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Current accounts of Japanese airports
Journal of Air Transport Management 17 (2011) 88e93
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Journal of Air Transport Management journal homepage: www.elsevier.com/locate/jairtraman
Current accounts of Japanese airports Kazusei Kato a, *, Toshiyuki Uemura b, Yuichi Indo c, Akira Okada d, Katsumi Tanabe e, Shinichi Saito f, Hitoshi Oguma f, Hirotaka Yamauchi g, Eiji Shiomi h, Madoka Saegusa e, Kazuyoshi Migita h a
College of Economics, Nihon University, Japan Kwansei Gakuin University, School of Economics, Japan c Japan Airport Consultants, Inc., Japan d Faculty of Environmental and Information Studies, Tokyo City University, Japan e Department of Commerce, Keio University, Japan f Institute of Transportation Economics, Japan g Hitotsubashi University, Graduate School of Commerce and Management, Japan h Faculty of Economics, Chuo University, Japan b
a b s t r a c t Keywords: Airport accounts Airport profitability Japanese airports
The paper examines the current account of 41 major airports. When we exclude depreciation costs, only seven airports are profitable. When depreciation is excluded, only three airports are making profits. Airports managed by local governments are very difficult to sustain financially without subsidies. Airports with more than 5.2 million passengers are profitable when depreciation is taken into account, however most local airports have fewer than 2.5 million passengers. When depreciation costs are excluded, airports need at least 2.7 million passengers to be viable. Ó 2010 Elsevier Ltd. All rights reserved.
1. Introduction During World War II, Japan had 150 airfields, mostly for military use, but flying was prohibited under the postwar occupation. When commercial aviation began again in 1953, there were only nine airports because many old facilities had been turned over to food production. There are now 97. After 1967, the Ministry of Transportation, and then the Ministry of Land, Infrastructure, and Transport (MLIT), developed infrastructure over seven 5-year Airport Development Plans (Ohta, 1999), with MLIT paying 100% of the construction and maintenance costs for airports it owned and half the construction costs for those owned by local governments. Table 1 shows airport classifications in Japan. Before the 2008 New Airport Act was enacted, airports were classified into depending on their functions: Class I for mainly international flights, Class II (A) for domestic trunk routes, Class II (B) for domestic trunk routes and local flights, and Class III for local flights. Airports are now divided according to who administers them: CG, administered by the central government, LG, administered by local governments, and others. The airport finance system in Japan has not changed since 1956, except for cost-sharing between central and local governments. This poses problems. First, with the exception of Kansai, Narita and Chubu airports, which are technically independent business * Corresponding author. Tel./fax: þ81 3 3219 3361. E-mail address: [email protected] (K. Kato). 0969-6997/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.jairtraman.2010.07.001
corporations, airports do not disclose their accounts. All revenue generated by Class I and II (A) airports goes to the national fund for airport construction and maintenance, the Kuko Seibi Tokubetsu Kaikei (Airport Special Account, ASA), from which MLIT distributes capital grants. It works like an interregional capital transfer system in that the profits generated from a few metropolitan airports are used to construct facilities in rural areas. However, the flow of capital is not disclosed in detail. The Ministry of the Treasury only discloses annual figures by region (Honshu, Hokkaido and isolated islands), while MLIT discloses capital flows to metropolitan airports such as Narita, Kansai and Chubu. As Button et al. (2002) states, without any data on airport finances, we lack a common database from which to evaluate individual airports’ financial performance. Secondly, basic airport facilities such as airport terminal buildings and parking facilities are managed separately by each entity. In particular, most of the airport parking spaces at the 21 CG airports are managed by the Kuko Kankyo Seibi Kyokai (Airport Environment Improvement Foundation, AEIF), which is an incorporated foundation (Zaidan Houjin) administered by MLIT, and as such, its account details are obscure. AEIF annual reports are only for internal use, and there is no procedure to compel incorporated foundations to disclose information. Thirdly, the allocation is not based on any common criteria. Since Japan has never had a comprehensive plan for its airport system, construction depended on individual circumstances; e.g. there is no public explanation of why the central government
K. Kato et al. / Journal of Air Transport Management 17 (2011) 88e93
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Table 1 Classification of Japanese airports. New Categories
Former Categories
Name
Number
Provider
Administrator
Airport administrated by Central Government (CG)
Class I
Narita, Kansai, Chubu, Haneda, Osaka(Itami) Chitose, Fukuoka, Naha and others Akita, Obihiro, and others Kobe, Toyama, Okayama and others Misawa, Miho, Komatsu, etc
3 2 19
MLIT, Company MLIT MLIT
Company MLIT MLIT
5 53
MLIT Local Government
Local Government Local Government
15
Defense Agency, US Force, Private
Class II(A) Airport administrated by Local Government(LG) Others
Class II(B) Class III
MLIT Burden Share Basic Facilities (%)
Others
100 100
100% 100%
55 50
less than 55% less than 50%
Table 2 Items included in the analysis. Basic Facilities Revenues Landing Fee Received Rents Others
