Airport infrastructure is the vital link in helping Asean nations fly high

JOSEPH Stiglitz, Nobel Prize-winner in economics, has a theory that the drivers of economic growth in the 21st century will be the dual forces of digital technology and urbanisation. Today, I would like to discuss infrastructure development, and more

particularly, airport infrastructure as the critical component to propel economic growth in the Asean region. First, let me give you a snapshot of the economic potential of Asean.

Asean has a population of 639 million people, which is larger than the European Union or North America. It has the third largest workforce in the world, behind China and India. The combined economies of Asean at US$2.5 trillion make it a major economic power in the world, just behind the United States, China, the European Union and Japan. Its young workforce is expected to drive economic growth for decades to come. It will produce a demographic dividend for Asean's economies.

So what could help to catalyse and promote continual growth in the region?

Economic studies have proven that a development strategy based on sustained, large-scale investments in strategic infrastructure projects can contribute significantly to a country's economic growth. Infrastructure development will benefit a country at multiple levels, including making a positive impact on its workforce with higher multi-factor productivity. Singapore has managed to successfully accelerate its resource-poor economy with investments in world-class infrastructure such as seaports, airports, roads, MRT, power plants, telecommunication and waterworks.

Besides Singapore, many other developing countries have also employed the same pattern of growth to transform their economies. Japan accelerated its economy with massive infrastructure investments after the devastation of World War II and so did South Korea, Taiwan, Hong Kong and Australia, just to name a few in the Asia-Pacific. China, in the last 30 years, has "carpet bombed" its continental land mass with extensive infrastructure projects, building highways, bridges, tunnels, high-speed railways, ports, airports, dams, power plants, IT networks etc.

INFRASTRUCTURE DEVELOPMENT IN ASEAN

Asean countries will have much more potential to create economic value if their national infrastructures can be further developed. There are, of course, a few notable obstacles in building large-scale infrastructure projects. These include the difficulties of securing finance as most infrastructure projects may not appear to be "bankable" if they lack adequate technical and financial feasibility studies.

It is not uncommon that infrastructure development projects are reported to be notoriously plagued with mismanagement, burdensome bureaucracy or riddled with corruption. Political instability and uncertainties in a country will also undermine the prospects and confidence of large capex infrastructure projects.

The Asia-Pacific is estimated to need US$1.7 trillion investments over the next 10 years. So where will the financing for these mega-projects in developing Asean countries come from?

The bright spot is that several multilateral development financial institutions such as the World Bank, International Finance Corporation and the Asian Development Bank have stepped up to help meet the gap in financing infrastructure projects. China has taken the lead to form the Asian Infrastructure Investment Bank and established the ambitious Belt and Road Initiative (BRI) to help build infrastructure along 65 countries across Asia, to connect to Europe via the sea and over land.

Japan, under its Official Development Assistance programme, has likewise pledged further funding in international financing for infrastructure development in developing countries. Financing can indeed be obtained for good quality and well-studied infrastructure development projects.

Member states of Asean must therefore have the political will to address their infrastructure gaps. They will have to undertake professional feasibility studies to ensure that their proposals are sound and economically viable before trying to raise funds for the projects. Once the financing is secured, the infrastructure development must be professionally project-managed to ensure its successful completion.

Today, what is conventionally termed "infrastructure development" is typically associated with the building-up of the internally domiciled economic capacity of the country. These include land transport, power plants, dams, telecoms, IT networks etc.

One particular infrastructure development is often overlooked or unappreciated in the overall infrastructure planning of a country - that of the aviation industry.

AVIATION INDUSTRY IN ASEAN

In Asean and worldwide, the aviation industry is booming. According to the International Air Transport Association (Iata), air travel worldwide is set to double to 7.8 billion passengers annually in the next two decades. One of the fastest growing in the world, the Asean air travel market, has doubled in the last 10 years and currently accounts for 10 per cent of global seat capacity.

China alone will create a huge demand on the aviation industry. It is the world's largest outbound tourism market with more than 130 million trips in 2017 - and only 8.7 per cent or 120 million Chinese citizens own a passport. It is estimated that by 2020, there will be 240 million Chinese passport holders and as many million trips or more.

Six out of China's top 10 outbound destinations are now in Asean countries, namely Thailand, Singapore, Vietnam, Indonesia, Malaysia and the Philippines. According to Iata, by 2036, two of the largest air passenger markets will be in Asean, namely Indonesia (fifth) and Thailand (ninth).

Air connectivity among Asean is therefore crucial to meet this surge in aviation demand. Interestingly, aviation consultant OAG recently reported that the busiest international air route by number of flights over the 12 months preceding February 2018 is between Kuala Lumpur and Singapore, right in the heart of Asean! With 84 flights a day and 30,537 flights in the year, more than 4 million passengers shuttled in the sky between these two cities. Asia dominated the OAG rankings of the world's busiest itineraries with eight out of 10 of the most frequent trips originating or arriving in an Asian city.

