Are Big Changes on the Horizon in Japan?
The Japanese ground handling service industry may receive a powerful impetus for growth in years to come, thanks to recently announced plans of the national government to double the number of inbound tourists in the country up to 60 million by 2030, compared to 30 million in 2018, according to recent statements of some leading local ground handlers and industry experts.
According to officials, successful implementation of these plans will result in the growth of demand for ground handling services provided at local airports, creating conditions to attract new industry players and investors.
Keiichi Ishii, the Minister of Land, Infrastructure, Transport and Tourism, (a state agency, which, along with the Japan Civil Aviation Bureau is responsible for the development of aviation and the ground handling industry in Japan), says the government expects the number of inbound tourists in Japan to grow up to 45 million people as soon as 2023.
He notes this growth will be associated with the need to add the equivalent of 100 new narrow-body daily flights each year for the next four years. According to Japanese aviation experts, in order to deal with such traffic, serious improvements will have to be made to the country’s ground handling industry, in order to make them more prompt and efficient.
As part of these plans, a particular attention will be paid to raising the quality of provided services and expanding their range. What’s more, the government plans to create conditions for the attraction of foreign investors to the sector and stimulate competition within it. The latter should contribute to a reduction in cost of the provided services in the field of ground handling services across Japan.
Currently, high tariffs for the ground handling services provided in the majority of Japanese airports remains one of the major problems of the industry, which complicates its further development.
This has also prevented the arrival of new ground handling operators to the market – particularly foreign entities, whose presence in Japan, so far, has been relatively low.
At present, the ground handling sector of Japan is mostly dominated by local companies and airlines. Among the leading players are two of Japan’s largest airlines: All Nippon Airways (ANA) and Japan Airlines (JAL). Both of them provide services in the field of ground handling at the majority of the country’s largest airports, including the Tokyo Haneda International Airport (HND), Narita International Airport (NRT), Kansai International Airport (KIX) and Chubu Centrair International Airport (NGO) among others.
The provision of services is usually conducted through their subsidiaries, as their customers are both leading domestic and foreign airlines. As a rule, these subsidiaries can operate in different airports throughout Japan, while their activities are not restricted by their base airports.
In terms of market structure, according to assessments of experts of the Japanese Ministry of Land, Infrastructure, Transport and Tourism, the combined share of both All Nippon Airways and JAL Ground Service, (a ground handling subsidiary of Japan Airlines) is estimated at 62 percent (31 percent apiece), which make them absolute leaders in the market, in terms of value of the provided services.
In the meantime, the share of Swissport – the third largest player in the local market – is estimated at about 12 percent of the market. At present Swissport, along with the Universal Aviation, remain the only foreign providers of ground handling services in Japan.
In regard to Swissport, the company expanded in the Japanese market as far back as 2006. That took place by the acquisition of the local ground handler ShinMaywa Ground Services. Swissport now operates in the majority of Japanese major airports, including Chubu Centrair International Airport, Narita International Airport and Kansai International Airport.
Stephan Kaeser, director and COO at Swissport Japan, says in recent years the company has significantly increased its presence in the Japanese market, which resulted in the addition of several new routes as well as some new airline customers in all five airports of its Japanese stations – among which are Fukuoka, Nagoya, Osaka, Tokyo Haneda and Tokyo Narita.
Kaeser also adds that the company will continue its expansion in the local market within the next several years with plans to open a new station in Okinawa. That was scheduled to commence in September, 2019.
According to assessments of the Japanese Ministry of Land, Infrastructure, Transport and Tourism, at present the Japanese market of ground services is estimated at about $2.3-2.4 billion (USD) in value terms, however, the increase of tourism flows to the country and other factors may contribute to the growth of these figures up to $3 billion (USD) over the next several years.
Implementation of these plans, however, will also depend on the ability of the state plans to stimulate competition in the industry, which is still restricted by the ongoing domination of the largest domestic players, as well as strict rules for doing business in the country, not to mention high tariffs for ground handling services in the local market.
Swissport’s Kaeser also adds the “potential growth can be constrained by the capabilities of a tight labor market as well as the infrastructure at airports as they work to find solutions to deal with the increase in tourists.”
Kaeser, however, expresses his hopes that the current situation in the industry may improve soon, due to the recent talks between the Japan Civil Aviation Bureau (JCAB), ground handlers and airport authorities, “which are aimed at understanding the challenges and develop plans for overcoming them.”
In the meantime, representatives of Universal Aviation remain more pessimistic.
“We think the current condition of the Japanese market of ground handling services is still in the early stage of development,” says Shinsuke Honda, manager, strategic and marketing for Universal Aviation Japan.
“As there will be some international events like the Imperial Enthronement Ceremony (October 2019) and the 2020 Olympics Games and the strong backing of the Japanese state, we predict it will grow in near future.”
In regard to local airports, their market share in the field of ground handling remains insignificant, as the majority of them have never been actively involved in the provision of such services in the past.
Despite the ongoing domination of both Japan Airlines and All Nippon Airways in the local market, many local analysts believe their activities are not associated with any threats of monopolization. This is mainly due to the fact that the number of ground handlers operating in almost each large airport of Japan, is usually varied in the range of four to five companies. The list of major independent ground handling providers includes Showtoku Corporation, Japan Airport Service Corporation, Kansai Air Cargo Center, Haneda Air Ground Handling and some others.
According to analysts, the problem of monopolization remains more pressing for some smaller airports of the country, as the level of competition in their ground handling sectors often remains low. Currently Japan has 76 airports with domestic service, including 29 airports with international service.