Parking(CG only)a
Terminal Expenditures Employment Cost Nonpersonal Expenses Rent Payment Environmental Spending Loan Paymentb Depreciation
Revenues Operational Revenue Non Operational Revenues
Expenditures Operational Expense Non Operational Expenses
Revenues Revenue (gross)
Expenditures Cost (gross)
a
Parking fee is free at most of LG airport exclude three airports. Okiaitenkaijigyo (Land Expansion and Noise Mitigation Project) of Tokyo(Haneda) Airport was carried out after 1990s. Total cost was about 1.5 trillion yen loaned from Zaisei-Toyushi (Treasury Investment and Loan). For estimating the balance sheet of each airports, Tokyo(Haneda) airport should only bear the cost excluded nondepreciation investment. Loan payment is 290,000 million yen per year. b
finances 100% of the basic facilities of small airports such as Kushiro, Obihiro, Yamagata, and Yamaguchi-Ube, which have fewer than one million passengers (pax) in 2005, while there were more than one million pax at Okayama and Toyama. Here we examine the financial balances of individual airports. So far, MLIT has only disclosed the balances of the basic facilities of nine Class I and II (A) airports for 2007. There are only two previous related studies looking at these types of accounts. Soeda (2000) estimated the balances of Class I and II (A) airports, but did not include the terminal buildings or parking facilities. Uchida (2009) looked at Class II (B) and III airports. We consider 42 airports including terminal buildings and parking facilities (Koku Seisaku Kenkyukai, 2009). 2. Research premise Based on ASA’s pool system, for a long time, MLIT is not required to disclose the financial status of individual airports, and most local governments do not declare financial data on airports under their management. We estimate the current account balances of Japanese airports excluding Narita, Kansai, Chubu and joint-use, Ministry of Defense and US Military, airports using estimate based on published resource, although revenue and expenditures items are scattered and are not integrated. We look at for 41 airports for 2005, fiscal or calendar year, depending on the data source.1 For the 20 CG airports, the data are derived from Ministry of Treasury and MLIT, 2005e2006 sources; all data being either published disclosed on request. For LG airports, questionnaire covering basic airport facilities and terminal buildings were sent out and 21 responses received. We excluded airports on small islands such as Ishigaki and Miyako. The number of pax for the full sample of airports is 180 million (71% of the national total), and involving 701,000 landing (66% of the total per year).
1
Since Kobe airport was opened in March and New Kitakyushu airport was relocated in February of 2005, we used 2006 data for these airports.
Table 2 shows took into account in the financial analysis. Landing fees, received rents and others are taken as basic facility revenues.2 Table 3 lists the revenues and expenditures of ASA. Revenue from the aircraft fuel tax goes into the general account and 11/13 of the this is transferred to the ASA as earmarked money (92 billion yen in fiscal year 2005). The aircraft fuel tax was implemented to fund airport construction, but because most airports have been completed, there is no reason why the central government should continue to levy this tax. It is thus excluded from our calculations. The flight support centers for the maintenance of flight support systems that include both airway and airport control. The former is common infrastructure for all air transportation, and it is not possible to factor it into the revenue of each airport and it is. Japanese public accounting rules mean that public entities do not have to take depreciation into account, but private accounting rules apply to privatize corporations and that they do. Because the Japanese government does not reveal the costs of investment in each airport, it has to be estimated. We calculate depreciation as follows: To calculate the annual allotment, we extracted the investment at each airport between 1981 and 2005 from the Kokyotoshi Soran List of Public Investments (1981e2005), which lists the budget for public expenditures. The total investment of the central government is divided by the investment share. Landfill and land reclamation costs were excluded because land is a nondeductible asset. In the case of new airports such as Kobe, which have been built on fill in the sea, we estimated landfill costs to be 58%.
2 These items are paid by airlines as airport users. The airlines also pay the aircraft fuel tax and the charges for flight support centers at the national level in addition to those items.
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Table 3 Airport special account (FY 2005, in billion yen). Revenues Provision from General Account General Fund Aircraft Fuel Taxa User Charges Landing Fees Charge for Flight Support Centersa Other Revenue Government’s Loan and Investment Programs
Expenditures 166 74 92 212 87 125 67 51
Airport Investment Metropolitan Airports Other Airports System Enhancement Airport Maintenance Environmental Spending Airways Improvement Airline Security
295 236 44 16 142 16 23 10
Others
10 496
496 a
Excluded from estimates.
We divide the depreciable investment every year by 25. For example, in the case of investment by the central government of 250 million yen (excluding landfill cost) in an airport in 1981, the depreciation is calculated as 10 million yen and summed from 1981 to 2005. In a similar way, we summed 4% of the investment for each year from 1981 to 2005; data before 1980 were not available.
Fig. 2. Balance of accounts excluding depreciation: LG airports.
