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IIA Success Factors

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IIA Success Factors06



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Title IIA Success Factors
Similar Titles
Material Type Reports
Date 2015
Language Korean
File Type Theme
Subject Industry and Technology
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Abstract

Sub-theme 3 l IIA Success Factors ##MORE_LAYER_BOX##In the video section, you can watch the interview videos about Sucess of Incheon International Airport. The Interviewee is a Kang, Dong Seok and Lee, Jae Hee. Kang, Dong Seok is the first president of Incheon International Airport Corporation and the Minister from the Ministry of Land, Infrastructure and Transport in Republic of Korea. Lee, Jae Hee is the 3th president of Incheon International Airport Corporation##MORE_LAYER_BOX_END##



The success factors of IIA are

1) close cooperation between the airport, government agencies, and airlines;

2) outsourcing and using a tendering system in space rental for private concessions; and

3) a single-till managing system which combines airside and landside operations in one basket. 

##MORE_LAYER_BOX##There are two different facility managing systems: single-till and dual-till. The single-till managing system permits cross-subsidy between the airside and landside sectors across an entire airport. The dual-till managing system seeks self-sufficient management of airside and landside sectors independently.##MORE_LAYER_BOX_END##



Close Cooperation between Airport, Government, and Airlines

There are various organizations involved in passenger and cargo services at a large gateway international airport, including government agencies like customs, immigration and quarantine and employee organizations for the airlines, airport, and subcontractors.

When the passengers appraise the quality of service at the airport, they usually do not differentiate the provider of each specific service, but evaluate the overall quality of total services. Consequetly, securing harmonized cooperation among organizations providing passenger services is essential. Passenger services from government agencies, public corporations and private companies are well coordinated across sectors in IIA.

##MORE_LAYER_BOX##The airport, CIQ institutions, airlines, airport employees, outsourcing companies and tenants have various committees in Incheon airport such as the SMS Committee, Contingency Plan Committee, Service Improvement Committee, VOC Committee, Customers Committee, Culture and Art Committee, etc.##MORE_LAYER_BOX_END##



Outsourcing and Using a Tendering System in Space Rental

In order to increase efficiency and reduce airport operation and management costs, airport authorities outsource auxiliary services, such as routine daily cleaning, and lease terminal space to private businesses through a tendering system. The actual operations of various tasks within IIA are conducted by specialized subcontractors through ‘outsourcing.’ Utilizing outsourcing enables a large entity like IIA to be managed conveniently and achieves cost efficiency by employing a relatively small number of human resources. Management skills within IIA and the good relationship with government agencies, such as customs, immigrations, and quarantines, are also contributing factors in achieving the efficiencies and improving airport service qualities through outsourcing.

Many services in IIA, such as ground services, concessions, and operation of the cargo terminal are provided by private companies. In particular, a tendering system is utilized to rent space to duty free shops and other concessions. This system of space and terminal rental results in high profits and efficiency in the airport’s operation and management. IIA provides relatively new and advanced facilities and equipment required by airlines for flight operations and ground services in and around the airport at reasonable prices. Sufficient facilities and space necessary for passenger services are assigned to each airline and private service provider in a fair manner based on discussions and agreements between IIA and the tenants.



Private Funding

The Korean government provided up to 40% of the US$8 billion in funding to construct IIA Phases 1 and 2, and the remaining 60% was funded by IIA itself and private companies, including airlines and construction companies. The on-going Phase 3 project will last until 2018 and cost about US$5 billion, all of which is self-funded by IIA without any government subsidies. This self-funding is possible thanks to IIA having a higher credit rating than the government, owing to its very high operating profit ratio of more than 60%.

There have been very limited private investments in the airport’s development. These include a few BTO (build, transfer, and operate) projects in IIA, such as cargo terminals built by Korean Air, Asiana Airlines, and DHL. There are two cases of foreign investment in the airport’s development. One is German-based DHL’s cargo terminal and the other is Australian financial company Macquarie acquiring a partial stake in the Incheon Airport Highway Corporation.

The main reason the government allowed private companies to build terminals and invest in auxiliary businesses is because the central government faced budget constraints and wanted to give investment opportunities to facility users. Consequently, the government periodically allows concession holders to invest in the building of their own facilities.



Single-till Management System and the Human Factor

Based on the single-till managing system, the airside charges of IIA, including landing fees, can be cross-subsidized by the high profits from landside and be kept relatively low. While low aeronautical charges help IIA attract airlines, flights, and passengers, the passenger terminal is able to earn high enough profits from passenger sales to compensate for the airside losses.

The human factor is regarded as an important source of IIA’s high efficiency and productivity. Not only CEOs, but most of the employees are highly qualified and strongly motivated with good job disciplines. Surprisingly, there have been no corruption scandals involving government officials or airport employees in during the building and operating of IIA since its beginning 25 years ago.