Soekarno-Hatta International Airport ready to take on regional competition

Photograph by Gunawan Kartapranato, courtesy Wikimedia Commons

Photograph by Gunawan Kartapranato, courtesy Wikimedia Commons

Last week a new 5-trillion rupiah (US$382 million) terminal opened at Indonesia’s Soekarno-Hatta International Airport – also known as Cengkareng Airport (CGK) – in Jakarta, capable of handling about 25 million passengers a year when fully operational by March next year.

The airport is already handling more than 60 million passengers annually, almost three times the 22 million originally planned for. The capacity was subsequently expanded to 38 million. With a large domestic market, CGK ranked as the world’s 17th busiest airport.

Indonesian officials said CGK would be able to rival the neighbouring airports of Changi (Singapore) and Kuala Lumpur International (KLIA) (Malaysia) in attracting international passengers to transit at Jakarta. Rivalry in the region is to be expected. Changi has long been the indisputable airport of choice for transit and transfer traffic, and CGK is increasingly looking at retaining traffic out of Indonesia for the long haul direct from its base. Why, for example, should an Indonesian travel to London via Changi and not direct from CGK?

Changi has the edge in cutting edge technology, a reputation for efficiency and excellent customer service, and a wide spectrum of connectivity. Whereas in the past, its closest rivals in the region used to be KLIA and Bangkok’s Suvernabhumi (Don Muang before that), the challenge today comes from farther afield in Hong Kong International (HKIA) and Dubai International. It tells one things: the home-based carrier plays an important role in enhancing the advantage of the airport – Singapore Airlines in the case of Changi, Cathay in the case of HKIA and Emirates, Dubai International. So CGK may get a boost from Indonesian flag carrier Garuda as it continues to renew and grow.

Changi for one does not rest on its laurels as it continually upgrades and expands its facilities. But make no bones about CGK’s ambition. To put it more modestly, Ituk Herarindri, director of facilities of Angkasa Pura 2 which operates CGK, said: “We are planning it to be a hub like Singapore and Kuala Lumpur.”

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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.

Changi Airport feels the heat

Courtesy Changi Airport Group

Courtesy Changi Airport Group

Singapore Changi Airport is feeling the heat of competition, which has pressured the world’s best airport (Skytrax survey 2015) to cut airport charges for airlines and introduce incentives for ground agents. The airport admits to the increased competition posed by airports such as Hong Kong International (HKIA) and Dubai International.

Airlines operating large aircraft (weighing over 360 tonnes) can expect discounted landing fees of up to 5% from May, in addition to existing rebates of 50% for long haul flights of more than nine hours which will continue to be in force until Mar 31 next year. Current discounts of 50% on aircraft parking and 15% on aerobridge charges will also be extended to Mar 31 2017.

Interestingly, the slate of concessions will benefit not only the airlines but also ground handlers and transit travellers.

Handling companies Singapore Airport Terminal Services and Dnata (previously Changi International Airport Services) will enjoy a 20 per cent rebate on flight catering franchise fees and a similar discount for ground-handling fees from May until Mar 31, 2017.

Transit passengers will pay a lower passenger service fee from July 1, a hefty reduction from S$9 (US$6.82) to S$3. Departing passengers pay a fee of $S34.

Changi Airport Group (CAG) chief executive officer Lee Seow Hiang said: “Changi Airport’s success is very much dependant on the contributions of our airport partners, including airlines and ground handlers. Notwithstanding lower fuel prices, the operating environment in the near-term remains challenging for the region’s airline industry. Likewise, there are also tough conditions for our ground handlers. They face severe manpower constraints which may affect their ability to maintain the high level of service and efficiency expected by airlines and their passengers.”

A good case no doubt of landlord and agents working closely together to the benefit of users, but very clearly, this is about the survival of the airport Changi. Mr Lee added, “We work with them to achieve success and growth of their operations at Changi Airport.”

While Changi stands head and shoulders above its immediate neighbouring airports such as Kuala Lumpur International (KLIA) and Bangkok’s Suvarnabhumi Airport in terms of infrastructure, facilities, efficiency and service, it is no longer endowed with guaranteed business as aviation geography shifts to include competition wider afield from airports outside the Southeast Asian region such as HKIA and Dubai farther away. These hub rivals are as well equipped and offering equally attractive propositions for both airlines and travellers.