It is taken as a principle that maintenance and administration costs, except for those related to flight control or national defense, should be borne by beneficiaries who enjoy the spillover effects of airports as local infrastructure. The central government has maintained a great deal of power in the decision-making process for airport investments. We calculated depreciation based on total investment by the central government, meaning that depreciation levels are the result of the central government’s airport policy. In other words, without subsidies from central governments, LG airports might not have been constructed. Local governments bear the maintenance costs for LG airports, but depreciation is not factored into public enterprise accounting. Therefore, if LG airports are to be managed efficiently, local governments must include depreciation in their accounting to follow private enterprise accounting rules, which increases cash flow and investment fund in the future. We find that under public enterprise accounting rules, Tokyo, Osaka, Shin-Chitose, Hiroshima, Matsuyama, Kumamoto and Kagoshima (CG airports),
as well as Toyama, Kobe and Okayama (LG airports) are profitable (Figs. 1 and 2). On the other hand, Fukuoka Airport, one of the largest metropolitan airports, operates has a deficit of about 7.3 billion yen, even when depreciation is excluded. Fukuoka has to pay leases to landowners for the basic facilities plus environmental costs and Okinawa (Naha) has to pay tenancy rate for leases. When depreciation is included, seven profitable airports move from surplus to deficit and only three airports, Osaka (Itami, CG), Shin-Chitose (CG) and Kobe (LG), remain in surplus (Figs. 3 and 4). Tokyo (Haneda, CG) falls into deficit because of its reimbursements to the Zaisei Toyushi Tokubetsu Kaikei (Fiscal Investment and Loan Account) for a planned expansion project, which has been underway for 15 years. Tokyo (Haneda) is the largest domestic airport, and one may assume this would make it a money-generating resource for the ASA system, but its high infrastructure costs put it into deficit. Intercity routes such as TokyoeOsakaeFukuoka compete for pax with the Shinkansen (bullet train). Therefore, MLIT transferred some long-distance domestic routes to Kansai Airport to enhance its financial viability, thereby reducing the number of pax using Osaka (Itami) airport, although it still pays higher environmental fees than Fukuoka. Despite this, Itami is profitable. Kobe airport, opened in 2006 is profitability helped by low reimbursement costs for landfill for the first three years after its opening.
Fig. 1. Balance of accounts excluding depreciation: CG airports.
Fig. 3. Balance of accounts including depreciation: CG airports.
3. Current account balances of individual airports
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Fig. 4. Balance of accounts including depreciation: LG airports.
4. Descriptive analysis In looking at profitability we reclassified CG airports into those that have more than ten million pax (Haneda, Itami, Fukuoka, ShinChitose and Okinawa, CG large: CGL) and those that have less than ten million (15 airports, CG small: CGS). CGL are too large to analyze and are treated as outliers. Landing fees and rents are categorized as aeronautical operating revenues and other fees as non-aeronautical operating revenues. Fig. 5 shows that Japanese airports depend largely measures on the latter. Two-thirds of revenue comes from terminal buildings, particularly among the CGL airports that have no parking charges as revenue. Fig. 6 shows that the component percentages of expenditures vary with airport size; two-thirds of CGL expenditures go to terminal buildings but 42.9% of LG expenditure goes to depreciation with the costs for terminal buildings being relatively small. This is because amongst LG airports total expenditures are low, even if depreciation is the same amount as for CGS airports. This may indicate that the investment in small airports in Japan is excessive relative to airport size.
Fig. 6. Breakdown of expenditures.
There are differences when compared with US airports. The US Federal Aviation Administration (FAA) provides accounts from 1996 for each facility receiving federal funds. There are three features common to US airports that are different from their Japanese counterparts. First, the percentage of revenue from aeronautics is relatively high, as much as 41%, at large hub airports. Second, the percentage of revenue from parking charges is much higher than at Japanese airportsd18% at medium-sized airports. Third, non-hub airports receive 42.5% of federal funds, hence smaller airports receive a larger share of central government funds than their Japanese counterparts. Even airports with more than 1.76 million pax, receive grants from the federal government that account for more than 10% of revenues.
ln(Rev) 23.0 ln(Rev)= 0.991ln(pax)**- 6.428 R2 = 0.8115, n=15 **:1% significance level
Miyazaki Kagoshima
Nagasaki Oita
Matsuyama Niigata Kochi Kitakyushu
Hiroshima Sendai Kumamoto
Hakodate Takamatsu
21.0 Kushiro
Wakkanai
19.0 10.0
12.0
14.0
16.0 ln(Pax)
Fig. 5. Revenue breakdown.
Fig. 7. Pax and revenues of CGS airports.
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K. Kato et al. / Journal of Air Transport Management 17 (2011) 88e93
ln(Exp)
ln(Exp) 24.0
23.0
ln(Exp) = 0.5006ln(Pax)** + 0.8373 R2 = 0.559, n=15 **:1% significance level
ln(Exp) = 0.4802ln(Pax)**+ 0.6214 R2 = 0.7794, n=21 **:1% significance level
Nagasaki Oita Matsuyama
Sendai Hiroshima Kumamoto
Hakodate Kitakyushu
Kobe AomoriAkita Toyama Fukushima Okayama
Kagoshima
Niigata
22.0
Obihiro
Miyazaki
21.0
Kochi
Kushiro
Takamatsu
Hanamaki Saga Noto Shonai Odatenoshiro Tottori Matsumoto Yamagata Iwami
Wakkanai
20.0
Nanki Shirahama
Asahikawa Memanbetsu Izumo
Nakashibetsu
19.0
10.0
12.0
14.0
ln(Pax) 16.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
ln(Pax)
Fig. 8. Pax and expenditures of CGS airports. Fig. 10. Pax and expenditures of LG airports.
