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Consortium hopes to create a Northeast Asian hub

TOKYO -- The Tokyu Group has placed a big bet on money-losing Sendai Airport. It is heading a consortium that has purchased a 30-year public-service concession to operate the little-used gateway.

     The consortium's goal is to turn the airport into a Northeast Asian hub.

     The 7.8 billion yen ($64 million) deal marks the first time that the Japanese government has used a public-service concession to sell operational rights to a key piece of infrastructure to the private sector.

     On Dec. 1, Sendai International Airport, a newly established airport operator based in Japan's northeastern Miyagi Prefecture, clinched the deal with the Ministry of Land, Infrastructure, Transport and Tourism to manage Sendai Airport. The entity will start running the passenger terminal building in February, then take over other operations, such as landing fee collection, in July.

     In total, the Tokyu Group has a 54% stake in the new airport operator. Tokyu's railway operating arm, Tokyu Corporation, has a 42% stake. Tokyu Land, advertising arm Tokyu Agency, Tokyu Construction and Tokyu Community also have stakes. General contractor Maeda has a 30% stake, and trading house Toyota Tsusho holds 16%.

     Tokyu Corporation has dedicated 15 employees to the concession. They are currently brainstorming on ways to run the struggling airport during the 30-year term. They have started sharing their vision with airport workers and others.

     Tokyu President Hirofumi Nomoto envisions an airport that is more open to Asia. Under his hub ambitions, the consortium intends to raise the number of domestic and international passengers that go through the airport by about 1 million each for a combined total of 5.5 million by fiscal 2044. Currently, the airport handles 170,000 international passengers a year.

     Tokyu believes there is latent demand from individual tourists. In an attempt to meet this demand, the company will court both domestic and foreign budget airlines. "Over the next 30 years, we will raise the ratio of budget airline passengers to 51% from the current 16%," said Takuya Iwai, general manager of Tokyu's corporate planning unit and president of the new airport operator.

     Budget airlines often use small jetliners, such as the single-aisle Airbus A320, that can only carry so much fuel. As such, Tokyu will try to persuade budget airlines to link Sendai with international destinations up to four hours away.

     Currently, Sendai Airport has flights to and from Seoul, Beijing and three other international destinations.

     As a first step, Tokyu is looking to build boarding gates that can cater to budget airlines. The current boarding gates are designed only for large aircraft. Tokyu is hoping to replace them during the next five years.

     Up to now, the government has set the airport's landing fees. Through the concession, however, the consortium can adjust fees at its own discretion. Tokyu is considering ways to introduce a sliding landing fee schedule that will rise and fall along with demand.

     For example, daytime landings might cost less than night landings, when there is more traffic.

     Tokyu also aims to create a tourism network centering on Sendai Airport to encourage Asian airlines to launch flights to Sendai. As such, it may have buses go from the airport straight to sightseeing spots in the region.

     Fulfilling these hopes will not be easy. Sendai Airport reported an operating loss of about 3 billion yen in fiscal 2013.

     Geography also works against Sendai, which is more than 350km north of Tokyo.

     Still, the new operating company plans to invest 34.1 billion yen over the next 30 years to breathe new life into the airport.

     As part of these efforts, Tokyu has signed an advisory contract with Germany's Munich Airport to learn how to increase traffic and market to airlines. With the participation of the municipal government and Lufthansa, Munich Airport offers advisory services to other gateways around the world.

     In addition, Tokyu is getting financial advice from Australia's Macquarie Group.

     Iwai and other Tokyu executives have also traveled to a number of airports around the globe to pick up management techniques.

     Through meeting with other airport executives, Iwai has concluded that both railway and airport operators have similar corporate cultures, ones that value safety more than anything else.

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