16 May 2013
Written by Joe Bates
Why does the airport city/aeropolis concept appeal to MAHB and Kuala Lumpur International Airport?
The simple answer is because the current airport was born to be an airport city from the moment in the early 1990s that the Malaysian government took the brave and astute decision to develop it on a near 100 square kilometre greenfield site some 60 kilometres from downtown Kuala Lumpur.
Moving to the new site, in effect, meant that Malaysia Airports Holdings Berhad [Malaysia Airports] had the opportunity to develop nearly 6,750 acres of developable land around the airport into a standalone airport city concept. We knew from the outset that doing this would potentially propel the KLIA Aeropolis or airport city, into a destination in its own right.
The airport has now been open for close to 15 years and we have had a number of airport city developments. It is, and always will be, the responsibility of Malaysia Airports to ensure that we make optimum use of this highly lucrative location to maximise Malaysia’s unique position in the region as a leading shopping and Muslim-friendly tourism destination, and thus by extension, potentially the most family-friendly tourism destination.
What are the key projects of KLIA Aeropolis airport city plan?
The groundbreaking Mitsui Outlet Park KLIA mall is scheduled to open its doors in the last quarter of 2014. This modern outlet mall will be the first for a capital city in South East Asia and will serve to reinforce and enhance the retail diversity of Kuala Lumpur.
More immediately, a soft launch of a 350,000 square-foot suburban mall named Gateway@klia2, will be announced in mid-2013. It is part of the integrated multi-modal transport hub that will link the high-speed train to downtown Kuala Lumpur and other modes of land public transportation with KLIA’s new mega terminal for low-cost carriers, klia2.
In terms of the bigger picture, the KLIA Aeropolis masterplan has set aside tracts of land for hospitality, commercial offices and industrial, logistics and leisure use that includes cinemas, a golf course, horse riding centre, a small lake for fishing and a shooting range.
Unprecedented congestion around most of our neighbouring capital city airports has fuelled unparalleled interest and demand in our KLIA Aeropolis masterplan. The next few years promise to be very interesting for future development.
What has been built to date?
To date we have the Formula One racing circuit and the Pan Pacific Hotel as standout projects as, in the early years, we prioritised office and support facilities for the home carriers and aviation service related businesses, such as caterers. However, we also planted most of the unutilised land bank with palm oil plantations and the investment has paid off handsomely in terms of revenues.
Now Malaysia Airports is in a position to substitute the plantations with higher value commercial, retail and other asset classes.
Indeed, with the needs of Malaysia’s home carriers and assorted aviation service players fully accommodated and their future needs fully provisioned for, there is a greater impetus to attract the best-in-class airport city experienced partners to KLIA Aeropolis. In our view, KLIA Aeropolis’ success will be our capital city Kuala Lumpur’s success ?that is what drives us to make KLIA Aeropolis a truly remarkable new airport city development with top-class tourism attractions.
Why have you decided to set up your own airport hotel brand?
It was an easy decision to make really because running an airport hotel is a highly specialised business and we realised that nobody was likely to know the guests better than us as they would primarily be made up of passengers and airline staff. Also, as the active airport operator, we actually hold the key relationships with the airlines and retail concessionaires.
Subsequently, we realised that with a little active engagement with these core client segments, Malaysia Airports was able to translate a lot more latent interest into more room-nights, higher utilisation of the hotel’s myriad of facilities and ultimately happier airport users.
It is worth mentioning that we received a substantial amount of public support upon announcing the setting up of our own, Sama-Sama Hotel brand. In fact, many public parties and airport users have strongly urged us to open similar airport hotels at some of our other key international airports such as in Kota Kinabalu, Kuching and Penang. The caveat, of course, is that they would also want to see our similar Sama-Sama brand of hospitality at these other locations as people are now familiar with it at KLIA and I suppose it would be like staying in a home away from home.
What difference will the dedicated new low-cost carrier terminal, klia2, make to Kuala Lumpur International Airport?
It will have a huge impact, as klia2 is a 45 million passenger per annum capacity terminal and will be joined by a brand new four-kilometre-long third runway. In facts and figures, replacing the current LCCT with klia2 effectively raises the airport’s capacity by 30mppa to 70 million. We believe that this 75% increase in capacity is necessary to accommodate the expected rise in demand for air travel as Malaysia remains on track to attain developed economy status in 2020 under the government’s ongoing Economic Transformation Plan.
It will also significantly reduce our carbon footprint as the high-speed train that links the city centre and KLIA Main Terminal Building in 28 minutes is being extended to klia2. Buses and coaches are currently the only way for passengers to travel between the main terminal building and the existing LCCT.
At the request of our business partners, klia2 will also have its own fully functional Air Traffic Control (ATC) Tower.
What can passengers expect from the new terminal?
klia2 is designed to provide all the convenience and amenities that our guests would normally want in both an airport and a mall. What does this mean in reality? Well, in line with the concept of “airport in the mall, mall in the airport”, it will have over 160 outlets and its facilities are designed to showcase brands, products and services. Walking distances are also kept to a minimum, which should appeal to the myriad of less physically able passengers such as young children, the elderly, parents pushing baby strollers and physically disadvantaged groups.