5. Econometrics estimates Earlier studies on Japanese local airports estimated that the number of pax more or less determined an airport’s management’s performance (Uchida, 2009). Basic airport facilities have positive external effects on terminal buildings, i.e. more pax will bring in more revenue at the terminal building. No variable emerged as significant, however, because profitable airports are not necessarily the largest, and some airports below the break-even point have more pax and revenue than profitable ones. We analyze revenues and expenditures separately. Figs. 7 and 9 show the relationship between passenger numbers and revenues, and Figs. 8 and 10 show that between passenger numbers and expenditures, including depreciation. Simple linear regression estimates are shown at the corners of the figures. The distributions of LG airports are apparently less than those of CG airports.
However, the results suggest that passenger numbers may be a significant for both airport revenues and expenditures because of larger dispersions of expenditures. The residuals in Figs. 7 and 8 are high for Niigata, Oita, Nagasaki and Miyazaki; differences between actual expenditures and theoretical values that may be due to both geographical and demographical elements and to management structure. Oita, Nagasaki and Miyazaki airports were all constructed earlier than the others, and their terminal management companies held concession providing financial contracts with tenants and concessionaires. Therefore, we used a unitary management form dummy, MF, for Oita, Nagasaki and Miyazaki airports, and zero for the others. This yields equations: Revenues of CGS airports
lnðRevC Þ ¼ 8:2507 þ 0:9218**lnðPaxC Þ þ 0:6571**MF b 2 ¼ 0:921; n ¼ 15; ** : 1% significance level R
ln(Rev) 22.0 Kobe
ln(Rev) = 0.7688 ln(pax)** - 3.537 R2 = 0.8709, n=21 Toyama Akita **:1% significance level
b 2 ¼ 0:793; n ¼ 15; ** : 1% significance level R
Asahikawa Fukushima
Noto
Saga Shonai
20.0
Expenditures of CG airports
lnðExpC Þ ¼ 15:7218 þ 0:4416**lnðPaxC Þ þ 0:5209**MF
Okayama
Aomori
Memanbetsu Obihiro
Izumo Hanamaki
Tottori Odatenoshiro Yamagata Nakashibetsu Iwami Nanki Shirahama Matsumoto
18.0 10.0
11.0
12.0
13.0
14.0
Fig. 9. Pax and revenues of LG airports.
(1)
15.0
16.0 ln(Pax) Fig. 11. Break-even point of CGS airports.
(2)
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93
smallest, Matsuyama, serving 2.7 million pax. However, most CGS airports do not reach the break-even point. Fig. 12 shows the break-even point for LG airports is at around 1.7 million pax, which is slightly larger than the numbers of pax for Okayama and Toyama in Fig. 2, but this is likely influenced by the scale of Kobe airport (2.7 million). 7. Conclusion
Fig. 12. Break-even point of LG airports.
Compared with the results of the single regressions seen in Figs. 7 and 8, the explanations are improved. 6. Break-even method: a simulation We simulate the break-even points for CGS and LG airports to see whether local governments can maintain their facilities under the present system. When depreciation is included (Figs. 9 and 10) the break-even point is 5.2 million pax for CGS and 4.5 million for LG airports: Kagoshima is the only CGS airport that serves more than this number. There are no LG airports serving over 4.5 million pax, suggesting that run a deficit when accounting for depreciation. The results for the expenditures of CGS and LG airports, excluding depreciation, are seen in equations (3) and (4); expenditures are much lower, and the intercepts take a smaller value. Expenditures of CGS airports
lnðExpC Þ ¼ 15:4792 þ 0:4347**lnðPaxC Þ þ 0:6287**MF b 2 ¼ 0:842; n ¼ 15; ** : 1% significance level R
Acknowledgments This study was sponsored by the Koku Seisaku Kenkyukai (Aviation Policy Research Association, Koseiken). The authors wish to express cordial gratitude to Jonathan Gifford and two anonymous referees of this journal for very helpful comments on this paper. References
(3)
Expenditures of LG airports
lnðExpL Þ ¼ 14:4925 þ 0:4750**lnðPaxL Þ b 2 ¼ 0:756; n ¼ 21; ** : 1% significance level R
Before deregulation in 2000, the main objectives of airports in Japan were the maintenance and operation of facilities and the insurance safety. As a result of subsequent liberalization of the airline market, carriers withdrew from non-lucrative routes with the result that Class III airports discounted their landing fees to retain business. Airport administrators for the first time have had to pursue commercial airport management strategies. Our research shows little reason to be optimistic about the ability of airports controlled by local governments to be financially viable. Airports serving more than 5.2 million pax are profitable even when making reasonable allowance for depreciation. Airports serving more than 2.7 million pax could be managed independently if depreciation was excluded, but would be in need of some form of government assistance, or some restructuring of their activities.
(4)
The simulations using expenditure data excluding depreciation are seen in Figs. 11 and 12. The former shows that the break-even point for CGS airports is around 2.8 million pax, which corresponds well with Fig. 1 where seven airports have positive figures with the
Button, K., Gifford, J., Peterson, J., 2002. Public works policy and outcomes in Japan and the United States. Public Works Management and Policy 7, 124e137. Koku Seisaku Kenkyukai, 2009. Kongono Kuko Unei no Arikata ni tsuite (New Perspective on the airport management). Kokyotoshi Soken (Institute of Public Investment), 1981e2005. Kokyotoshi Soran (List of Public Investments). Ohta, K., 1999. International airports: financing methods in Japan. Journal of Air Transport Management 5, 223e234. Soeda, S., 2000. Kuko Keiei (Airport Management in Japan), Institute for Transport policy studies. Uchida, T., 2009. A study on the present situation and future directions of airports operated by the local government. Unyu Seisaku Kenkyu (Transportation Policy Studies Review) 43, 37e46.