Asean's propensity to travel over time is expected to grow as GDP per capital rises with the region's economic growth. Asean will need many more aircraft and airports to meet these demands. Over the next 20 years, Asean's aircraft fleet is forecasted to be doubled and to take even more aircraft deliveries than China.

For Asean, the liberalisation of the market by the Asean Open Skies agreement creates a new momentum of aviation growth within the region. In any case, Asean countries - unlike Europe and US, which are contiguous within member states - are geographically separated by the South China Sea. Connectivity by air is therefore imperative for Asean economic growth.

AVIATION INFRASTRUCTURE DEVELOPMENT IN ASEAN

Continued progress in urbanisation in the region will also generate higher demand for air transportation. Today there are 25 Asean cities with a population of 1 million or more. By 2025 the number will grow to 36 as urbanisation in Asean continues.

Research has shown that cities with a population of 1 million or more can generate sufficient travel demand for airport infrastructure. Airports in Asean capital cities such as Jakarta and Bangkok are now facing capacity constraints and expansion plans have been put up at these air hubs. So are airports in Yangon, Hanoi and Manila. For the top 100 airports in Asia, 52 per cent need more terminal capacity and 69 per cent need more runway capacity by 2030.

SINGAPORE CHANGI AIRPORT'S EXPERIENCE

Let me say a few words on the experience of Singapore's Changi Airport in meeting the rapid growing global aviation demand. In the early 1970s we were handling merely about 4 million passengers per annum (mppa) at the former Paya Lebar airport with one terminal and one runway. We forecasted that by 1981, air passenger demand would have doubled to more than 8 mppa. In 1975, we began the construction of an international airport at a new site at Changi, a decision made by former prime minister Lee Kuan Yew. This bold move dramatically changed Singapore's aviation history. Changi Airport rapidly became an international air hub. It is today the sixth busiest International airport in the world, connecting Singapore to more than 400 cities.

Within six years, we completed and opened the new airport exactly on the target date of July 1, 1981. Our initial airport masterplan was to cater for 30 mppa but as of last year, we have already handled 62.2 mppa. We have proceeded to build altogether four terminals and three runways. Our current plan is to build the fifth terminal to be ready by late 2030 to cater for a total of 135 mppa. One important lesson from our experience is that we always have to plan and develop ahead of demand as airports require many years to plan and construct. Sometimes we are led to think that the contrarian theory "supply drives demand" can be valid in the aviation industry.

I must add that developing a successful airport is not only about pumping billions of dollars into runways, terminals, aviation systems and other hardware. The software and operating systems to give passengers a good experience is equally important. A country's airport is like the "face of the country", being the first and last point of contact for visitors, thus providing the first and last impression of the country. It adds confidence and credibility to how a country is being run.

ASEAN/ASIA NEED MORE AIRPORT INFRASTRUCTURES

If air travel in Asean grows as forecasted, the Asean aircraft fleet size has to double. But how do these additional aircraft land or take off if Asean is lagging in airport infrastructures such as runways and terminal buildings? Asean has twice as many people as the US and three times its youthful population. Yet, Asean has only about one-third of the number of airports in the US. Clearly, Asean is grossly deficit in airport infrastructure. Can we build these infrastructures fast enough to meet the rapidly growing air transport demand?

SUPPORTIVE AND COLLABORATIVE AVIATION POLICIES AND PARTNERSHIPS WITHIN ASEAN

To maximise Asean's connectivity, we need also to see greater flexibility for airlines to operate services to connect cities whenever demand arises. The Asean Single Aviation Market - known as Asean Open Sky Agreement/Policy - is the region's key aviation policy towards a single, unified aviation market among Asean members.

Over the last 15 years, air connectivity within Asean grew more than three times, with 70 additional cities connected, providing unlimited 3rd/4th/5th freedom traffic rights between capital cities. For greater connectivity, the pace of liberalisation could be accelerated to cover all secondary cities. This requires strategic co-operation at government-to-government level to promote air travel - yet another progressive step towards the Asean Economic Community.

There is also a need for closer partnerships between tourism authorities, airports and airlines to open new links, especially between secondary cities. They could conduct joint market studies, destination marketing, route promotion and facilitation of services.

CONNECTIVITY WITH THE WORLD

Connectivity is a key word for globalisation and global growth. The increase in air connectivity will complement China's BRI, designed to promote economic growth in more than 65 countries with 65 per cent of the world population and 40 per cent of global GDP. We will also need air connectivity for BRI to be successful.

China also plans to build 74 new airports by 2020, bringing the total number of airports to 303. Iata estimates that more than US$1 trillion is needed for global airport investment by 2030, with almost half to be spent in Asia. In my opinion, this is a very conservative estimate.

I would like to conclude with the following points:

The total size of the industry is around US$660 billion (equivalent to Switzerland's GDP) with total economic impact of US$2.7 trillion. It directly and indirectly supports 62.7 million jobs (equivalent to UK's population).

Finally, if the aviation industry continues to grow at the current trend, we can expect investments into aviation infrastructure to increase exponentially. For the aviation industry, the sky is really the limit.