Take, for example, the kangaroo route. Qantas has shifted its hub from Singapore to Dubai, which is repositioning itself as the centre of the aviation world with connections to Europe, Africa, the Americas, the Middle east and Asia. Where once Middle East airports such as Bahrain and Abu Dhabi were positioned as necessary technical stops, Dubai today is able to leverage on advanced long range aircraft technology to offer a one-stop hop competing with Changi.

Another example is how HKIA is positioning itself as more than just a door into the massive China market but the Asian gateway for transpacific traffic.

Changi is therefore becoming increasingly challenged as a hub airport that relies heavily on connecting and transit traffic and its ability to extend its traffic hinterland, the very reason why it is paying a lot of attention to such travellers and constantly upgrading its facilities in its promotion of the airport as an attraction or destination in itself, the much-hyped airport city concept. It is easy to see why Changi is the world’s best airport, the way that travellers are pampered even for a short layover, such attention becoming even more critical if they have to sit through long hours of waiting.

However, if being the world’s best airport is not enough to stave off competition from rival airports, ultimately cost becomes the swing vote for operators. Airlines whose business is largely transit traffic may choose to stop between destinations where the cost is lower, assuming all other essential factors that matter have been reasonably satisfied. That includes good connectivity that helps the operators to avoid more costly stopovers, and today’s proliferation of codeshare arrangements has certainly facilitated such options. Changi’s concessions granted to large aircraft and long haul flights demonstrate its desire to retain and attract international traffic through its hub.

A simple comparison of the published fees for Changi (pre-discounted) and Dubai show the former to be more costly, charging for example twice or more as much for landing, say, a 100-tonne aircraft. Changi also charges a minimum base rate of equivalent US$39 to US$78 for parking whereas Dubai offers free parking for up to three hours. Aerobridge use for a 450-seat aircraft at Changi costs the equivalent of US$400 compared to Dubai’s equivalent of up to US$266 (including security services if needed and fire coverage).

Not keeping its cost down to be competitive may also reduce Changi’s attractiveness as the airport of choice for regional flights when cheaper alternatives are only a hop away. The airport continues to thrive on the growth of budget carriers as regional skies become more liberal, but this also means the potential of increased competition from cheaper secondary airports. Malaysia recently announced plans to revitalise Sendai Airport, which is a stone’s throw from Changi, starting with a new carrier named flymojo to be based there. In time to come, Changi may be pressured into re-examining its non-discriminatory handling of legacy and budget carriers within the same terminal (after the short life of a separate budget terminal which has since made way for the construction of a new non-specific terminal). However, instead of making it less attractive for low-cost carriers, it seems Changi is making it more attractive for the big long haul operators through its plate of rebates.

What more can you ask when excellent facilities are matched with competitive rates? It looks like an attractive package. Changi, as any airport, must now understand that geographical advantages can shift. The aviation landscape is constantly changing, influenced by not only technological advances but also political and commercial relations. KLIA and Suvarnabhumi may well revive an erstwhile threat to Changi’s continuing growth. Or another airport in the region. There is good news and there is bad news. While airports too can contribute to that shift, it is not improbable that a threatened incumbent may be able to do something timely to check the erosion of its importance. That’s the challenge for Changi.

This article was first published in Aspire Aviation.

Airport rivalry: To be the world’s best or busiest

WHICH honour stands an airport in better stead – the world’s best or busiest, if it isn’t both? According to Airports International Council, Dubai International is today the world’s busiest airport for international passenger traffic, overtaking London Heathrow. But the Middle East airport did not even make it to the top three positions of the annual Skytrax’s World Best Airport Survey in the last five years, but was ranked eighth in last year’s category of airports serving at least 50 million passengers.

Dubai handled 68.9 million passengers compared to Heathrow’s 67.8 million. Hong Kong International (HKIA) was third with 61.9 million. Making up the top five were Charles de Gaulle of Paris (58.1 million) and Amsterdam Schiphol (54.2 million). Singapore Changi, which was Skytrax’s best airport in three of the last five years and closely rivalled by HKIA and Korea’s Incheon, slipped from fifth to sixth place with 53.2 million, followed by Frankfurt (52.6 million), Incheon (43.5 million), Bangkok’s Suvarnabhumi (37.0 million) and Turkey’s Istanbul (36.9 million). 

Is there a relationship between being the best and being the busiest?

