The Business Times

Changi unveils fund to cut airlines' costs

$100m fund to also boost productivity, transit traffic

Nisha Ramchandani
Published Thu, Jun 12, 2014 · 10:00 PM
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[SINGAPORE] Changi Airport is launching a $100 million fund to help airlines cope with costs, as well as to boost productivity and transit traffic at the airport as the industry finds itself battling headwinds.

With carriers struggling with higher expenses and shrinking margins, one of the initiatives under the Growth and Assistance Incentive (Gain) programme will see lower operating costs for all airlines flying in and out of the airport.

From July 1 this year to June 30, 2015, airlines operating at Changi will be given an across-the-board reduction in operating costs, including rebates of 50 per cent on aircraft parking fees and 15 per cent on aerobridge fees.

Airport operator Changi Airport Group (CAG) will also reward airlines for growing transit traffic at Changi, while delivering funding support where possible to help carriers operate more efficiently at the airport. For instance, airlines are being encouraged to take part in the FAST@Changi initiative which includes a range of self-service options such as self-service check-in and bag drop.

Noting that Changi's operating costs have increased over the years, the International Air Transport Association's (Iata) regional vice-president, Conrad Clifford, welcomed the new programme, adding: "We hope CAG will look at additional ways to reduce airlines' costs at Changi, given CAG's robust financial position. This will also help to grow Changi as an aviation hub."

Under the wide-ranging Gain scheme, CAG will also invest in marketing campaigns aimed at key source markets for inbound tourists and work together with the Singapore Tourism Board (STB) to draw more traffic from these markets. The countries in question include Australia, China, India, Indonesia and Russia.

In addition, the fund will also give ground handling and security agencies a hand by supporting enhancements aimed at boosting productivity levels, given Singapore's tight labour market.

"These efforts will strengthen the airport's hub status and anchor Singapore as a major air gateway to and from the region," the airport operator said in a release yesterday.

Changi is facing stiff competition from up-and-coming competitors, all seeking a bigger share of the travel pie. In the region, Kuala Lumpur, Hong Kong and Jakarta are raising capacity to capitalise on the buoyant Asia-Pacific travel market. Additional capacity enables airports to tack on new links, raise frequencies as well as attract more airlines.

Further afield, the fast-expanding and strategically located Gulf carriers have been drawing away traffic from more traditional air hubs while the Gulf states are beefing up infrastructure with an eye on future growth.

Qatar last month unveiled the brand new US$15 billion Hamad International Airport which will eventually be able to handle 50 million passengers per year and offers premium passengers perks such as in-lounge immigration clearance.

Abu Dhabi is working on a new terminal building which will inject some 30 million in passenger handling capacity by 2017. Meanwhile, Dubai International is expected to leapfrog London's Heathrow to become the world's busiest airport by 2015 - and stay there.

Airlines too are finding themselves buffeted by tough operating conditions - shaped by foreign exchange volatility, high fuel prices as well as stiff competition - which is putting downward pressure on yields. Political instability in Thailand as well as weaker outbound travel from China to South-east Asia in the wake of missing Malaysia Airlines Flight MH370 have also hurt travel demand. Iata projects that the airline industry will see a net profit margin of 2.4 per cent this year.

For the period spanning January to April, the number of passengers handled at Changi was up just 1.7 per cent year on year to 17.58 million. In April, Thailand and China traffic fell 15 per cent and 8 per cent, respectively.

"While we cannot iron out the volatilities of the industry cycle, we believe that Gain will provide helpful temporary cost relief as airlines implement the necessary measures needed to adjust to the evolving market environment," said Lee Seow Hiang, CAG's chief executive officer. "At the same time, we believe the programme provides encouraging opportunities for our partners to collaborate with us to explore new ideas and initiatives that will collectively position us strongly for the next wave of growth."

Airlines that BT spoke to yesterday said that the fund appears beneficial for carriers.

"It's well known that South-east Asia is one of the most competitive aviation markets in the world so any move to reduce costs is a positive one," highlighted Bara Pasupathi, chief executive of Jetstar Asia which is collaborating with Changi on a self-service programme.

"We're certainly interested in (the) announcement as on the surface it seems a positive development," a spokesman for budget carrier Scoot told BT. "We look forward to receiving substantive details in due course."

Beyond mid-2015, the incentives and support programmes under Gain will be tweaked in line with traffic patterns at Changi and operating conditions in the regional airline industry.

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