Asia Pacific’s airports are battling in an increasingly fierce race

12 November 2023

Asia Pacific’s airports are battling in an increasingly fierce race for both passengers and airlines, in which Singapore’s Changi Airport is seeking to maintain the market dominance it has enjoyed for years while rivals are racing to catch up.

The past month has offered a significant glimpse of the scope of this battle with Bangkok adding a third passenger terminal at Suvarnabhumi Airport, while Abu Dhabi International Airport is set to open a new terminal building this month.

Changi Airport’s Terminal 2 reopened to passengers last Wednesday after 3½ years of upgrading works.

At Kuala Lumpur International Airport (KLIA), airport operator Malaysia Airports Holdings Bhd (MAHB) has undertaken a major overhaul of the retail and food and beverage (F&B) area to bring fresh experiences to passengers, as well as grow its non-aeronautical revenue. Highlights include new F&B offerings and shops.

However, passengers who would like to shop and dine like they used to during pre-Covid-19 times have observed that as new tenants move into the retail spaces, many outlets are still under construction. Sources say some are likely to stay closed until passenger numbers increase.

Jeffrey (not his real name) tells The Edge that hoardings continue to dot KLIA Terminal 1 (KLIA1) 1½ years after the reopening of Malaysia’s borders in April 2022.

“If you pass through the contact pier from the main terminal building (MTB), you won’t fail to notice the huge amount of renovation work going on there,” he says. For instance, hoardings can be seen near the suspended aerotrain service, with one that reads, “A new experience awaits you in July 2024”.

“And I used to be able to pop into the stores at the satellite building for some stuff before I checked out. But with the aerotrain upgrade project underway, travellers would head to the shuttle bus transfer service which is located near the gates and are likely to miss the duty-free shopping area,” he adds.

Some market watchers say the exclusive airport lounges of airlines are no longer available following MAHB’s move to overhaul its retail offering in KLIA1.

Airline passengers are now offered access to premium lounges run by third-party lounge operators such as Select Service Partner Malaysia Sdn Bhd (SSP Malaysia) and Plaza Premium Group (PPG).

PPG, which used to operate a premium airport lounge at the satellite building, is now situated in the contact pier.

“Airlines like Singapore Airlines (SIA), Cathay Pacific, Emirates and Thai Airways used to operate their own premium airport lounges at the satellite building. This has been replaced by the Travel Club Lounge,” says a market observer.

In 2021, SSP Malaysia won a contract from MAHB to take over the airport lounge operations at the satellite building. Only two of its three lounges — Travel Club Lounge and Global Lounge — are open today. The remaining one still has a temporary hoarding board.

Jennifer Tang, 52, says while she likes the new lounge services offered by PPG, she still prefers the lounges that are operated by airlines, which are more luxurious. “KLIA should be as busy as Changi Airport, if not busier. But sad to say, it’s not,” she adds.

The less-than-ideal situation comes at a time when passenger traffic at KLIA has rebounded to 78% of pre-Covid-19 levels, as at September 2023. Passenger volumes are expected to fully recover by next year.

“Certainly, the retail transformation could have been better managed and executed. They (MAHB) have had a head start since 2018 to redevelop the satellite retail offering and presentation and take it to the next level,” a source familiar with the matter says.

“When KLIA first opened in 1998, it was considered well ahead of Singapore in terms of its retail presentation and offerings, featuring dedicated fashion boutiques and more. The other countries in the Southeast Asian region have since made substantial progress and surpassed Malaysian airports and KLIA in this regard,” the source opines.

He believes that the Covid-19 period provided an ideal opportunity for planning and executing the necessary renovations to upgrade the terminal but sadly, it was not done.

“It’s important to note that retail is just one aspect of the overall passenger experience, and the entire terminal’s hardware (trains, baggage handling system, restrooms, signage, wayfinding, immigration and customs) should be modernised to provide passengers with a complete and enhanced experience,” he adds.

The source views it as a potentially favourable development if SSP Malaysia can deliver a high-quality range of F&B offerings and strong management, as opposed to a fragmented approach that may not yield high-quality results as previously experienced.

“Certainly, the consolidation of airport lounges seems to be a sensible move when compared to the practice of allowing individual airlines to operate their own lounges for only a few hours a day. The experience provided by a simple, well-maintained lounge would significantly surpass the limited offerings and amenities of smaller lounges,” he says.

Nevertheless, the source concedes that the reset process has been hampered by the Covid-19 pandemic.

