Implications for Airport Development in Malaysia

A. Current Performance of KLIA

According to the Ministry of Transport, as of 2008, there are 50 foreign airlines and three fullfreighters (UPS, Fedex and Cargolux) operating at KLIA. Passenger traffic (excluding transit passengers) has grown almost four fold since its inception in 1998 (6.4 million ppa) to 23.7 million ppa in 2006 (Ministry of Transport statistics, www.mot.gov Accessed 2 May 2008). Cargo handled increased (excluding cargo in transit) slightly more than four fold from 159,741 tons in 1998 to 672,888 tons in 2006.

KLIA won the Airport Service Quality (ACI-ASQ) Award for the World's Best Airport in the 15–25 million ppa category for three consecutive years from 2005–2007. It was also voted the Best Airport Worldwide and Best Airport in the Asia Pacific region in the same award. Its Low-Cost Carrier Terminal-KLIA (LCCT-KLIA) was named by the Center for Asia Pacific Aviation (CAPA) as the Low Cost Airport of the Year in 2006).

Despite the improvement in the performance of KLIA as an international airport, it is by no means a regional hub. Table 8 [ PDF 28.8KB | 1 page ] below shows transit passengers constitute a mere 2–3% of the total passengers utilizing the airport while no transit cargo is handled at KLIA. The transit cargo in Malaysia utilizes mainly the international airports at Penang and Kuching.

Nonetheless, since KLIA is increasingly becoming more competitive, the attainment of a hub status will enable the country to capture gains from airport services as well as improve the returns to its investment in the airport. It is also possible that this is part of the risk management strategy of the country in order to reduce its reliance on others. However in this endeavor, the government faces severe challenges from its neighboring countries as shown in the section below.

B. ASEAN Competitors

The comparison here will be analyzed for Malaysia, Singapore and Thailand only as all three are the most likely member countries that will ratify the implementing protocol for Open Sky in ASEAN by the end of 2008. They also have relatively well-established international airports at their capitals while their national and low-cost carriers are among the most competitive in the region.

1. Airports

Government investment in infrastructure to boost the competitiveness of their airports is a strategy that is also used by the other major airports in ASEAN. Within ASEAN, dominant airports have for a long time been Bangkok and Singapore as these two airports are strategically located geographically to capture the European and Northeast Asian traffic and interregional connections. Both Singapore and Thailand have also invested heavily in the infrastructure of their respective international airports to enhance their respective competitiveness as hubs in Southeast Asia.

Singapore, for example, completed a S$240 million upgrade of its Terminal 2 just before Thailand opened its new international airport in 2006. Subsequently, Singapore opened its S$1.75 billion Terminal 3 in January 2008, increasing its capacity to 64 million. It is reported in March 2008 that the city-state is already planning for a Terminal 4 (CNA posted March 6, 2008 .). This is in line with its strategy to use capacity expansion as a purposeful investment signaling strategy in order to capture new demand and to tilt the market share in the Southeast region toward Changi Airport (Phang 2003; KPMG 2007). Its Budget Terminal that was opened in March 2006 with a capacity of 2.7 million passengers will also be expanded at a cost of S$10 million to be completed by early 2009. Changi also caters to the other end of the spectrum as “commercially important people” are provided five-star services in JetQuay, a facility adjacent to the main terminals with dedicated customs, immigration, personal concierge and limousine transport to the aircraft (KPMG 2007). It further has nine cargo terminals with a total capacity of three million tons per year. Two express freight centers cater to the express cargo sector, with DHL using Singapore as its regional hub.

Thailand has also recently opened its new international airport, the Suvarnabhumi International Airport in 2006, at a cost of US$3.0 billion and with a capacity of 45 million passengers a year. A budget terminal is also planned for 2008 and it is expected that this will increase the capacity of Suvarnabhumi by another 17 million, with a final target of 100 million. Airfreight facilities at the Suvarnabhumi airport are designed to handle up to three million tons of cargo per year. Thailand's airport sector has benefited from the large tourism sector in the country with foreign tourists accounting for over 80% of visitors to Thailand (KPMG 2007).

Changi, Suvarnabhumi, and KLIA are all departing from the traditional model of airport development whereby the main revenue is derived from airlines through charges for landing and parking. Instead, all three airports have increasingly tapped into non-aeronautical businesses such as retail outlets, restaurants, entertainment, etc. that can also cater to nontraveling visitors. Non-aeronautical revenues accounted for 60%, 35%, and 19%, respectively, of the airport revenues of Changi, Suvarnabhumi, and KLIA (KMPG 2007).

Changi has often been acknowledged as one of the best airports in the world in surveys conducted by international aviation organizations as well as academic studies. For example, Park (2003) used a five core-factor groups,¹¹ multi-decision criteria model to analyze the competitive strengths of seven Asian airports (Park 2003). He found Changi, together with the new Hong Kong International Airport and Seoul Incheon International Airport to be more competitive while KLIA, Kansai and Narita to be less competitive.

Despite Changi's long-standing competitiveness, KLIA is catching up. In 2007, the Airports Council International (ACI) Airport Service Quality Awards nominated KLIA as the best for the 15–25 million passengers' category while Changi, which handled 35 million passengers in 2006, finished second, after Incheon Airport in Republic of Korea, in the category of 25–40 million passengers.

For the overall prize—Best Airport Worldwide—Incheon finished first, Hong Kong's Chek Lap Kok second, KLIA third, while Changi finished fourth. In another poll by Smart Travel Asia, an independent online travel magazine, Hong Kong International Airport, Singapore Changi, KLIA were the top three while Suvarnabhumi finished fourth.

2. Airlines

As in the case of airports, the three main state-owned full-service carriers in Malaysia, Singapore and Thailand are competitive and have been ranked among the top ten airlines in the world since 2005, based on Skytrax's survey of air travelers. Singapore Airlines (SIA) was named the World's Airline of the year in 2007 and 2008. SIA has in fact won this award on three occasions in the last 10 years. It was named the best airline for Asia and Southeast Asia. Malaysia Airlines (MAS) was ranked sixth worldwide in 2007 and 2008 while Thai Airways ranked second in 2007 fell to fourth position in 2008.

Low cost carriers (LCCs) have also proliferated in ASEAN since the financial crisis in 1997/1998. Air Asia's arrival in 2001 led the way and since then several regional rivals have emerged, including Tiger Airways and Jetstar Asia from Singapore, Nok Air, One Two Go, Nok Air from Thailand, and Awair and Lion Air from Indonesia. Competition is stiff as in the case of full-service carriers. Despite Air Asia's first mover advantage, its position as the leading LCC in Southeast Asia was taken over by Jetstar Asia in 2008, based on Skytrax's survey. Tiger Airways is ranked third in 2008, immediately behind Air Asia.

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