Airport Terminal Expansion

Malaysia

Economic News

22 Jul 2010
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Malaysia Airports Holdings Berhad (MAHB), the government linked company that operates Malaysia's 39 airports, has announced that it will be expanding Kuala Lumpur's Low Cost Carrier Terminal (LCCT), with work scheduled to begin next year.



MAHB expects to expand the terminal's capacity and facilities to enable the handling of 15m passengers per year in 2012, up from the current 10m. The airport will double in operating space and will see the addition of a food court and retail space.



AirAsia, the no frills carrier currently operating out of the LCCT, contends however that the expansion will not be sufficient to handle its projected growth in passenger volume. AirAsia's founder and CEO Tony Fernandes told local media he would prefer to see the Sultan Abdul Aziz Shah airport in Subang converted to a privately run terminal for low cost carriers.



AirAsia began its operations in 2002 out of the Kuala Lumpur International Airport (KLIA). KLIA was opened in 1998 in a purpose built facility located 60 km outside of the city. The idea for KLIA came about in 1990, when the government decided that the existing Subang airport would not be able to handle the growing demand. KLIA is currently the world's 15th busiest airport.



AirAsia, upon moving in, said they required more space and wanted to maximise operations efficiency through the use of their own check in systems. To accommodate this request, construction of the LCCT began in 2005. Opened in March 2006, the facility was built in a warehouse structure 20 km from KLIA, on a site that allowed for quick, large-scale construction. In order to keep landing fees, handling fees and airport taxes low, the LCCT cut back on amenities such as aerobridges and interior design.



MAHB has stated that passenger volume for the LCCT terminal is expected to be only 7m for this year and said the expansion will meet AirAsia's original forecast of 15m passengers by 2012. However, Fernandes has said the LCCT is operating at full capacity and the airline needs a new terminal. AirAsia said it expects to handle 20m passengers by 2011 and 30m within the next five years.



With its new long distance operations, which require wider bodied planes, the airline is seeking even more space. AirAsia launched AirAsia X, its long haul budget airline, in November 2007 with flights to Australia's Gold Coast. AirAsia X plans to launch flights to further destinations in India, the Middle East and Europe in the next two years. MAHB claims to have offered Air Asia use of the main KLIA terminal for its wide bodied planes, but said the airline declined because it does not consider the solution suitable for its business model.



MAHB has committed to building a new low cost carrier facility equipped to handle 30m passengers by 2014. The MAHB said it has identified a location that will be ideal for low-cost operations. In addition, it plans to offer a link to new terminal via rail service, speeding travel times to the airport.



Driving time to the current LCCT, which is not accessible by train, is at least one hour and AirAsia has said this is a major disincentive for many passengers. Subang, where it would like to operate, is only a 30-minute drive from the city centre.



AirAsia has been lobbying to fly out of Subang for the past five years, arguing that it is larger than the current LCCT, has the proper infrastructure in place and is more accessible to the city. FireFly, a low cost, wholly owned subsidiary of Malaysian Airlines, currently flies out of Subang as does Berjaya Air, a small airline flying to chartered holiday destinations.



Fernandes said, "There is no need for us to be in KLIA anymore [...] Either you spend RM1bn to RM2bn building a new terminal, or you allow us to go back to Subang, which will probably be cheaper and make us strong compared with Singapore-based Tiger [Airways]". Fernandes said if Malaysia does not want to miss out on the prospect of becoming South East Asia's low cost hub, it needs to build a facility with similar qualities to Singapore's Changi airport, where Tiger Airways currently shares its base with a number of other regional low cost carriers.



With only 9% of short haul traffic, compared with 31% in North America and 26% in Europe, low cost travel in Asia is expected to see significant growth in the years to come. According to the Centre for Asia Pacific Aviation (CAPA), low cost carriers will account for 25% of total seats in the region within five years. CAPA expects the number of low cost aircraft in Asia to grow from the present figure of 300 with 45,000 seats to 870 aircraft with 170,000 seats by 2012.



Malaysia currently serves 10% of all Asia Pacific passenger arrivals. With the region showing 4.1% growth in passenger arrivals in 2006, the country will want to secure a position as a regional hub and the outcome of the LCCT will play an important role in determining this success. Chan Kong Choy, Malaysia's minister of transport, told OBG, "The challenge is to ensure a fair and equitable distribution of rights between full service and low cost carriers."

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