“There are still several moving parts that require resolution, and everyone is eagerly anticipating the transformation of KLIA to the next level. This entails enhancements not only in the retail and F&B sectors, but also in crucial areas such as amenities and services that contribute to the overall passenger experience. This encompasses aspects like train services, baggage handling system, restrooms, signage, wayfinding, immigration and customs, all of which contribute to shaping a comprehensive and improved customer experience,” he adds.

Is partnership with one dominant operator a good thing?

Still, critics have raised concerns over the risks of awarding a large portion of the retail space and airport lounges in KLIA1 to a single player — SSP Malaysia, which is a joint venture between British F&B concession operator SSP Group plc and India’s travel food and retail company Travel Food Services Pvt Ltd (TFS). In 2021, SSP Malaysia won an open tender to take over the operations of six new MAHB airport lounges at KLIA and Kuching International Airport. It will also operate 29 units over a five- to seven-year term across MAHB airports in the country.

“How can you award so many outlets to one tenant? It should not be a monopoly. What about existing tenants who have remained loyal during the pandemic?” one source asks.

To this, MAHB says as with most major airports including Istanbul, the airport operator is future-proofing its lounge strategy by focusing on host airline lounges while lounges for other airlines, alliances and passengers are operated by renowned lounge operators like SSP Malaysia and PPG.

“Partnerships with these world-class operators will enable continuous fresh, new F&B offerings and services that will delight passengers. With vast experience in managing a combined number of more than 270 lounges around the world, these operators provide an elevated customer experience for passengers visiting the lounges,” the airport operator says in an email reply to The Edge.

It points out that six out of seven lounges are currently in operation at KLIA1, including national carrier Malaysia Airlines’ lounge, lounges for other airline alliances and paid lounges.

MAHB adds that the outlets at the satellite building and contact pier of KLIA1 operated by its retail arm Eraman are already in operation and have been operational since the reopening of borders.

“In line with the commercial reset plan to raise the retail profile at the airport, Eraman had recently opened new outlets at the satellite building, offering a wide range of duty-free products across multiple categories.

“As for the contact pier mall, which is Eraman’s flagship emporium, it is currently undergoing a new retail transformation that aims to elevate the travel retail experience and enhance customer satisfaction with a totally refreshed concept design as well as new product and brand offerings. The project is currently progressing well under the planning phase and renovation is targeted to commence by early next year.

“In ensuring business continuity as well as continuous product offerings to customers at the contact pier area, the renovation works will be implemented in phases and are expected to be completed in 2H2024,” MAHB says.

It adds that at present, Eraman’s duty-free outlets operating at both the satellite building and contact pier are recording commendable growth and remain buoyant from capitalising on the strong recovery in international passenger traffic.

Commercial reset initiative continues five years on

According to MAHB, the commercial reset initiative that began in 2018 is still ongoing as the airport operator continues to pursue fresh commercial offerings at the 39 airports it manages in the country in its bid to elevate the airports’ position and retail profile to be more than just transport hubs.

In 2019, the non-aeronautical segment made up 47% of the group’s total revenue, which MAHB is targeting to expand its contribution to between 60% and 70%.

“This strategy also ensures competitiveness against other peer airports. Working with new and existing partners has enabled the introduction of new brands and new experiences at our airports under five new retail pillars: duty-free zone; fashion; F&B; retail-tainment, including pop-ups and gondolas; and Sense of Place, [which offers] specially curated travel souvenirs such as local handicraft, food and speciality gifts,” it says.

It adds that since 2018, around 800 commercial outlets nationwide have been tendered out, with nearly 80% awarded as at October 2023. “These outlets will be fully opened in stages by the end of 2023.”

“Despite Covid-19, the commercial reset initiative continued and new and exciting brands were secured, including Hard Rock Cafe, Jamie Oliver’s Pizzeria and Taco Bell, at KLIA1.

“Local champions are also celebrated, which saw the opening of downtown favourites, including Jibby Chow, Serai, Ahh-Yum and soon, Cafe Chef Wan,” it adds.

The food courts in KLIA also recently underwent a makeover based on a food garden concept, providing marked enhancements in ambience versus the conventional food court experience. New outlets include PastaMania, O’Briens Irish Sandwich Cafe, Dunkin’ Donuts, TGM by PPG, Asian Noodles and Little Wok.

MAHB said the commercial reset initiative also brought international brands to the other airports, with the likes of Starbucks opening in domestic airports such as Sultan Mahmud Airport in Terengganu, Sultan Abdul Halim Airport in Kedah and Sibu Airport in Sarawak, which has helped improved their revenues by as high as 110%.

Source: theedgemalaysia.com

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