Yes, to some degree. Being the best is the credential you flaunt to enhance your status. Driven by the competition among regional rivals, this works like a repeated circle of cause and effect as airports pile on the frills to differentiate themselves. The Asian trio of Changi, HKIA and Incheon which dominate the top ranks is a clear example of the competition. Each airport is a “city” in its own right, offering a range of facilities and services outside the ambit of the traditional airport model. Changi has a swimming pool for travellers who wish to soak in the tropical sun. Dining at HKIA is something to beat. At Incheon, foreign travellers may indulge in cultural art and craft activities free of charge. At all three airports, if you can afford the time and money, it is shop until you drop. Now Changi is upping the ante with a S$1.7 billion (US$1.4 billion) Project Jewel upgrading programme that will feature a bio-dome complex housing an indoor waterfall, a lush garden and many more shops. Targeted for completion in 2017, this will make Changi a world showcase airport. (See Changi Airport raises the bar to be world’s best airport, Dec 18, 2014)

But surely achieving the best airport accolade cannot be an end in itself but a means to attracting more customers, both airlines and their passengers. Changi, HKIA and Incheon may be said to have done well in relating both aspects. All three airports are efficient, well-connected and offer an interesting if not comfortable respite for the transit passenger. But it is HKIA that is leading the race, as Asia’s busiest airport for international passenger traffic. HKIA’s volume grew more than 6% last year, compared to Changi’s 2%. Incheon’s traffic increased by 7.8%. Interestingly, Suvarnabhumi suffered a drop of 9.4%, in no small part attributed to the unstable political situation in Thailand in the past couple of years.

Geographical advantage may shift

Changi blamed its slower growth on geopolitical concerns that have reduced traffic to the region and through its airport. Leisure traffic to the region usually includes a stopover in Singapore and Changi is strategically positioned to fan out to neighbouring countries and tourist spots. However there are more reasons for Changi to be concerned about. Changi (including its predecessor) has since its inception thrived on the geographical advantage of being at the crossroads between Asia Pacific and Europe. But it should not take that advantage for granted. HKIA, situated at the doorstep of the large China hinterland, is competing with Changi as the gateway to the rest of Asia as well. In fact, any neighbouring airport such as Suvarnabhumi and Kuala Lumpur International (KLIA) could geographically compete effectively with Changi as the regional hub, but Changi`s excellent infrastructure and use of cutting edge technology continues to hold sway over them. Unfortunately Changi`s hub status has also been affected by more airlines operating direct flights between destinations, although it may find consolation in the higher growth of budget operators in recent years.

Dubai International, Courtesy AP

Dubai International, Courtesy AP


Technological advances in long range aircraft design have also shown how geographical advantage may shift. In the early jet era, Middle East airports such as Bahrain and Abu Dhabi were little more than necessary technical stops for flights between Asia/Australiasia and Europe. Qantas used Changi as its hub for traffic on the kangaroo route, skipping the Middle East. However, Dubai manages to reverse the region’s erstwhile misfortune to become the one-stop alternative to Changi, resulting in Qantas shifting its hub from Changi to Dubai in 2013. This arose from an agreement between Qantas and Emirates Airlines that allows Qantas customers to connect flights on Emirates onward to destinations in Europe, the Middle East and Africa. This has dented the Changi hub status somewhat, and Dubai has stepped up the competition positioning the airport as the hub for traffic from North America as well.

Changi should feel flattered by Dubai’s emulation in the rivalry, the way that Singapore Airlines (SIA) could be proud as the model for the young Emirates. Both Changi and Dubai are continually expanding and upgrading, offering almost similar facilities right down to Changi’s lush tropical foliage and Dubai’s Zen gardens. While Changi continues to be the darling of transit and transfer travellers, Dubai is working to its advantage its proximity to Europe, West Asia and Africa; the lower airport charges that it levies on both airlines and their customers compared to Changi; and the aggressive expansion of Emirates, no less its reputation as one of the world’s best airlines, to bring more passengers to the home airport whether directly or through network connectivity. Indeed, the choice of airport is more an airline’s prerogative, much less the decision of travellers although increasingly the “airport city” concept in the design of a modern airport aims to pamper the passenger with lavish non-aviation facilities, services and activities, promoting it as a destination in itself.

Making to the list of world’s best airport makes good promotion material. No doubt it gives the airport a competitive edge to also boost the odds of making it to the list of world’s busiest airport. But it is no guarantee of a placing. London Heathrow which held the top spot for years until dethroned by Dubai is congested and continually bursting at its seam, not quite user friendly and far from being a scream compared to many Asian airports. Yet it is almost every airline’s dream to fly there, not for non-aviation frills but for similar operational reasons such as infrastructure and connectivity that have favoured Changi, HKIA and Dubai. While working at being best as encompassing efficiency, service orientation and lavish facilities is a means to an end, how much that end justifies the means will be reflected in the traffic volume the airport is able to attract consequently.

