SangYong Lee (Shawn) Ph.D.

International Biz 2 Group, Incheon International Airport Corporation, Incheon, 400-

700 Republic of Korea

Recent Development in North East AsianAir Transport Markets &

Their Impacts on Incheon Airport

CV

Education

Korea Aerospace Univ.,

Aviation Traffic & Logistics Ph.D.

Helsinki School of Economics EMBA

Korea Univ. Mechanics Bachelor/Master

Career

Incheon International Airport Corporation

AOC, Commercial/Airline Marketing,

Corporate Governance, International Biz Group

LG Electronics Co. Research Lab.

Major Area

Research, Analysis, Marketing, Planning

SangYong Lee (Shawn Lee)

: 2005~2010

: 2003~2004

: 1987~1993

: 1999~

: 1993~1999

Contents

Incheon International Airport

Factors Related to Air Transport

in North East Asia

Impacts on Incheon AirportⅢ

Ⅰ

Ⅱ

Incheon Airport1

Cargo Terminal Area

Airport LogisPark

Runway ③

Concourse A

Control Tower

Main Passenger Terminal

Residential Area

Overview of Airport Facilities

IIAC HRAcademy

Runway ③

Shuttle Train

Runway ①&②

5

Grand Opening

OpratingCAT-IIIb

(1st in Asia)

Korea’s No.1 Gateway of import/Export

2001 2003 2005 2006~7 2008

• Best Airport Worldwide

• Cumulative

100 million PAX

• Best AirportWorldwide

• 10th in int’l PAX

• 2nd in int’l Cargo

• Cumulative 10 million

tons of cargo

• a million accident-free

flight

• 2nd phase

Grand Opening

• 15% PassengerTransfer rate

• Best Airport

Worldwide

2009

• Best Airport Worldwide

in ASQ for 5Consecutive

years

Best Airport Worldwide by ASQ for 5 Consecutive years

2nd in Cargo handing and 12th in passenger volume

Initiation of overseas business - Consulting

agreement with Erbil Airport in Iraq

Key Facts & Figures

2010

• Consulting Agreement

with Erbil Airport in Iraq

• Best Airport Worldwide• 18.5% Passenger

• Transfer rate

• 5 million Transfer

Passengers

6

Traffic Figures

2004 2005 2006 20072008 2009 2004 2005 2006 20072008 2009 2004 2005 2006 20072008 2009

149

160

182

211 211

198

2,408

3,1222,997

2,855

213215

223

256242

231

2,605

2,819

7

Gateway to Northeast Asia

35 Cities in China 30 Cities in Japan

66 Airlines, 168 destinations worldwide in 48 countries

including 65 destination in China & Japan (as of July 2010)

73

13

9

41

[ Passengers per continent]

ASIA

AMERICA

Europe

Oceania Africa

5324

22

1

[ Cargo per continent]

ASIAEurope

America

Oceania

(Unit : %)

8

Financial Figures

Liabilities

Capital

Asset

4,129.8

3,794.1

7,923.9

2006

4,227.7

4,213.8

8,441.6

2007

3,593.43,442.7

3,062.32,615.5

6,655.66,058.2

3,137.3

3,129.8

6,267.2

200820052004

(Unit : US$ million)Asset/Capital/Liabilities

Sales Net income(Unit : US$ million) (Unit : US$ million)

2004

2005

2006

2007

2008

681.3

789.0

942.6

1,042.2

818.8

2009 1023.8

3,185.2

3,752.2

6,937.5

2009

2004

2005

2006

2007

2008

144.5

123.4

156.3

222.2

117.1

2009 230.2

9

2in North Eastern Asia

Factors related to Air Transport

11

Economic Recession & Recovery

World Trend

12

Recession

North East Asian Market

[ Total Demands of China, Japan and S.Korea ]

Economic Recession & RecoveryG

row

th R

ate

of P

AX

s

-30%

-20%

-10%

0%

10%

20%

30%

40%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

China

Japan

Korea

Preliminary

CA

GR

Preliminary

CA

GR

Recession

[ Each Demand of China, Japan and S.Korea ]

Gro

wth

Rate

of P

AX

s

13

Open sky in North East Asia

Open Sky between S. Korea and Shandong region

of China

Full Open Sky by 2010 (Planned)

