead of another LCC, Peach.

Tokyo Narita Airport: system seats by airline, week commencing 08-Jul-2024

Highest level of LCC capacity among international peer airports

This suggests that the nature of Narita might be changing towards one of a low cost facilitator, and the evidence does bear that out.

Right now, in the week commencing 08-Jul-2024, 43.8% of seats are on LCCs at Narita, compared to 9.2% at Haneda.

And that figure is also high in comparison to a selection of the main international airport at other Alpha + and Alpha ++ cites as identified by the think tank 'The Globalisation and World Cities Research Network' (GWCRN) - namely London, Paris, New York, Beijing and Hong Kong, as detailed below:

Narita compared with peer GWCRN-ranked airports, by seat capacity on LCCs

Airport	GWCRN ranking of city	Percentage of seat capacity on low cost carriers (LCCs), week commencing 08-Jul-2024
Tokyo Narita (NRT)	Alpha	43.8
London Heathrow (LHR)	Alpha ++	0.2
Paris Charles de Gaulle (CDG)	Alpha	11.9
New York J F Kennedy (JFK)	Alpha ++	26.5
Beijing Capital (PEK)	Alpha	0.2
Hong Kong (HKG)	Alpha	20.0

Lowest alliance airline activity among the same peer group

Looking at the other end of the scale, there are six (mainly full service) airline alliances in operation at Narita, including the 'connecting partner' branches of Star and oneworld and the pan regional low cost carrier (LCC) Value Alliance (1.5%), and between them they account for 48.6% of Narita's capacity.

Again, how this compares with similar airports abroad is shown below:

Narita compared by percentage of seat capacity on airline alliances

Airport	GWCRN ranking of city	Percentage of seat capacity on airline alliances, week commencing 08-Jul-2024
Tokyo Narita (NRT)	Alpha	48.6
London Heathrow (LHR)	Alpha ++	87.8
Paris Charles de Gaulle (CDG)	Alpha	76.3
New York J F Kennedy (JFK)	Alpha ++	66.5
Beijing Capital (PEK)	Alpha	74.4
Hong Kong (HKG)	Alpha	68.2

Alignment towards LCC operations has implications for further development

Collectively, the picture is of a globally important city's main international airport that is less aligned towards full service and hub-based operations than peer airports elsewhere.

All this has implications for Narita's future development, and especially for the design of the new terminal facility, which will later become the main feature of a consolidated terminal made up of two existing structures and one new one.

The trend worldwide in recent times has been away from that of separate terminals for low cost operations.

Japan was a latecomer to that low cost terminal philosophy, a decade or so after Europe and Southeast Asia, but several were built, converted or at the very least considered, including at Ibaraki (Tokyo's third airport), Okinawa, Osaka Kansai and Nagoya.

For further details see this CAPA - Centre for Aviation report: CAPA Low Cost Airports and Terminals Report, 2022 - Part 3 and Summary

At Narita, the existing Terminal 3 opened in 2015 and is dedicated to LCCs.

The belated but increasing impact of low cost flights throughout Japan cannot be ignored

There is no indication yet that any such dedicated terminal or pier might be included in the 'New Narita' airport, but at the same time recent history suggests that it will be, and the management cannot ignore the belated but noteworthy rise in the ratio of LCC seats in Japan as a whole - this remains an objective of the MLITT and the government, and is wrapped up in the privatisation schedule.

In the first six months of 2024 (1H2024) that LCC seat ratio rose to 31.2% of the total for international seats, which is the highest it has been in 10 years. In 2014 it stood at only 9%.

Domestically, the LCC seat ratio in 1H2024 is 20.7%; not as high as it was during the pandemic, but more than the 16.9% recorded in 2014.

Japan: seats, by type, from 2014 to 2024

So, taking this relentless growth of LCC capacity in Japan into account versus the relative paucity of full service and alliance capacity, Narita could find itself in the rather odd position of being a (very) major city designated international airport that is more attuned to the needs of budget airlines than full service ones.

The government has separated Narita and Haneda's roles already

It could be argued that there is nothing new about this. For some time the Japanese government has been encouraging the use of Haneda for premium business routes, and Narita for leisure routes, and by low cost carriers.

Haneda's three terminals opened in 1993, 2004 and 2010 respectively, with some expansion since (2014), and there is little in the way of aeronautical facility expansion at present. Just inter-terminal connecting facilities, hotels and improved surface access.

It seems that it is now the turn of Narita, an airport which faced severe opposition from the local community when it was built, to get some attention.

Narita is not in a unique position as the secondary airport for a primary level city, which is what it has become. Comparable relationships exist in London, Paris, New York, Rome, Moscow, Beijing, São Paulo and elsewhere, with a variety of solutions to match supply with demand being applied in each case.

Nor would it be a unique case if Narita were to become so 'low cost oriented' that it began to lose its full service cachet altogether (Rome's Ciampino Airport is one that comes quickly to mind).

That is very unlikely, but is just one scenario that the 'panel of experts' must keep in mind as they sketch out the 'New Narita'.