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Airlines flag cost pressures as Changi Airport unveils new levy, fee hikes to help fund expansion

Budget carriers, short-haul operators expected to feel impact most; premium passengers less so

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The fee increase will be used to help fund the development of the mammoth Changi East project - namely the upcoming Terminal 5, 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.

Singapore

AIRLINES have expressed concerns over Changi Airport's just unveiled new levy and hike in passenger and airport charges, which could be passed on to consumers as the industry grapples with cost pressures and competition.

The Ministry of Transport and the Civil Aviation Authority of Singapore (CAAS) announced on Wednesday that an airport development levy (ADL) of S$10.80 will be introduced from 1 July, Changi Airport's passenger service and security fee (PSSF) will go up by S$2.50, and airlines will face a one per cent bump in landing, parking and aerobridge (LPA) fees.

The fee increase will be used to help fund the development of the mammoth Changi East project - namely the upcoming Terminal 5, 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.

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The International Air Transport Association (Iata), which last month had voiced its concerns over pre-funding the construction of Terminal 5, signalled its disappointment with the decision. Conrad Clifford, Iata's regional vice-president (Asia Pacific), stressed that it was unfair to expect passengers and airlines to pay in advance for a facility they may or may not use in the future.

He went on to add: "We are also hoping to have greater transparency on what is the projected cost of Changi East and Terminal 5, and how the costs are being apportioned between the government, CAG, airlines and passengers."

Some of the airlines that BT spoke to flagged that the increased charges and fees would negatively impact costs and passengers.

One airline chief suggested that a tiered fee structure for the ADL may have been a better option, as opposed to a one-size-fits-all solution.

Hong Kong International Airport, for instance, has also rolled out an "airport construction fee", where economy class passengers pay HK$90 (S$15.20) per passenger for a short haul flight and HK$160 for a long-haul flight. Business and first class passengers pay HK$160 and HK$180 for short- and long-haul respectively.

A Qantas spokesperson said: "We are disappointed with the introduction of the ADL to fund Changi Airport's development of Terminal 5, as this will put pressure on costs and ultimately the fares that passengers pay." Its budget unit Jetstar Asia, which warned costs would have to be passed on to consumers, estimates that its own fares could rise by between 10 and 25 per cent for flights out of Singapore. Being a regional carrier, the majority of its fares are under S$100.

AirAsia Singapore chief executive Logan Velaitham also described the fee hike as a significant one for low-cost carriers and expressed concerns that it could prompt passengers to opt for other airlines. "Any escalation in costs is not going to help. We operate in a very price-sensitive segment," he said.

However, Corrine Png, chief of transport research firm Crucial Perspective, pointed out that other airports in Hong Kong and Dubai have already introduced similar charges to pre-fund their airport expansion projects.

She said: "Their airport tariff hikes do not seem to have negatively impacted traffic growth which likely encouraged Changi Airport to do the same, thinking that it is unlikely to threaten Changi Airport's competitiveness." The increased fees could, however, make it tougher to woo airlines with links to secondary cities in China, India and Eastern Europe, unless more incentives are thrown in, she added.

Overall, the most affected would be low-cost carriers and airlines operating short-haul flights to leisure markets, she reckons, while premium and transit passengers are unlikely to be deterred.

The ADL, which was tabled in Parliament on Wednesday, will amount to S$10.80 for passengers departing Changi Airport. Transit/transfer passengers connecting through Changi will pay S$3 per leg, or S$6 in total for a round-trip flight that passes through the airport.

Meanwhile, Changi Airport's PSSF will increase by S$2.50, going from S$27.90 now to S$30.40; this will apply from 1 July 2018 to 31 March 2019. Subsequently, the PSSF will go up by a further S$2.50 each year between 1 April 2019 and 1 April 2024.

The airline community will also see landing, parking and aerobridge (LPA) fees increase by one per cent on 1 July, and then again by one per cent annually on 1 April for the next 6 years, with the last increase on April 1, 2024.

CAAS and Changi Airport Group (CAG) did not give the total revenue projections for the increase in fees.

In all, the Changi East development is expected to cost "tens of billions of dollars" with the government to foot "the majority" of the costs, although no firm figure has been given. To date, it has committed over S$9 billion towards the project.

Airport operator CAG, which has invested S$3.6 billion so far, will commit reserves and future surpluses as well as take on a "significant amount of debt" to fund the project, it said.

In a Facebook post on Wednesday, Minister for Transport Khaw Boon Wan wrote that having both the government and the airport community contribute is a fair way to finance the project, which will reap benefits for people, businesses and the local economy.

The expansion push comes as Changi Airport seeks to alleviate congestion amid continued growth, with passenger traffic slated to rise at a clip of 3-4 per cent per year over the next two decades. Last year, the airport saw 62.2 million passengers and it is projected to handle 85 million passengers annually by the late 2020s. By then, it will have a capacity of exactly that across its four terminals.

Terminal 5, which will come onstream around 2030, will provide much-needed room for growth by adding a sizeable capacity of 50 million passengers in its initial phase.

CAAS' director-general Kevin Shum highlighted that Changi Airport's expansion is critical to ensure the airport maintains its edge as a leading air hub in the region. "We need to cater to increasing air traffic as Singaporeans travel more," Mr Shum said. "At the same time, we want to plug into the growth of the region."