It will also be much easier and convenient to use and get to and from than the existing LCCT. For example, in contrast to having to walk of up to 500 metres across the apron to the aircraft in hot and wet conditions, passengers will wait in air-conditioned gates just metres from their aeroplanes. Its status as a fully multi-modal facility served by the high-speed train (ERL), buses and taxis should make getting to klia2 quick and easy.
I am confident that our passengers will be impressed by the new terminal, which I hope embodies our commitment toward operational excellence and passenger comfort and safety.
How will klia2 compare to other LCCT’s across the globe?
It will be the largest purpose-built LCCT terminal in the world with a footprint of 257,000sqm. We have also delivered a purpose-built terminal designed to stand the test of time, which we didn’t do with the existing LCCT. However, we have learnt from the experience and used that hindsight to listen to the demands of users ?both companies and individuals ?and do things right this time.
I suppose the biggest thing we have learnt is that LCC passengers do not want to be treated less favourably than any other. They also want to be given the choice of adding extras. For instance, at the airline’s request, AirAsia X will boast a premium lounge to cater to their front-end passengers. This is a world first for dedicated low-cost carrier terminals.
What percentage of the passengers at KLIA does LCC traffic currently account for?
In 2012, just less than half of all passengers that used KLIA travelled on a LCC. Whilst we expect traffic at klia2 to rise, we remain acutely aware that the variety of LCCs operating in and to Malaysia reflects a highly diverse group and that their respective business models and requirements continue to evolve. It is therefore a distraction to talk about whether LCC traffic will rise or flatten in the future. What the airport must provide is sufficient capacity, flexibility and related services to cater to the needs of all airlines and their passengers.
What is the philosophy/business strategy behind MAHB’s decision to invest in and operate airports outside of Malaysia?
Malaysia Airports takes a very collaborative and holistic view to investing in airports overseas. From the beginning, Malaysia Airports (and Malaysia) has been known for its operational competency and openness to sharing of knowledge. It is simply part of the wider Malaysian culture.
All our ventures to date have been in countries with developing economies from neighbouring Cambodia to India, Turkey and the Maldives. In all instances, Malaysia Airports looks to partner with locals as we always seek to be mindful of local sensitivities.
In the case of Hyderabad and Delhi in India, for instance, we have a solid local partner in the GMR group. GMR can then take on the role of being the local face and supply chain for homegrown talent, whilst Malaysia Airports provides the technical advisory, support and consultancy.
To fully communicate our commitment to the commercial viability of these projects, Malaysia Airports is steadfast in investing directly in these airports. So it is not a one-sided arrangement where Malaysia Airports collects fees regardless of the financial performance of the jointly managed airport.
What criteria/investment potential does an airport need to have to appeal to MAHB?
We look for airports where we can leverage our key competencies and competitive advantages, which are: An intimate understanding of cross-pollinating LCC growth alongside full-service carriers’ growth, Operating a diverse mix of small and large airports efficiently in a developing country environment, and Operating an end-to-end integrated airport business model in order to levy very low charges whilst still maintaining world-class facilities.
Who are your investment partners and are all your international airport projects profitable?
We invest with partners on a case-to-case basis, depending on each project’s merits. However, we have found the GMR group to be such complementary partners that we have invested in a total of four airports overseas with them across three different nations.
To date we have invested in airports that have required the building of new terminals and airside facilities. These projects therefore have a longer gestation period. Indeed, the major returns of airport investing only occur when these investments are crystallised. Therefore, we do not expect early stage airports to demonstrate high levels of profitability in the initial ramp-up stage.
Operationally, all the three airports we are currently investing in are doing very well. Indeed, they handled over 60 million passengers between then in 2012. The airports are thus cash flow positive and profitable. However, they will normally only cross into accounting profits on the net profit level once the capital cost of the terminal is into 25-40% of its depreciation.
What is the latest news on the Maldives government’s decision to cancel your (GMR Mal?International Airport Ltd’s) concession to operate and develop Mal?International Airport ?
Our consortium is contesting the decision via the appropriate channels as we believe that whilst a nation can exercise its right to nationalise assets or expropriate concessions, where a contract signed and endorsed by the government exists in the first place, it has to abide by the termination clauses enshrined in the agreements administered and overseen by a wholly-owned subsidiary of The World Bank.
Under what circumstances would MAHB sell/dispose of an airport asset?
Malaysia Airports, like any listed entity has a duty to its investors to achieve the best possible return on investment and equity. Therefore, it would only make sense to sell/dispose of an asset where Malaysia Airports has been offered a profitable return, and when we feel the timing is right to exit such an investment.
Are you looking to add to the company’s airport portfolio in 2013/14?
Yes, we are actively looking to add to our domestic portfolio. Currently, our largest stake in any overseas airport is a 20% stake in the highly dynamic Istanbul Sabiha Gokcen International Airport. We are actively exploring opportunities that provide a comprehensive management contract on top of a larger minority stake if there is no opportunity for majority control.