Contents lists available at ScienceDirect
Journal of Air Transport Management journal homepage: www.elsevier.com/locate/jairtraman
Current accounts of Japanese airports Kazusei Kato a, *, Toshiyuki Uemura b, Yuichi Indo c, Akira Okada d, Katsumi Tanabe e, Shinichi Saito f, Hitoshi Oguma f, Hirotaka Yamauchi g, Eiji Shiomi h, Madoka Saegusa e, Kazuyoshi Migita h a
College of Economics, Nihon University, Japan Kwansei Gakuin University, School of Economics, Japan c Japan Airport Consultants, Inc., Japan d Faculty of Environmental and Information Studies, Tokyo City University, Japan e Department of Commerce, Keio University, Japan f Institute of Transportation Economics, Japan g Hitotsubashi University, Graduate School of Commerce and Management, Japan h Faculty of Economics, Chuo University, Japan b
a b s t r a c t Keywords: Airport accounts Airport profitability Japanese airports
The paper examines the current account of 41 major airports. When we exclude depreciation costs, only seven airports are profitable. When depreciation is excluded, only three airports are making profits. Airports managed by local governments are very difficult to sustain financially without subsidies. Airports with more than 5.2 million passengers are profitable when depreciation is taken into account, however most local airports have fewer than 2.5 million passengers. When depreciation costs are excluded, airports need at least 2.7 million passengers to be viable. Ó 2010 Elsevier Ltd. All rights reserved.
1. Introduction During World War II, Japan had 150 airfields, mostly for military use, but flying was prohibited under the postwar occupation. When commercial aviation began again in 1953, there were only nine airports because many old facilities had been turned over to food production. There are now 97. After 1967, the Ministry of Transportation, and then the Ministry of Land, Infrastructure, and Transport (MLIT), developed infrastructure over seven 5-year Airport Development Plans (Ohta, 1999), with MLIT paying 100% of the construction and maintenance costs for airports it owned and half the construction costs for those owned by local governments. Table 1 shows airport classifications in Japan. Before the 2008 New Airport Act was enacted, airports were classified into depending on their functions: Class I for mainly international flights, Class II (A) for domestic trunk routes, Class II (B) for domestic trunk routes and local flights, and Class III for local flights. Airports are now divided according to who administers them: CG, administered by the central government, LG, administered by local governments, and others. The airport finance system in Japan has not changed since 1956, except for cost-sharing between central and local governments. This poses problems. First, with the exception of Kansai, Narita and Chubu airports, which are technically independent business * Corresponding author. Tel./fax: þ81 3 3219 3361. E-mail address: [email protected] (K. Kato). 0969-6997/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.jairtraman.2010.07.001
corporations, airports do not disclose their accounts. All revenue generated by Class I and II (A) airports goes to the national fund for airport construction and maintenance, the Kuko Seibi Tokubetsu Kaikei (Airport Special Account, ASA), from which MLIT distributes capital grants. It works like an interregional capital transfer system in that the profits generated from a few metropolitan airports are used to construct facilities in rural areas. However, the flow of capital is not disclosed in detail. The Ministry of the Treasury only discloses annual figures by region (Honshu, Hokkaido and isolated islands), while MLIT discloses capital flows to metropolitan airports such as Narita, Kansai and Chubu. As Button et al. (2002) states, without any data on airport finances, we lack a common database from which to evaluate individual airports’ financial performance. Secondly, basic airport facilities such as airport terminal buildings and parking facilities are managed separately by each entity. In particular, most of the airport parking spaces at the 21 CG airports are managed by the Kuko Kankyo Seibi Kyokai (Airport Environment Improvement Foundation, AEIF), which is an incorporated foundation (Zaidan Houjin) administered by MLIT, and as such, its account details are obscure. AEIF annual reports are only for internal use, and there is no procedure to compel incorporated foundations to disclose information. Thirdly, the allocation is not based on any common criteria. Since Japan has never had a comprehensive plan for its airport system, construction depended on individual circumstances; e.g. there is no public explanation of why the central government
K. Kato et al. / Journal of Air Transport Management 17 (2011) 88e93
89
Table 1 Classification of Japanese airports. New Categories
Former Categories
Name
Number
Provider
Administrator
Airport administrated by Central Government (CG)
Class I
Narita, Kansai, Chubu, Haneda, Osaka(Itami) Chitose, Fukuoka, Naha and others Akita, Obihiro, and others Kobe, Toyama, Okayama and others Misawa, Miho, Komatsu, etc
3 2 19
MLIT, Company MLIT MLIT
Company MLIT MLIT
5 53
MLIT Local Government
Local Government Local Government
15
Defense Agency, US Force, Private
Class II(A) Airport administrated by Local Government(LG) Others
Class II(B) Class III
MLIT Burden Share Basic Facilities (%)
Others
100 100
100% 100%
55 50
less than 55% less than 50%
Table 2 Items included in the analysis. Basic Facilities Revenues Landing Fee Received Rents Others
Parking(CG only)a
