Keeping pace

Major airports in Asia Pacific, including relatively new hubs, are already congested. Expansion plans in places like Singapore, Jakarta and elsewhere are underway, but years from completion. The real problem: governments have been caught short in preparing for the no-frills stampede.

Indonesia is a typical example. As the country’s aviation ministry director general Herry Bakti S Gumay put it: “I have to admit we were quite late in expanding our infrastructure because we did not foresee growth being this big a few years back. ” That was putting it mildly. Indonesia’s aviation sector has grown between 15 per cent and 20 per cent annually over the past three years and double-digit growth is expected to continue.

Transport Ministry statistics show budget operators such as Lion, Indonesia AirAsia, Citilink Indonesia (owned by Garuda) and Mandala Airlines carried 35 million passengers last year, a 47. 27 per cent market-share. The figure is predicted to reach 55 per cent over the next few years. In Thailand, the traffic share of budget airlines has also already passed 40 per cent although, across the region, LCCs’ overall slice of traffic is now around 25 per cent.

Global financial services firm Morgan Stanley said that since 2004 it has been growing at a historic annual rate of 11 per cent. Coping with this in the short to medium-term future is a huge challenge for authorities.

In Indonesia, the region’s fastest growing market after China, plans are in place to try and ease the pressure but it all takes time. The government aims to build and expand small and medium airports in second and third-tier cities and plans to open 20 new small airports in the next three years, with half of them located in eastern parts of Indonesia like Papua and East Nusa Tenggara. It is also channeling growth to hubs such as Medan, Makassar, Balikpapan, Surabaya and Denpasar to help ease congestions in Jakarta.

Back in Vietnam the Civil Aviation Administration of Vietnam (CAAV) is so concerned about the situation it has called on the Ministry of Transport to allow foreign investors to participate in managing and operating airport terminals, a suggestion that would have come close to treason little more than a decade ago.

But under its current aviation master plan for 2012 to 2020, Vietnam will need nearly $11 billion to repair and upgrade 26 terminals nationwide, a sum that will be a burden if it only relies on state capital, said CAAV chief Lai Xuan Thanh.

There are hurdles to overcome. Vietnamese airports are all used by both the military and civilian operators and current law actually stipulates they must be state-run. That, says Thanh, has hindered the mobilisation of international investment. He suggests splitting airports into two categories: a first class involving terminals significant for both international traffic and national security, such as Noi Bai, Da Nang, Tan Son Nhat, Long Thanh, Cam Ranh, and Na San. The remainder would form a second class. The government would maintain its key role in terms of capital and management at first class terminals, but still allow international investors to enter.

“These terminals have high potential for commercial development, thus are attractive to investors. As for those in the second class, we suggest privatisation or allowing investors to invest in and operate them,” said Thanh.

Just how much interest there would be from offshore parties is uncertain, although it is known that officials from Singapore’s Changi airport recently visited Vietnam to take a look at Hue airport. Most analysts believe anyone putting money into Vietnamese airports – or second tier facilities anywhere for that matter – might have to wait some time for a return on their investment.

What is certain is that unless governments across Asia Pacific ratchet up their development plans, particularly on the secondary airport front, the main problem for LCCs is not going to be finding funding for the billions of dollars in heavy metal they have on order.

It is going to be finding runways for them to land on and gates for them to park at.

Vietnam will need nearly $22 billion to repair and upgrade 26 terminals nationwide.