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Keeping Changi Airport's flag flying high
AS chief executive officer of Changi Airport Group (CAG), Lee Seow Hiang isn't just in the aviation business.
Instead, the airport operator is akin to a conglomerate, with different arms ranging from retail to cargo. And as Changi Airport expands its footprint with an eye on future growth, CAG is overseeing the construction of mixed-use development Jewel as well as the upcoming Terminal 5. It also 'exports' its expertise abroad through Changi Airports International (CAI), which plans, manages and invests in airports overseas.
"So much of our business model depends on our ability to generate commercial revenues, which allows us to subsidise airport charges and to generate resources to invest in the air hub," explains Mr Lee, who won Outstanding Chief Executive of the Year at the Singapore Business Awards.
Mr Lee, who has helmed CAG since 2009, is also deputy chairman of the group's consultancy arm CAI; prior to CAG's corporatisation, he was deputy director-general (operations) of regulator Civil Aviation Authority of Singapore.
It's no secret that Changi Airport has long established itself as a front-runner on the global stage, winning Skytrax's World's Best Airport award for the sixth consecutive time this year. But competition is heating up across the region, with airports ploughing funds into shiny new terminals to boost their proposition and - in the case of certain countries - to overcome capacity constraints. At the same time, there are several mega airports in the works, with Istanbul New Airport and Beijing's new Daxing International set to become among the world's biggest.
Yet, such developments also portend growth opportunities for Changi, notes Mr Lee, since the additional capacity could give rise to new links for Changi.
"Post 2030, three of the five biggest aviation markets globally will be found here in Asia - China, India and Indonesia," he says. "Given our geographical location, there are tremendous opportunities for us to leverage on and capture a fair share for ourselves. For Changi to grow, we hope that airport infrastructure around the region, and the world, keeps up with what we see is a legitimate underlying demand. If airport infrastructure does not keep up, we'll come to a standstill. With good capacity that's efficiently run, that's a plus for us too."
This comes as the world's biggest plane-makers, Airbus and Boeing, predict that the global aircraft fleet will swell to some 40,000 in the next two decades, with the bulk due to go to Asia's operators.
UPPING THE GAME
He continues: "At the same time, with every new investment, everyone tries to up their game, improve their operational efficiency and service levels dramatically. Everyone sees what's happening at Changi and would like to beat us at our game. But that's a competition that goes on for all industries. It's something that just compels us to keep on our own journey of innovation. We have every intention to continue to differentiate ourselves, and still provide a very special experience for our airline partners and the passengers we serve. There's tremendous opportunity to reinvent what airports can mean."
Changi, for its part, has always been an innovator. For instance, in the 1980s, it was one of the first few airports to introduce retail within the airport terminal in a systematic way. And when it launched a duplex perfume and cosmetics outlet in Terminal 3, such a structure enabled the airport operator to maximise valuable real estate as well as deliver curated experiences to high value-add tourists at a point where e-commerce was growing in popularity.
The airport's overall attractiveness to travellers has shown in the numbers too. In the last eight years, Changi has nearly doubled its passenger movements, while its city links have jumped from 190 to almost 420. Passenger traffic is also expected to continue growing at a pace of three to four per cent a year for the next decade, building on the record 62.2 million passengers the airport handled in 2017. In fact, this year, passenger traffic at Changi is expected to surpass that and grow by six per cent.
But even with the recent addition of Terminal 4 in the fourth quarter of last year, this means that the airport will still need to build more capacity to avoid congestion in the future.
In the first half of next year, Jewel - built on the site of Terminal 1's former carpark - is set to open its doors, while farther out, works are already underway to bring the mammoth Terminal 5 to life by 2030.
"Jewel started out as capacity expansion but at the same time, we thought we could change the game," Mr Lee says. "Everyone is improving operational efficiency and service levels, but we thought we could change the game a little bit by completing the offering. We have dreams of making a lifestyle destination with world-class attractions all in one space."
While there have been criticisms from some quarters that Singapore doesn't need another new mall, there is a practical - if not, pressing - need for the project.
Today, the average transfer time for passengers at Changi is three hours, especially as passengers increasingly build their own itinerary these days by mixing-and-matching airlines. With passengers spending more time at the airport, CAG hopes that Jewel will be a place to entertain these visitors such that they choose to make the Singapore air hub a "deliberate destination". And with passengers needing a place to occupy their time until they board, Jewel will help channel passenger flows away from the operational terminals, freeing up space for other travellers who need to check in and catch flights.