Agreement to expand regions of Open Sky in China

. PAX : 33 routes, frequency 204 a week

→ 43 routes, frequency 401 a week

. Cargo : 7 → 9 routes, frequency 24 → 36 a week

S. Korea and China : Agreement (2006.6.14)

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

Before After

Nu

mb

er

of

PA

X a

year

25.7%

[ Summary]

[ Increased Demand between S.Korea & China ]

14

Open sky in North East Asia

S. Korea and Japan : Agreement (2007.8.2)

No limitation of ACMs and routes

Tokyo is excluded due to the restriction of capacity

Increase of the flights with 5th and 6th freedom via

Japan to America (frequency 3 → 7 a week)

Improvement to notify air fare the government from

“Permission” to “Report”

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

Before After

Nu

mb

er

of

PA

X a

year

5.5%

[ Summary]

[ Increased Demands between S.Korea & Japan ]

15

The change of the structure of the license in Air transport business from regular and irregular to

domestic, international and small business

The diversification of air transport service, the change of the structure of the license, and the

appeasement policy of the condition for a market entrance to promote the participation of new

airlines

The vitalization of Air Taxi business through the introduction of new system for the business

of small airlines with below 19 seats

The abolition of the condition to restrict new entrants in international routes

Before : more than 2 year operations in domestic routes without any casualty & incident

After : more than 1 year operations in domestic routes without any casualty & incident

Deregulation in S.Korea

1st Deregulation for new entrants to international routes (2008.7.11)

2nd Deregulation through revising Civil Aeronautics Law (2009.9.10)

16

Region2004 2014

CAPA Airbus Airbus

U.S.A. 27% 23% 35~40%

Europe 19% 16% 30~40%

Asia 9% 3% 15~20%

Oceania - 35% 45~50%

※ Source : CAPA, Airbus 2005

Rapid Growth of Low Cost Carrier

The prospect of the growth

17

1217

20

2931

35

41

45

51

58

66

Exc. downturn

Inc. downturn

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

+5.2%

+11.5%

17161514131211100908070605040302

IATA forecast recovery

to the original trend after

3~5 years of down turn

2001 02 03 04 05 06 07 08 09 10 2011

+22%

+13%

Resource: ACI Global traffic forecast 2007-2027

PAX demand in Northeast AsiaAnnual number of passenger, million

Prospect of international travel in ChinaAnnual number of passenger, million

Air Traffic Demand in Northeast Asia

18

Expansion of Major Airports

-

-

Chinese government set up and fostered Shanghai Pudong airport,

Beijing capital airport, Guangzhou Baiyun airport as the three international hub

Airports in 10th 5-year plan- Shanghai Pudong : 500K ACMs, 60M PAXs, 5.5M Tons a year

- Beijing capital : 780K ACMs, 82M PAXs, 1.8M Tons a year

Japanese government increased the capacity of Haneda airport (34%),

declared it as a 24 hour operation airport, and fostered it as international hub

airport

The number of international passengers in Haneda is expected to increase from 2 million

in 2008 to 35 million in 2011 if the increased capacity is applied for only international service

The 2nd phase construction in Incheon airport was completed in 2008 and

a new expansion plan has been initiated to catch future demands.

2nd phase : 410K ACMs, 44M PAXs, 4.5M Tons a year

3rd phase : 410K ACMs, 62M PAXs, 5.8M Tons a year (2009~2015)

3 Impacts on ICNin North Eastern Asia

Prerequisites of Hubbing

Countries in North East Asia initiated deregulations as America and Europe

experienced in 1980s and 1990s, which brings in the reconfiguration and

concentrations of networks in hub airports.

Open Sky

Deregulation

Others(Economy,

Populations, etc.)

S.Korea China Japan

China still focuses on the

domestic demand.

Japan is not proactive.

(N/W is structured mainly for

the demand of local province)

S.Korea is ready to move

toward the future in terms of

network evolvement.

20

Airports in North East Asia have strengthened their networks through increasing

frequency as well as the number of cities

- ICN comparatively pursued to enhance the coverage to all over the world which could weaken

the market power in close markets.