Terminal Expenditures Employment Cost Nonpersonal Expenses Rent Payment Environmental Spending Loan Paymentb Depreciation
Revenues Operational Revenue Non Operational Revenues
Expenditures Operational Expense Non Operational Expenses
Revenues Revenue (gross)
Expenditures Cost (gross)
a
Parking fee is free at most of LG airport exclude three airports. Okiaitenkaijigyo (Land Expansion and Noise Mitigation Project) of Tokyo(Haneda) Airport was carried out after 1990s. Total cost was about 1.5 trillion yen loaned from Zaisei-Toyushi (Treasury Investment and Loan). For estimating the balance sheet of each airports, Tokyo(Haneda) airport should only bear the cost excluded nondepreciation investment. Loan payment is 290,000 million yen per year. b
finances 100% of the basic facilities of small airports such as Kushiro, Obihiro, Yamagata, and Yamaguchi-Ube, which have fewer than one million passengers (pax) in 2005, while there were more than one million pax at Okayama and Toyama. Here we examine the financial balances of individual airports. So far, MLIT has only disclosed the balances of the basic facilities of nine Class I and II (A) airports for 2007. There are only two previous related studies looking at these types of accounts. Soeda (2000) estimated the balances of Class I and II (A) airports, but did not include the terminal buildings or parking facilities. Uchida (2009) looked at Class II (B) and III airports. We consider 42 airports including terminal buildings and parking facilities (Koku Seisaku Kenkyukai, 2009). 2. Research premise Based on ASA’s pool system, for a long time, MLIT is not required to disclose the financial status of individual airports, and most local governments do not declare financial data on airports under their management. We estimate the current account balances of Japanese airports excluding Narita, Kansai, Chubu and joint-use, Ministry of Defense and US Military, airports using estimate based on published resource, although revenue and expenditures items are scattered and are not integrated. We look at for 41 airports for 2005, fiscal or calendar year, depending on the data source.1 For the 20 CG airports, the data are derived from Ministry of Treasury and MLIT, 2005e2006 sources; all data being either published disclosed on request. For LG airports, questionnaire covering basic airport facilities and terminal buildings were sent out and 21 responses received. We excluded airports on small islands such as Ishigaki and Miyako. The number of pax for the full sample of airports is 180 million (71% of the national total), and involving 701,000 landing (66% of the total per year).
1
Since Kobe airport was opened in March and New Kitakyushu airport was relocated in February of 2005, we used 2006 data for these airports.
Table 2 shows took into account in the financial analysis. Landing fees, received rents and others are taken as basic facility revenues.2 Table 3 lists the revenues and expenditures of ASA. Revenue from the aircraft fuel tax goes into the general account and 11/13 of the this is transferred to the ASA as earmarked money (92 billion yen in fiscal year 2005). The aircraft fuel tax was implemented to fund airport construction, but because most airports have been completed, there is no reason why the central government should continue to levy this tax. It is thus excluded from our calculations. The flight support centers for the maintenance of flight support systems that include both airway and airport control. The former is common infrastructure for all air transportation, and it is not possible to factor it into the revenue of each airport and it is. Japanese public accounting rules mean that public entities do not have to take depreciation into account, but private accounting rules apply to privatize corporations and that they do. Because the Japanese government does not reveal the costs of investment in each airport, it has to be estimated. We calculate depreciation as follows: To calculate the annual allotment, we extracted the investment at each airport between 1981 and 2005 from the Kokyotoshi Soran List of Public Investments (1981e2005), which lists the budget for public expenditures. The total investment of the central government is divided by the investment share. Landfill and land reclamation costs were excluded because land is a nondeductible asset. In the case of new airports such as Kobe, which have been built on fill in the sea, we estimated landfill costs to be 58%.
2 These items are paid by airlines as airport users. The airlines also pay the aircraft fuel tax and the charges for flight support centers at the national level in addition to those items.
90
K. Kato et al. / Journal of Air Transport Management 17 (2011) 88e93
Table 3 Airport special account (FY 2005, in billion yen). Revenues Provision from General Account General Fund Aircraft Fuel Taxa User Charges Landing Fees Charge for Flight Support Centersa Other Revenue Government’s Loan and Investment Programs
Expenditures 166 74 92 212 87 125 67 51
Airport Investment Metropolitan Airports Other Airports System Enhancement Airport Maintenance Environmental Spending Airways Improvement Airline Security
295 236 44 16 142 16 23 10
Others
10 496
496 a
Excluded from estimates.
We divide the depreciable investment every year by 25. For example, in the case of investment by the central government of 250 million yen (excluding landfill cost) in an airport in 1981, the depreciation is calculated as 10 million yen and summed from 1981 to 2005. In a similar way, we summed 4% of the investment for each year from 1981 to 2005; data before 1980 were not available.
Fig. 2. Balance of accounts excluding depreciation: LG airports.