Jewel will be something special that will add to the world-class attractions Singapore already has, he believes. "We always wanted to capture a glimpse of the best of Singapore, and make it available at Changi. We think we can do just that with the indoor gardens, juxtaposed and integrated into a retail offering." Features will include a 40-metre indoor waterfall, five-storey walking trails, Singapore's largest hedge maze and lush gardens - to name a few. On the retail front, it will bring in new-to-market brands to entice avid shoppers.
CAG estimates that Jewel will see about 40-50 million visitors a year, of which 40 per cent will be overseas visitors and the remaining 60 per cent, Singapore residents. Ultimately, the airport operator is keen to build a space not just for tourists, but for Singapore's broader community as well.
"We want a place that's not just attractive to tourists. We want it to be inclusive to all Singaporeans - a quality place they can enjoy, but at the same time, a world-class proposition for tourists as well," he says, hinting at organising events such as live music.
Then of course, there is T5, Changi's biggest and arguably its most ambitious project to date, to be built on a 1,000-hectare site. Not only will it inject further capacity of 50 million passengers per year, it will be - as Mr Lee puts it - a game changer. It is also key to keeping Changi a leading aviation hub at a time where the competition is getting keener than ever.
"What's unique is a clean canvas. It is a total greenfield," he says, adding that the plot of land where the existing terminals sit is constrained by infrastructure.
On the other hand, as a clean sheet, the mega T5 offers the opportunity to build an integrated airport city potentially with new concepts such as smart grids and district cooling systems. T5 will also have separate buildings for arrival and departure.
Having a mega terminal such as T5 would enable airlines to reap economies of scale and consolidate operations, while achieving efficiencies and having more flexibility when it comes to manpower and resources. For passenger experience, the possibilities are "mind-boggling".
"Even in the planning of T5, we're using new techniques and if that works, it will create a new competitive advantage for us to plan new terminals, both locally and around the world," he adds. For example, it is using virtual reality technology, dubbed the Changi Airport Virtual Experience (CAVE), to plan the terminal. As the design evolves, the airport operator can identify problematic areas and address them well ahead of time.
CHANGI EAST PROJECT
But the massive Changi East project will also require hefty investments. While no final tally has been given by the government, it is expected to cost "tens of billions of dollars" with the government to foot "the majority" of the costs. To date, the government has committed over S$9 billion to the project.
The overall price tag will cover the upcoming T5, the addition of a third runway by 2020, as well as works to build a network of tunnels and systems to transfer passengers, baggage and airside vehicles between Changi East and the other terminals.
CAG, which has invested S$3.6 billion in the Changi East project so far, will commit reserves and future surpluses as well as take on a significant amount of debt to fund the project. In fact, this marks the first time that the airport will take on debt for a new terminal.
Meanwhile, passengers and airlines will also contribute in the form of a new airport development levy (ADL), and increased passenger and airport charges from July. The Ministry of Transport and the Civil Aviation Authority of Singapore (CAAS) are introducing an ADL of S$10.80 from July 1. Changi's passenger service and security fee (PSSF) will go up by S$2.50 each year until 2024, and airlines will face a one per cent bump in landing, parking and aerobridge (LPA) fees each year until 2024.
The increased costs have been met with some concern from the airline community - especially the budget carriers - and criticism from some quarters that it could impact Changi's competitiveness.
Commenting on this, Mr Lee says: "In the longer term, we're confident that the prices we have set are very carefully calibrated and we'll remain competitive despite the need to raise prices to generate the resources needed to fund the huge development."
He adds that spreading out the costs over a longer period of time will also give its airline partners some predictability and time to adjust.
To help cushion some of the impact, CAG is expected to roll out some initial financial support for its airline partners, which will be announced in the coming months. "The bottom line is, every airline that has plans to grow at Changi Airport hub can be assured that we'll be (working) closely with them."
Mr Lee goes on to say: "We're confident that we'll remain competitive, even in establishing links into Tier 2 and Tier 3 cities in India, China or across the region. We know we are not the cheapest hub. We never have been, even in the last 30 years. Cost is something that we watch. But we're careful to make sure we still create more value-add that justifies our proposition to our customers."
