Changi boosts capacity to combat competition

Courtesy CAG

Courtesy CAG

Singapore Changi Airport does not hide its ambition to be the region’s hub airport, and it is not sparing any effort including spending lots in holding on to that dream. Works are in progress for a fourth terminal, costing S$1.3 billion (US$949 million), to be completed by the last quarter of 2017, and this will be followed by the construction of a fifth terminal to be fully operational by 2025.

As competition among regional airports intensifies – the region being redefined in this age of long range aircraft to include Middle East airports such as Dubai International – it looks like creating capacity within impressive architectural structures complete with the ultimate in creature comfort and distractions (or attractions, so to speak) is the answer to staying ahead of the competition. That has been evidenced to a degree by Changi consistently winning awards as one of the world’s best airports.

Indeed, no airport is more passionately engaged in continually expanding and upgrading its facilities than Changi. Terminal 4 will add another 16 million passengers per year to existing capacity at three terminals of 66 million passengers. With the planned capacity of Terminal 5 to handle up to 50 million passengers, this will give Changi a total capacity of 132 million passengers by 2020. Terminal 5, according to Changi Airport Group (CAG), is set to be one of the largest terminals in the world if not third after Dubai and Beijing. And it looks like the project does not end there in land scarce Singapore. CAG said in its statement: “There will be land for subsequent expansion.”

There’s a lot of conviction there, and optimism no less. Last year Changi handled 55.4 million passengers, which means the airport was operating under capacity of close to 20 per cent. But that is not an issue of concern; viewed positively, Changi is well equipped to assimilate any unprecedented growth surge without bursting at its seams. The numbers for December looked good, and it is an optimistic 2016 ahead. Not having enough capacity to net the growth would be the greater evil. Besides, planning ahead, the extra room is to be expected. Then again there is the argument that capacity creates growth, and considering the lead time in airport development, Changi will not be caught short on supply. Of no lesser influence are the plans of competing airports such as Dubai to increase its capacity from 80 million to 250 million passengers, and Korea’s Incheon Airport similarly from 80 million to 145 million passengers.

The real issue, however, is whether the excess capacity is realistic vis-à-vis without creating uneconomical white elephant space. Historical data show Changi growing at an average rate of 2.85 per cent from 2011 to 2015.
Of course, convenient straight line extrapolation can be off the mark when the near term is expected to perform above average. Going forward, Changi’s growth is likely to be higher as demand for seats rises on the back of an improved global economy. According to the International Air Transport Association (IATA), air travel will continue to accelerate and expand by an average of 5.3 per cent this year, which is higher than Changi’s best year in recent times. Asia-Pacific along with Latin America and the Middle East will see the strongest passenger growth, with China leading the field, growing above the global average. Changi will need to target an annual growth rate of about nine per cent over the next two years to maintain its current level of overcapacity by the time Terminal 4 is operational. Whether that is a reasonable buffer is a different issue and dependent upon how CAG visualises the competition, but consider how Terminal 5 will add another 50 million passengers less than a decade down the road.

By comparison, close rival Hong Kong International Airport (HKIA) grew 8.1 per cent last year to reach 68.5 million passengers, which is 23.6 per cent higher than Changi’s number. HKIA is expected to continue to grow at the same rate, particularly with the rising demand for air travel in China, which, according to IATA, will account for 193 million (of which 34 million will be travelling internationally) or nearly a quarter of the 831 million new passengers in its forecast. Situated at the doorstep of mainland China, HKIA has the edge over Changi, which will also benefit from the Chinese yen to travel abroad with Singapore as an attractive destination and a convenient stopover hop to other destinations. What has become more challenging for Changi is HKIA’s increased positioning as the gateway to Asia for trans-Pacific traffic.

The Asia-Pacific region itself is expected to add some 380 million passengers both domestically and internationally. Changi, which has experienced double-digit growth in budget traffic in recent years that outperformed full-service airlines, will benefit from regional traffic particularly with the long overdue full implementation of the Asean Open Skies. Connections with secondary airports will boost the number through Changi, whose top ten city links by passenger traffic in 2015 were all within Asia with the exception of Sydney at the bottom of the list (unless as some Australian politicians would have preferred it to be considered more appropriately aligned to the Asian economic bloc). Jakarta, Bangkok, Kuala Lumpur, Hong Kong and Manila are ranked the top five in that order.

However, as a hub airport which is highly dependent on connecting traffic, Changi is challenged by increased non-stop flights between destinations for the long haul and by alternative hubs, its most notable loss being the shift in 2013 by Qantas for its Kangaroo Route flights to stop at Dubai instead of Changi. Dubai has gained significant hub status for connections to not only Gulf destinations but also airports in Europe, Africa and the Americas. Changi’s competition used to be limited to nearby airports such as Bangkok Suvarnabhumi (since Don Muang) and Kuala Lumpur International (since Subang), not even including then Hong Kong Kai Tak (before its successor at chap lap Kok), the competition has widened to as far away as Dubai, which has emerged as Changi’s biggest threat. The Middle East airport, which is home to Emirates Airlines, boasted to have surpassed London Heathrow when it reported 11-month passenger traffic of 70.96 million passengers last year. That feat embraced an earlier victory in surpassing Changi. Notably, both HKIA and Dubai are handling more passengers than Changi.

To meet the challenges, Changi announced it has launched several initiatives to boost air traffic management capabilities and capacity. Indeed, as Singapore Senior Minister of State for Transport said, “It is not going to be enough just to build airport capacity and have lots of room for airlines to move in and out, because if you don’t have the air traffic management capabilities, you won’t be able to deal with the capacity.”As an example, Changi reduces the separation between airlines to allow more flights to land and take off. By the end of the next decade, Changi could handle 700, 000 flights a year, twice as many as it is handling presently.

CAG chief executive Lee Seow Hiang said: “2015 was a year of two halves for Changi Airport. Following 2014, which saw a number of airline incidents in the region and depressed yields for many regional carriers, we had a relatively weak first six months with flat growth for the period. Nevertheless, we pressed on to actively woo new airlines and seek growth opportunities with existing ones, and our efforts have yielded some positive outcomes.”

Last year Changi welcomed eight new carriers which are largely regional and no-frill operators, including Batik Air, Thai Lion Air and Myanmar National Airlines. Ten new points including Lucknow in India and Luang Prabang in Laos were also added to its network. More links including Nadi by Fiji Airways and Dusseldorf by Singapore Airlines are in the offing.

Mr Lee added: “Changi Airport is well placed to capture future growth with our expanding network, including many secondary cities, to key markets like China, India and Indonesia. We will continue to work closely with our airline partners to establish new connections to develop the Singapore air hub and better serve our passengers.”

So much for the optimism and with the industry blessed with favourable economic factors such as the low fuel price and the region’s growing affluence and its untapped tourism potential, this year and the next leading to the opening of the new Terminal 4 certainly look like exciting times of expectations for Changi. With so much money sunk into the projects, naturally there will be concerns about costs among users. Budget carrier Jetstar Asia CEO Barathan Pasupathi said: In 2016, even though fuel prices have come off in the market, our paramount challenge in Singapore is cost relative to Southeast Asia. For Singapore which is putting so much of investment in capital expenditure and in investments into airports – with Terminal 4, Terminal 5 (and) Runway 3, it’s going to be very important to find a model where Singapore is cost competitive as a hub.”

However you view Changi’s ambition, the airport will be an aviation jewel of showcase reputation. Not difficult to figure out if that in itself is a significant driver in the race to be the world’s best.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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