Bouncing back at Kansai, and capturing the growth wave

by Dermot Davitt |

Walking around Kansai International Airport on a beautiful April morning, it’s hard to imagine that less than seven months ago, this was a scene of devastation and destruction.

On 4 September Typhoon Jebi hit the western Kansai region hard, and this airport harder than almost anywhere else. Because of the extreme weather, and its location on a manmade island offshore, despite its extensive sea walls the airport was flooded and closed. Not only that, but the bridge linking it to the mainland was damaged by a tanker in the high winds, cutting thousands of people off, both passengers and staff.

The power of the sea: The bridge connecting the airport to the mainland (left of shot) has only just fully reopened, but most airport operations bounced back quickly after Typhoon Jebi.

It’s to the credit of the management and employees at Kansai Airports (a joint venture between Vinci Airports and Orix Corporation) that a recovery many expected to take months began almost immediately (the airport reopened on 21 September with virtually a full flight schedule) and is more or less complete. Monday this week saw the latest milestone with the full reopening of the bridge to the mainland and access restored.

The DFS-managed Gucci store at Kansai International has proved a strong performer, with the brand one of the hottest luxury names among Chinese consumers today.

The timing is key. It comes just weeks before an extended Golden Week holiday period from 27 April – the extension (from five days to ten) is related to the swearing in of the new Emperor – with many Japanese expected to travel abroad. Outbound travel bookings for the period are well over double what they were last year due to the longer break, reports JTB Corporation (as reported in The Japan Times).

A lovely sakura-themed display inside Maison Christian Dior, opened airside last year in partnership with DFS.

It also comes as Kansai International tries to keep pace with soaring passenger traffic, notably from China and South Korea, which registered barely a dent in the post-typhoon period before visitor numbers returned to year-on-year growth.

For Kansai Airports, maintaining the rate of growth in the commercial business is vital. The consortium’s reliance on non-aeronautical income has risen sharply since it began operating the airport in April 2016.

Kansai Airports has speeded up service at check-outs and added express lines for faster transactions (on fewer than five items), but traffic growth and tight spaces means it is no easy task to meet demand and ensure a good shopper experience.

In the financial year to 31 March 2018 (figures for 2018/19 are not yet available), non-aeronautical income rose by 19% to a record Y119 billion (US$1.07 billion), well ahead of traffic growth of 9%. This meant that the contribution of non-aeronautical to overall revenue came to 58%, up from 55% a year earlier.

Duty free outpaced even this impressive rate of increase, leaping 49% to well over Y40 billion, with other retail and F&B growing more slowly.

The power of Chinese spend here is no surprise. They accounted for a whopping 63% of duty free sales, with Japanese at 16% and Koreans at 8% the other significant contributors by nationality.

This Royce fixture is cleverly replenished from storage behind the shop, rather than from the shop floor. Even at a non-peak hour, this space was crammed with eager shoppers.

Driven by duty free, commercial income is also vital for Kansai Airports’ profitability, which also surged last year. The typhoon effect will likely have some impact in the fiscal year just ended.

But a glance at the shops even in the non-peak mid-morning period underlines why further strong growth appears likely, and also why this location has attracted such intense interest among potential retail partners and brands keen to take a slice of the market.

All of the airside stores are bustling, with the major Japanese beauty houses (and some that are up and coming) attracting a lot of attention. Japanese food & confectionery is another power category here, with brands such as Tokyo Banana, Royce and Ishiya being plucked from the shelves virtually as soon as they are stocked. Indeed, airport-owned KIX Duty Free has even taken to moving these brands to store locations where they can be more quickly replenished, and don’t interrupt the (constant) flow of travellers past these shelves.

Blanc de Blancs (right), Asahi Airport Service (left) and Lotte Duty Free (below); all strong partners for Kansai Airports today. How the multiple concessionaire model plays out in future remains to be seen.

The snaking lines to the checkouts confirm the strong penetration levels, but they also point to a big challenge: ensuring the experience is a positive one in crowded stores at busy times.

The tight layout of the stores, with multiple retail partners each occupying their own space with repetition of product, is not optimal, but a legacy of the pre-Kansai Airports period.

It will take time and fresh thinking before that is resolved, whether it is through new layouts (T2 opened two years ago with a walk-through duty free shop, which may be a template) or a change to the multi-concessionaire approach (a sensitive issue with a blend of well-established local and international players here today).

With plans having been pushed back by some months due to the typhoon, we could see decisions about how the future might look by summer, we understand. And that might usher in a very different future at an airport that is Japan’s flagship for its privatisation model.

*Our full Japan Report will appear in the May edition of The Moodie Davitt Report Magazine, out at TFWA Asia Pacific in hard copy and also in digital format.