2000

2002

2004 2006 2008 2010

2.0

3.0

4.0

5.0

20 40 60 80 100 120 140 160

Fre

qu

en

cy (

AC

M/C

ity

a d

ay)

Cities

PVG

PEK

CAN

ICN

NRT

Network Evolvement

21

Source: InterVISTAS-ga, „the economic impact of air liberalization

Flight frequencyPer city per day

4.0

3.5

3.0

2.5

2001801601400

FCO

MXP

BHX

HAM

GVA

ZRH

2.0

1.5

1.0

0

Destination cityThe number of cities

320300280260240220

VIE

CPH

LHR

FRA

CDG

AMS

Circle‟s diameter: Total

PAX▪ Resulting from the open

sky agreement in 1987,

the most of the

international flight

regulations in EU were

relaxed or removed.

▪ Therefore, European

airlines could conduct

business beyond their

own national hub with

almost non-restriction

▪ This liberalization lead

the fierce competition

of airlines and airports,

so as to make some

airports grow or some

airports decline

“ Regional hub airport”▪ Both roles as a feeder airport of mega hub

airports, and a hub airport for specific

region

▪ 2nd hub for European major airlines or main

hub for minor airlines

“ Regional

spoke airport”

▪ Short-haul

feeder role of

the mega and

regional hub

airport

“Mega hub airport”

▪ Main hub role for European major

airlines

▪ Covers most of the world with a

developed aviation network, based

on the major cities of Europe in

terms of population and business

Network Evolvement (example)

22

0

50

100

150

200

250

300

2000 2002 2004 2006 2008 2010

Inte

rnat

ion

al A

/C M

ove

me

nt

a d

ay

PVG PEK CAN ICN NRT

ICN could have relative competitiveness in international routes because of different

policy by Countries in Northeast Asia

- Japan focused on the demand of internal travelers, which induced several regional hub airports

- China currently does everything to fulfill domestic demand.

23

Network Evolvement

Hubbing; Growth of Transfer PAXs

0

1

2

3

4

5

6

7

8

PVG PEK CAN ICN NRT

Nu

mb

er

of

tran

sfe

r p

assen

gers

(M

illio

n)

2008 2009 2010

* The data in 2010 are provisional. (They are forecasted based on the data of half year)

ICN has to increase the number of transfer passengers as well as O&D passengers

because it does not have many population compared with Chinese airports.

24

Hubbing : Competition in Top 10 Transfer routes of ICN

NRT has relative competitiveness at top 10 transfer routes of ICN and there are no

strong competitions between ICN and Chinese airports in terms of transfer.

0

100

200

300

400

500

600

700

800

900

Nu

mb

er

of

Tra

nsfe

r P

AX

(X

1,0

00)

ICN

NRT

PVG

PEK

CAN

25

Hubbing : Transfer PAXs by Region at ICN

ICN has a geological advantage between North America (NA) and South East Asia

(SEA) in terms of transfer and as a result it has many transfer passenger from/ to NA

The routes of Japan, Europe and China are conspicuous in the aspects of the growth

of transfer passengers. - Recently increased small body planes are good contributorㄴ to attract many transfer passengers

in transfer routes between Japan and China

0

100

200

300

400

500

600

700

800

900

Japan China SEA NA Eu Aus etc

Nu

mb

er

of

Tran

sfe

r P

AX

(X

1,0

00

)

0%

20%

40%

60%

80%

100%

120%

Japan China SEA NA Eu Aus etc

Incr

eas

e o

f Tr

ansf

er

PA

X f

rom

20

05

to

20

09

26

Hubbing : Transfer PAXs by transfer route

0

50

100

150

200

250

300

350

400

450

1.J

apan

_Jap

an

2.J

apan

_Ch

ina

3.J

apan

_SEA

4.J

apan

_NA

5.J

apan

_Eu

6.J

apan

_Au

s

7.J

apan

_etc

8.C

hin

a_Ja

pan

9.C

hin

a_C

hin

a

10

.Ch

ina_

SEA

11

.Ch

ina_

NA

12

.Ch

ina_

Eu

13

.Ch

ina_

Au

s

14

.Ch

ina_

etc

15

.SEA

_Jap

an

16

.SEA

_Ch

ina

17

.SEA

_SEA

18

.SEA

_NA

19

.SEA

_Eu

20

.SEA

_Au

s

21

.SEA

_etc

22

.NA

_Jap

an

23

.NA

_Ch

ina

24

.NA

_SEA

25

.NA

_NA

26

.NA

_Eu

27

.NA

_Au

s

28

.NA

_etc

29

.Eu

_Jap

an

30

.Eu

_Ch

ina

31

.Eu

_SEA

32

.Eu

_NA

33

.Eu

_Eu

34

.Eu

_Au

s

35

.Eu

_etc

36

.Au

s_Ja

pan

37

.Au

s_C

hin

a

38

.Au

s_SE

A

39

.Au

s_N

A

40

.Au

s_Eu

41

.Au

s_A

us

42

.Au

s_et

c

43

.etc

_Jap

an

44

.etc

_Ch

ina

45

.etc

_SEA

46

.etc

_NA

47

.etc

_Eu

48

.etc

_Au

s

49

.etc

_etc

Nu

mb

er

of

Tran

sfe

r P

AX

(X

1,0

00

)

