Singapore air hub faces new rivals
- Singapore is a stop-over for 99% of air travellers. No one visits
Asia's Alacatraz per se. Most transit to bigger and more exicting venues
Even stop-overs at this "Walt Disney with the Death Penalty" will
plummet with the onset of long-haul flights.
Singapore air hub faces new rivals
Tuesday, January 20, 2004 Posted: 0250 GMT (10:50 AM HKT)
How can Changi compete? Serving budget airlines could be the answer.
SINGAPORE (Reuters) -- The amenities at Singapore's award-winning
Changi Airport are legendary: a departure lounge swimming pool and
jacuzzi, a free in-house cinema, a massage parlor and an obsessively
efficient arrival hall.
From stepping off a plane to passing through immigration, grabbing
the luggage and exiting into the thick humidity outside, the entire
process usually lasts just 30 minutes. Changi's efficiency is a
source of national pride.
But Changi is now fighting to preserve its status as Asia's fourth-
biggest air hub, while the stock price of its main carrier, Singapore
Airlines Ltd, has stalled as budget airlines chip at its dominance in
At stake are 55,000 jobs and an industry that generates about 9.2
percent of the island's $89 billion economy, says Senior Minister Lee
Kuan Yew, who has spearheaded Singapore's development as an aviation
hub while developing Singapore Air into one of the world's most
Underscoring the scale of the problem, Lee -- Singapore's sprightly,
80-year-old elder statesman -- has leapt from his more typical behind-
the-scenes policymaking into a high-profile public campaign to cut
costs by 10 to 15 percent at Changi and the airline.
"I've had to study this problem because I've decided that it needs to
be looked into," Lee told an interviewer recently. "We are not going
to die but we will be diminished. To prevent that, costs must be cut
by 10 to 15 percent," he told another.
The threat is multifold - from budget airlines and new long-range
aircraft that allow airlines to bypass Singapore altogether, to fast-
growing regional hubs such as Bangkok and Kuala Lumpur. Even Dubai in
the Middle East is seen as a threat.
"All airports in the region are trying their very best to pull in
more traffic and of late, every one of them is trying to use lower
rates to pull in more airlines," said Stephen Chu, an executive at
Dubai's Emirates airline.
Pressure from Thailand
The biggest pressure comes from Thailand, which only recently
overtook Singapore as Asia's third-biggest air hub. Tokyo's Haneda
airport and Hong Kong's Chep Lap Kok are the first and second biggest
Changi handled 24.7 million passengers last year, compared to 30
million at Bangkok's Don Muang airport. Bangkok's new Suvarnabhumi
airport, due to open next year, will have a capacity of 45 million
Planes that can fly longer, such as Airbus's new 340-500 aircraft,
are also a problem for Changi.
From December, Emirates began flying non-stop between Dubai and
Australia using the new A340-500, bypassing Changi.
Fees - ranging from charges covering landing and terminal navigation
to use of air bridges - are higher at Changi than at Bangkok and
other regional airports. For that reason, Chu said, Emirates may
decide against using Singapore as a stopover on a new non-direct
"If it's cheaper to fly to Bangkok or Kuala Lumpur and we have a lot
of passengers wanting to fly there, then why do we want to come to
Singapore?" said Chu, who manages the airline's Singapore and Brunei
Fees at Malaysia's KLIA for turning around a Boeing 747-400 are about
28 percent less than those at Changi, says the International Air
Transport Association. For the same aircraft Singapore charges about
five percent more than Bangkok.
So how does Changi compete?
Lee said fuel costs, a fifth of total bill, and maintenance, cannot
be compromised. Wages make up 15-20 percent of total costs but cost
cutting should not just focus on wages.
To keep costs down, Transport Minister Yeo Cheow Tong said last week
he would open tenders for a third ground-handling firm.
Another strategic move is a S$40 million ($24 million) two-year
scheme rewarding airlines with cash for increasing traffic through
Changi, which started this month.
Changi is also likely to build a low-cost terminal for budget
carriers. That's on top of plans to spend about S$500 million to
upgrade Changi's two airport terminals. Both terminals will have a
combined handling capacity of 44 million passengers.
"There's almost a religious focus on costs as fares continue to come
down," said Andrew Drysdale, the International Air Transport
Association's director for the Asia-Pacific. "A continual focus on
costs and efficiency is going to be critical."
For its part, Singapore Airlines -- which is 56.8 percent owned by
Singapore's government -- has announced plans to set up a budget
carrier, Tiger Airways, in response to increasing competition from
rapidly expanding Malaysia's Air Asia Bhd and new players such as
independent carrier ValuAir Pte Ltd.
Over the past six months, Singapore Air shares have risen by only
about one percent, underperforming the benchmark Straits Times Index
that rose 16 percent.