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Changi Airport fee hikes could hurt passenger demand: Jetstar group CEO

Low-cost carriers likely to be hardest hit as their fliers are price-sensitive; Changi also risks losing its appeal as a hub

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"This isn't just going to have an impact on fares, it's going to have an impact on volume and that's going to have an impact on GDP. An airline has to adjust its network to try and optimise earnings. We will definitely see demand shift as a result of this." - Gareth Evans, Jetstar Group's CEO, on Changi Airport's hike in fees

Singapore

WEIGHING in on Changi Airport’s hike in aeronautical charges and passenger fees, Jetstar Group chief executive officer Gareth Evans said the increase could affect passenger demand, which in turn will force airlines to adjust their networks.

Changi Airport announced on Wednesday that the revenue from these fees would go towards helping to pre-fund its expansion works at Changi East, including the upcoming Terminal 5, prompting some airlines to complain about escalating cost pressures.

"This isn't just going to have an impact on fares, it's going to have an impact on volume and that's going to have an impact on GDP," Mr Evans, who took on the role of Jetstar ceo in November last year, told The Business Times. "An airline has to adjust its network to try and optimise earnings. We will definitely see demand shift as a result of this."

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While analysts say low-cost carriers are likely to feel the impact the most, given their price-sensitive customers, Mr Evans reckons the move could also affect the attractiveness of Changi Airport as a hub. "People shift hubs for very little money. Singapore is competing against other hubs," he pointed out.

While he added that Jetstar understood the need for the growth, he stressed that expansion should ultimately be funded by the airport.

Still, Changi Airport isn't the first to implement such as a tax - Hong Kong and Dubai have already implemented so-called construction taxes to support infrastructure projects.

The entire Changi East development will cost "tens of billions of dollars", with the government having said it will fund the "majority" of costs, while airport operator Changi Airport Group will also contribute funds. The balance will come from passengers and the airport community.

From July 1 this year, passengers departing out of Changi Airport will fork out a new tax of S$10.80 per passenger, while transit/transfer passengers will pay S$6 for a round-trip ticket.

Meanwhile, the airport's passenger service and security fee (PSSF) will go up by S$2.50 to S$30.40 from July, and airlines will face a 1 per cent bump in landing, parking and aerobridge (LPA) fees. PSSF and LPA fees will continue to go up by a further S$2.50 and 1 per cent, respectively, each year until 2024. Terminal 5 is due to come onstream in 2030.

Local carrier Jetstar Asia has warned that its own fares could rise by between 10 and 25 per cent for flights out of Singapore, since the majority of its fares are under S$100.

In an interview, Mr Evans - seen by some as a potential successor to Qantas boss Alan Joyce - also said the re-routing of Qantas' Sydney-London service via Singapore starting this month will help boost traffic flow across Jetstar Asia's network. Qantas shifted its stopover point to Dubai five years ago but is now moving it back to Changi from March 25. "This is just going to increase the level of connectivity. It's good news for Singapore, for Changi, for Qantas and for Jetstar Asia as well," he asserted.

Australia's Jetstar, which has offshoots in Singapore, Japan and Vietnam, posted record earnings of A$318 million (S$326 million) for the six months ended Dec 31, 2017, up some 16 per cent and contributing to a third of the Qantas group's profit. The results were boosted by strong domestic demand as well as "good profitability" in its Asian affiliates, despite higher fuel costs and the impact of flight cancellations from the Bali ash cloud disruption. Mr Evans declined to give a breakdown of profits across its budget units.

"Jetstar Asia did well," he said. "It's a competitive market here. We're focused on getting our network right, working in conjunction with Qantas, getting our capacity settings right."

In the last six months, Jetstar Asia launched three new destinations out of Singapore - Hat Yai, Okinawa and Clark - as well as a Clark-Osaka link. However, it also pulled the plug on its Singapore-Perth route.

Meanwhile, the broader Jetstar group, which will take delivery of 18 A321neo LRs from 2020, will deploy these extended range aircraft from Melbourne and Sydney to Bali. This will free up the 787s that Jetstar currently uses on these routes for other markets such as Vietnam, China and Hawaii. Jetstar has a fleet of 133 planes, including A320s, Dreamliners and turbo-props.