Transfer PAX at ICN in 2009

- Strong competitiveness between NA and SEA (or China) has been constructed thanks to

geological advantage and home carriers‟ operation.

- FSCs comparatively have pursued to enhance the coverage to all over the world which weakens

the market power in close markets.

27

128.6%

28

-18% 10% 6% 18% -1%-24%

PAX decreased due to SARS

Korean LCC launched in 2005

Others

Korean Air (KE) &Asiana Airline(OZ)

2.1% ’03~’09

CAGR

-0.9%

8.7%

LCC market share in S.KoreaAnnual number of passenger, million

24%

7.4

(11.9%)7.2

(15.1%)

8.9

(23%)

11.3

(26.5%)

13.4

(25.4%)

16.1

(28.8%)

14.9

(22.5%)12.2

(18.7%)

54.8

(87.8%)40.0

(84.4%) 29.7

(76.5%)

31.1

(73%)

37.9

(71.9%)

37.1

(66.4%)

47.3

(71.8%) 44.5

(68.2%)

0.2

(0.3%)

0.2

(0.4%)

0.2

(0.6%)

0.2

(0.4%)

1.4

(2.7%)

2.7

(4.8%)

3.7

(5.7%) 8.6

(13.1%)

2002 03 04 05 06 07 08 2009

47.4

38.8

42.6

52.7

55.8

LCCs

65.965.362.4

North East Asia

Development of LCCs at ICN

Development of LCCs at ICN

Thanks to the revision of Civil Aeronautics Law in which no conditions for the

operation of international routes are required, LCCs could start their new

international routes from 2009.

0

10

20

30

40

50

60

0 2 4 6 8 10

Inte

rna

tio

na

l A

CM

s a

we

ek

(o

ne

wa

y)

Cities

Airline Code Airport City ACMs

Jin Air LJ BKK BANGKOK 7

Cebu Pacific 5J CEB CEBU 7

Citilink GA CGK JAKARTA 5

Citilink GA DPS DENPASAR 4

Jin Air LJ GUM GUAM AGANA 7

Cebu Pacific 5J MNL MANILA 7

Jeju Air 7C KIX KANSAI 7

Jeju Air 7C BKK BANGKOK 7

Jeju Air 7C KKJ KITA 3

Airline Code Airport City ACMs

Cebu Pacific 5J CEB CEBU 7

Citilink GA DPS DENPASAR 5

Cebu Pacific 5J MNL MANILA 7

[ LCCs‟ operation in 2008 ]

[ LCCs‟ operation in 2010 ]

2006

20072008

2009

2010

Deregulation;

▪ Civil Aeronautics Law

secures small body aircrafts

and LCCs‟ operation

Circle‟s diameter: ACMs

29

30

03

20%

80%

529

04

24%

76%

2002

13%

576

05

28%

72%

605

06

32%

68%

645

07

35%

87%

664

2008

65%

469

17%

83%

490

+6%

1.1%

24.5%

-1.6%

3.4%

05

29%

71%

912

06

23%

77%

03

919

2002

25%

75%

27%

885

25%

75%

931

04

26%

74%

940

73%

932

07

28%

72%

900

2008

-0%

CAGR

LCC

Others

Unit : Available seats, mn.