It is taken as a principle that maintenance and administration costs, except for those related to flight control or national defense, should be borne by beneficiaries who enjoy the spillover effects of airports as local infrastructure. The central government has maintained a great deal of power in the decision-making process for airport investments. We calculated depreciation based on total investment by the central government, meaning that depreciation levels are the result of the central government’s airport policy. In other words, without subsidies from central governments, LG airports might not have been constructed. Local governments bear the maintenance costs for LG airports, but depreciation is not factored into public enterprise accounting. Therefore, if LG airports are to be managed efficiently, local governments must include depreciation in their accounting to follow private enterprise accounting rules, which increases cash flow and investment fund in the future. We find that under public enterprise accounting rules, Tokyo, Osaka, Shin-Chitose, Hiroshima, Matsuyama, Kumamoto and Kagoshima (CG airports),
as well as Toyama, Kobe and Okayama (LG airports) are profitable (Figs. 1 and 2). On the other hand, Fukuoka Airport, one of the largest metropolitan airports, operates has a deficit of about 7.3 billion yen, even when depreciation is excluded. Fukuoka has to pay leases to landowners for the basic facilities plus environmental costs and Okinawa (Naha) has to pay tenancy rate for leases. When depreciation is included, seven profitable airports move from surplus to deficit and only three airports, Osaka (Itami, CG), Shin-Chitose (CG) and Kobe (LG), remain in surplus (Figs. 3 and 4). Tokyo (Haneda, CG) falls into deficit because of its reimbursements to the Zaisei Toyushi Tokubetsu Kaikei (Fiscal Investment and Loan Account) for a planned expansion project, which has been underway for 15 years. Tokyo (Haneda) is the largest domestic airport, and one may assume this would make it a money-generating resource for the ASA system, but its high infrastructure costs put it into deficit. Intercity routes such as TokyoeOsakaeFukuoka compete for pax with the Shinkansen (bullet train). Therefore, MLIT transferred some long-distance domestic routes to Kansai Airport to enhance its financial viability, thereby reducing the number of pax using Osaka (Itami) airport, although it still pays higher environmental fees than Fukuoka. Despite this, Itami is profitable. Kobe airport, opened in 2006 is profitability helped by low reimbursement costs for landfill for the first three years after its opening.
Fig. 1. Balance of accounts excluding depreciation: CG airports.
Fig. 3. Balance of accounts including depreciation: CG airports.
3. Current account balances of individual airports
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Fig. 4. Balance of accounts including depreciation: LG airports.
4. Descriptive analysis In looking at profitability we reclassified CG airports into those that have more than ten million pax (Haneda, Itami, Fukuoka, ShinChitose and Okinawa, CG large: CGL) and those that have less than ten million (15 airports, CG small: CGS). CGL are too large to analyze and are treated as outliers. Landing fees and rents are categorized as aeronautical operating revenues and other fees as non-aeronautical operating revenues. Fig. 5 shows that Japanese airports depend largely measures on the latter. Two-thirds of revenue comes from terminal buildings, particularly among the CGL airports that have no parking charges as revenue. Fig. 6 shows that the component percentages of expenditures vary with airport size; two-thirds of CGL expenditures go to terminal buildings but 42.9% of LG expenditure goes to depreciation with the costs for terminal buildings being relatively small. This is because amongst LG airports total expenditures are low, even if depreciation is the same amount as for CGS airports. This may indicate that the investment in small airports in Japan is excessive relative to airport size.
Fig. 6. Breakdown of expenditures.
There are differences when compared with US airports. The US Federal Aviation Administration (FAA) provides accounts from 1996 for each facility receiving federal funds. There are three features common to US airports that are different from their Japanese counterparts. First, the percentage of revenue from aeronautics is relatively high, as much as 41%, at large hub airports. Second, the percentage of revenue from parking charges is much higher than at Japanese airportsd18% at medium-sized airports. Third, non-hub airports receive 42.5% of federal funds, hence smaller airports receive a larger share of central government funds than their Japanese counterparts. Even airports with more than 1.76 million pax, receive grants from the federal government that account for more than 10% of revenues.
ln(Rev) 23.0 ln(Rev)= 0.991ln(pax)**- 6.428 R2 = 0.8115, n=15 **:1% significance level
Miyazaki Kagoshima
Nagasaki Oita
Matsuyama Niigata Kochi Kitakyushu
Hiroshima Sendai Kumamoto
Hakodate Takamatsu
21.0 Kushiro
Wakkanai
19.0 10.0
12.0
14.0
16.0 ln(Pax)
Fig. 5. Revenue breakdown.
Fig. 7. Pax and revenues of CGS airports.
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ln(Exp)
ln(Exp) 24.0
23.0
ln(Exp) = 0.5006ln(Pax)** + 0.8373 R2 = 0.559, n=15 **:1% significance level
ln(Exp) = 0.4802ln(Pax)**+ 0.6214 R2 = 0.7794, n=21 **:1% significance level
Nagasaki Oita Matsuyama
Sendai Hiroshima Kumamoto
Hakodate Kitakyushu
Kobe AomoriAkita Toyama Fukushima Okayama
Kagoshima
Niigata
22.0
Obihiro
Miyazaki
21.0
Kochi
Kushiro
Takamatsu
Hanamaki Saga Noto Shonai Odatenoshiro Tottori Matsumoto Yamagata Iwami
Wakkanai
20.0
Nanki Shirahama
Asahikawa Memanbetsu Izumo
Nakashibetsu
19.0
10.0
12.0
14.0
ln(Pax) 16.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
ln(Pax)
Fig. 8. Pax and expenditures of CGS airports. Fig. 10. Pax and expenditures of LG airports.