"Going ahead, because of the enormity of T5, and because we've kept the price increase calibrated at a very low level, we will have to pool even more resources (than) what CAG can generate in the future back into the hub," he says, adding that CAG would also leverage the full weight of its balance sheet.
"In the past, we've always kept our balance sheet light so we have the resources to confront any unknowns," he points out. "That puts us in a strong position to continue to invest in the hub in the long term, even (if) we're facing crisis in the short term. Going ahead, we'll be more leveraged, but we're still careful to make sure that we still have adequate resources to be able to take knocks. This is a business (where) you have to watch the short term. At the same time, you have to plan the long term."
In the meantime, with T5 only set to come onstream in 2030, Changi is turning its attention to wringing out additional capacity from its existing terminals. It is expanding Terminal 1 to add three million in annual capacity from next year, while there are plans in the pipeline to begin expanding Terminal 2 starting 2019 as well.
He says: "There's still a few bottlenecks in T2 that we hope to unlock. At the same time, the Fast and Seamless Travel (FAST) experiments in T4 are shaping up very, very well. We would want to port the same innovations into T2 as quickly as we can." T4 offers a suite of automated, self-service options from check-in, bag drop, immigration and boarding, reducing manpower needs.
In addition, T2 will be one of two major links to Jewel, so there's an opportunity to "reinvent" that node to provide a better, seamless experience from the MRT right into the heart of Jewel, he highlights.
"We hope to improve the capacity (at T2) by a bit," he says, adding that the T2 expansion could add three million in capacity. "Between 2025 and 2030, if we continue at this rate of growth, there will still be a bit of bunching up, especially during peak hours. There are ongoing efforts to unlock as much as we can both within the terminals. . . and the airside."
USE OF TECHNOLOGY
Expansion aside, it has also been using technology in recent years to improve operations across the gamut, ranging from the runway to retail.
For example, in 2016, CAG implemented an initiative which uses data to predict the time taken for ground-handling activities and the time that the aircraft can be expected to push back. By analysing and sharing the data with airport stakeholders, it has been able to cut the average taxiing time for aircraft by 90 seconds.
For the airport, this means more efficient use of the runways and for airlines, cost savings from reduced fuel burn. CAG is also exploring the use of artificial intelligence (AI) to better predict aircraft arrival timings so as to forecast demand and capacity more accurately.
"We've mitigated congestion during peak hours despite our growth in the last five years, and maintained our departure on-time figures," Mr Lee points out, adding that this may get more challenging given capacity constraints on the current plot of land.
However, he goes on to say: "We believe that working as a community, and with the use of data and predictive artificial intelligence, we're finding new opportunities to squeeze efficiencies out at different touchpoints both within the terminals and the airside. That's something we're committed to do in the next 10 years."
It is using data analytics to help its retail partners boost their sales. For instance, it is pooling data from its different programmes and systems - such as its online shop and its loyalty programme - to identify passenger needs and customise experiences that are relevant to the passengers that pass through Changi.
This will allow retailers to plan the use of resources such as manpower and marketing more optimally.
Last year, CAG posted a record S$2.5 billion in retail sales, even amid the threat of e-commerce and slower domestic economic growth. This is up from S$1.2 billion in 2009, when the airport was corporatised.
Going forward, there will be even more opportunities to integrate technology in the terminals and on the airside, through the use of sensors and the Internet of Things, he reckons.
But even with all the bells and whistles and snazzy new terminals, ultimately the "secret sauce" of Changi's success is the broader airport community - two hundred organisations with different missions but with a unified Changi as their vision. "One of our key roles is a conductor in a symphony of rich talents. There are many talented individuals, willing to run the extra mile, to make this a very special place. One of our deepest opportunities to unlock our potential - and our deepest challenges - is to keep this strong community spirit together. It's not something we take for granted."
When asked about his vision for Changi, his answer is almost immediate. "What drove us in the last thirty years, will continue to drive us for the next thirty," he says.
"For Changi to succeed, we have to answer two core questions. Externally, how do we remain relevant to our partners, our customers, to the evolving environment? Internally, how do we continue to build a strong community where there are many partners, many missions, but everyone has that deep sense that there is one Changi? If we have the talent here, committed to making this a vibrant hub, we will prevail, whatever the challenges are."
And as long as Changi can continue to deliver on these two points, we will do well, Mr Lee concludes.