It looks like Dubai intends to maintain its lead as the world’s busiest airport lest Heathrow resurges. It has gone past an earlier goal of beating Changi at the number game. CEO of Dubai Airports Paul Griffiths said: “Looking forward to 2015, the prospects remain exceedingly bright, and we expect to maintain the growth achieved this year in the next 12 months. Therefore Dubai Airports continues to invest in world-class facilities to meet this demand, including the opening of the new Concourse D in the first half of next year.”

This article was first published in Aspire Aviation.

Does Sydney need a second airport?

AUSTRALIA’s prime minster Tony Abbott’s decision to develop Sydney\s second airport in Badgerys Creek met with much enthusiasm from the business community, including national carrier Qantas and rival Virgin Australia – with the exception perhaps of the owner of existing Kingsford-Smith Airport who by its own study and master plan shows that Kingsford-Smith will have the capacity to meet the demand for the next 20 years.

But for Mr Abbot, “this is a decision that has been shirked for too long.” The debate has been going on for 45 years as prime ministers came and went, ever since Badgerys Creek in western Sydney – about 56 km from Sydney’s business district – was identified as a potential site in 1969. Sydney’s current airport, Kingsford-Smith, is situated 7 km south of the city center.

Kingsford-Smith Airport, Courtesy commons.wikipedia.org

Kingsford-Smith Airport, Courtesy commons.wikipedia.org

By all accounts, Sydney needs a bigger airport, if not a second one. Passenger traffic out of Sydney is expected to grow from 40 million to 87 million over the next 20 years and to 165 million by 2060. However, the difficulty with planning an airport is the lead time; you cannot wait till the clouds in the crystal ball clear to start. Hence some gateway airports such as New York, London, Hong Kong and Singapore seem to be always under constant construction. The cost of delay may be enormous.

Apart from the forecast of traffic growth, Mr Abbott’s administration may be driven by other economic considerations. Construction of the A$2.5 billion (US$2.3 billion) airport, which is expected to commence in 2016, will create 4000 jobs and introduce even more jobs on site when the airport becomes operational and in related industries of up to 35.000 by 2035. Facilities-wise, Badgerys Creek may not be subject to the night-time curfews that restrict flights from operating between 11:00 pm and 06:00 am at Kingsford-Smith. Deputy Prime Minister Warren Truss said: “If Sydney is to be a city that is able to compete internationally, then it will have to have airport services that are available 24 hours.”

Qantas chief executive Alan Joyce said: “The role of second airports has been well established in several of the world’s major capitals. Sydney is the key gateway for air traffic in and out of Australia.” However, Mr Joyce should know that with the exception of New York, which is served by three equally well-used airports – JFK International, Newark and La Guardia – no other city is as well served by two or more airports, not even London although secondary airports such as Gatwick and Stansted may help relieve the congestion that it increasingly experiences. A more likely example is Tokyo in Japan, which is served by both Narita and Haneda, but clearly Narita has greatly reduced the importance of Haneda as an international gateway.

City airports are apt to face limitations on their ability to expand, hence many cities have developed farther away second airports (not secondary airports) which then become the primary airports by design. Examples abound, particularly in Asia, such as Bangkok’s Suvarnabhumi vs predecessor Don Muang, and Kuala Lumpur’s Sepang (officially Kuala Lumpur International Airport) vs predecessor Subang (Sultan Abdul Aziz Shah Airport). Erstwhile airports then are downgraded to handle low-cost flights and charters, or converted into military bases if not closed. However, the nature of the air travel business is such that for many operators even if they are merely flying third and fourth freedom flights, connectivity is an important aspect. Hence even for some low-cost carriers, the preference is to be where all the other carriers pass through. Singapore`s Changi Airport which opened a Budget Terminal for low-cost operators in 2006 closed the facility in 2012 to make room for a new international terminal; budget carriers are now housed alongside full service airlines.

Yet there are good reasons why some operators may prefer to operate out of secondary airports, to avoid the prohibitive costs at primary airports, particularly if they are thriving on a sizeable market of strictly end-to-end traffic. London Gatwick ofr one is Europe`s leading airports for such flights.

It is not clear how Badgerys Creek will complement Kingsford-Smith. Unless the dual concept works, the next question to ask therefore is whether Badgerys Creek will replace Kingsford-Smith as Sydney`s primary gateway airport. The ambiguity will continue to question whether Sydney really needs a second airport, even though the tribe has spoken.