5. Econometrics estimates Earlier studies on Japanese local airports estimated that the number of pax more or less determined an airport’s management’s performance (Uchida, 2009). Basic airport facilities have positive external effects on terminal buildings, i.e. more pax will bring in more revenue at the terminal building. No variable emerged as significant, however, because profitable airports are not necessarily the largest, and some airports below the break-even point have more pax and revenue than profitable ones. We analyze revenues and expenditures separately. Figs. 7 and 9 show the relationship between passenger numbers and revenues, and Figs. 8 and 10 show that between passenger numbers and expenditures, including depreciation. Simple linear regression estimates are shown at the corners of the figures. The distributions of LG airports are apparently less than those of CG airports.
However, the results suggest that passenger numbers may be a significant for both airport revenues and expenditures because of larger dispersions of expenditures. The residuals in Figs. 7 and 8 are high for Niigata, Oita, Nagasaki and Miyazaki; differences between actual expenditures and theoretical values that may be due to both geographical and demographical elements and to management structure. Oita, Nagasaki and Miyazaki airports were all constructed earlier than the others, and their terminal management companies held concession providing financial contracts with tenants and concessionaires. Therefore, we used a unitary management form dummy, MF, for Oita, Nagasaki and Miyazaki airports, and zero for the others. This yields equations: Revenues of CGS airports
lnðRevC Þ ¼ 8:2507 þ 0:9218**lnðPaxC Þ þ 0:6571**MF b 2 ¼ 0:921; n ¼ 15; ** : 1% significance level R
ln(Rev) 22.0 Kobe
ln(Rev) = 0.7688 ln(pax)** - 3.537 R2 = 0.8709, n=21 Toyama Akita **:1% significance level
b 2 ¼ 0:793; n ¼ 15; ** : 1% significance level R
Asahikawa Fukushima
Noto
Saga Shonai
20.0
Expenditures of CG airports
lnðExpC Þ ¼ 15:7218 þ 0:4416**lnðPaxC Þ þ 0:5209**MF
Okayama
Aomori
Memanbetsu Obihiro
Izumo Hanamaki
Tottori Odatenoshiro Yamagata Nakashibetsu Iwami Nanki Shirahama Matsumoto
18.0 10.0
11.0
12.0
13.0
14.0
Fig. 9. Pax and revenues of LG airports.
(1)
15.0
16.0 ln(Pax) Fig. 11. Break-even point of CGS airports.
(2)
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smallest, Matsuyama, serving 2.7 million pax. However, most CGS airports do not reach the break-even point. Fig. 12 shows the break-even point for LG airports is at around 1.7 million pax, which is slightly larger than the numbers of pax for Okayama and Toyama in Fig. 2, but this is likely influenced by the scale of Kobe airport (2.7 million). 7. Conclusion
Fig. 12. Break-even point of LG airports.
Compared with the results of the single regressions seen in Figs. 7 and 8, the explanations are improved. 6. Break-even method: a simulation We simulate the break-even points for CGS and LG airports to see whether local governments can maintain their facilities under the present system. When depreciation is included (Figs. 9 and 10) the break-even point is 5.2 million pax for CGS and 4.5 million for LG airports: Kagoshima is the only CGS airport that serves more than this number. There are no LG airports serving over 4.5 million pax, suggesting that run a deficit when accounting for depreciation. The results for the expenditures of CGS and LG airports, excluding depreciation, are seen in equations (3) and (4); expenditures are much lower, and the intercepts take a smaller value. Expenditures of CGS airports
lnðExpC Þ ¼ 15:4792 þ 0:4347**lnðPaxC Þ þ 0:6287**MF b 2 ¼ 0:842; n ¼ 15; ** : 1% significance level R
Acknowledgments This study was sponsored by the Koku Seisaku Kenkyukai (Aviation Policy Research Association, Koseiken). The authors wish to express cordial gratitude to Jonathan Gifford and two anonymous referees of this journal for very helpful comments on this paper. References
(3)
Expenditures of LG airports
lnðExpL Þ ¼ 14:4925 þ 0:4750**lnðPaxL Þ b 2 ¼ 0:756; n ¼ 21; ** : 1% significance level R
Before deregulation in 2000, the main objectives of airports in Japan were the maintenance and operation of facilities and the insurance safety. As a result of subsequent liberalization of the airline market, carriers withdrew from non-lucrative routes with the result that Class III airports discounted their landing fees to retain business. Airport administrators for the first time have had to pursue commercial airport management strategies. Our research shows little reason to be optimistic about the ability of airports controlled by local governments to be financially viable. Airports serving more than 5.2 million pax are profitable even when making reasonable allowance for depreciation. Airports serving more than 2.7 million pax could be managed independently if depreciation was excluded, but would be in need of some form of government assistance, or some restructuring of their activities.
(4)
The simulations using expenditure data excluding depreciation are seen in Figs. 11 and 12. The former shows that the break-even point for CGS airports is around 2.8 million pax, which corresponds well with Fig. 1 where seven airports have positive figures with the
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