Europe and United States

CAGR

LCC market share in EuropeAvailable seats per week, million

LCC market share in the United StatesAvailable seats per week, million

Development of LCCs (Examples)

Strategy for Growth

ICN needs the Integrative Strategy not only to pursue the best hub airport in the

North East Area but also to boost potential demands by LCCs

- Strong Home Carriers

- Geological Advantage

- Open Sky Agreements

- Deregulated Environment

Strength Weakness

Opportunity Threat

- Relative Flexibility among

Countries in NEA

- Plentiful Air Traffic

Demands in Catchment

- Growth of Chinese Economy

- Decentralized N/W of Japan

- Many LCCs (Candidates)

- Insufficient ACMs in short

and medium hauls

- Insufficient O&D demand

- A Slowdown in Economic

Growth

- Insufficient N/W

- Huge Investment to Chinese

Airports

- International ACMs of

Kimpo airport

- New Foreign LCCs

Plentiful Demands

Open Sky / Deregulation

Insufficient N/W

31

Kimpo Airport

0%

5%

10%

15%

20%

25%

30%

35%

ICN SIN KUL HKG NRT FRA CDG MAD AMS DFW LAX DEN ORD ATL

Perc

en

tage o

f p

ass

en

ger

flig

hts RA LCC

▪ Hub airports in America leverage

LCC independent networks,

attracts transfer passengers and

reaches a 30% level of passenger

flights

(ATL leverages both RA and LCC)

▪ Hub airports in Europe are

characterized by a cooperative

system between RA and FSC with

RA transfer rates reaching 30~40%

levels

▪ In Asia, SIN attracts transfer

passengers through RA, KUL uses

LCC independent networks and

HKG uses cooperation between

LCC networks and FSC to attract

transfer traffic

▪ Incheon will have to attract

transfer passengers like ATL and

HKG leveraging both LCC and RA

at the same time

2

0%

10%

20%

30%

40%

50%

60%

70%

80%

ICN SIN KUL HKG NRT FRA CDG MAD AMS DFW LAX DEN ORD ATL

Tra

nsi

t ra

te

Asia Europe America

Asia Europe America

1) Regional Airlines: airlines operating mostly nearby distances2) Based on data from Feb, 2007, major LCC/RA of airports are LCC/RA는 SIN(TR/MI), KUL(AK), HKG(KA), FRA(EW), CDG(YS), MAD(YW), DFW(SY),

LAX(WN), DEN(F9), ATL(FL/EV)

Strategy for Growth ; Options

32

Strategy for Growth ; Options

33

Challenges ; Optimum Network & Key Drivers

KE

OZ

Sky team &

Star Alliance

As is

Two big home carriers are good for hubbing?

Optimum Network Sizefor China & Japan Markets?

KE

OZ

Sky team &

Star Alliance

+

Option1

RAKE & RAOZ

RAKE

RAOZ

KE

OZ

Sky team &

Star Alliance

+

Option2

LCCs

KE

OZ

Sky team &

Star Alliance

+

Option3

RAKE & RAOZ & LCCs

RAOZ

LCCs LCCs

RAKE

Feeding/ Defeeding

Good for hubbing but Potential demand byLCCs ?

More demand by LCCs

Competitions among FSC & LCCs

Feeding/ Defeeding &More demand by LCCs

Economic of Scale atone airport

Conclusions

Recent Development in North East Air Transport Markets

- Air traffic demands in North East Asia (NEA) have been recovered from 2008

- S.Korea came to an agreement of partial Open Sky with China in 2006 and

of full Open Sky Japan in 2007

- S.Korea government initiated the deregulation by revising the Civil Aeronautics

Law; the abolition of any conditions to restrict market entry

- LCCs in NEA are in the initiation stage of market growth curve,

but there is rapid growth in S.Korea (LCCs‟ market share 8.6%)

Network Evolvement in North East Air Transport Markets

- Networks in NEA are expected to grow like Europe and to be segmented to Hub,

Regional Hub, and Spoke

- ICN gains a competitive edge in international ACMs among Airports in NEA

- It is expected to increase more O&D demand rather than Transfer demand in 2010.

34

Conclusions

Impacts on ICN

- ICN takes the advantageous position first with the policy of deregulation & Open Sky

- Main transfer origins (or destinations) of ICN are NA, SEA and China, and

the growth rates as transfer PAXs to (or from) Japan, China and SEA are

conspicuous thanks to the recent increase of short haul operations

- ICN is currently competing with NRT, but ICN is expected to have an edge through

the dense concentration of network

- The operations of LCCs at ICN have been initiated from the middle of 2000s, and

now it is forecasted to explode from 2010

- ICN needs to develop an integrative strategy not only to pursue a Hub airport but also

to secure the potential growth by LCCs

35

Thank youSangYong Lee (Shawn) Ph.D.

International Business 2 Group

Incheon International Airport Corp.

+82 10 4627 0242

mirtofly@paran.com