Thinking Big

Keeping an eye on future demand is important, said Shukor Yusof, head of aviation research firm Endau Analytics. “The main challenge for any airport today is to manage capacity and cope with future traffic growth. How to achieve this? It needs to be cost-efficient and there must be a timeframe corresponding to expanding airport infrastructure according to user demand. ” Whether Changi has got its sums right remains to be seen, but its challenges and where its traffic is going to come from is the subject of a new in-depth study just released by UK-based air travel intelligence company OAG. It asks whether the airport’s plans are “a gross mismatch or prudent planning?” The report underscores the changed landscape in which the airport is operating since its days as the major Asian stopover for flights from Australasia to Europe. In June 2010, it points out, 15 per cent of all the capacity between the south-west Pacific and Western Europe was routed through Singapore. Today, that is down to 10 per cent. In contrast, 51 per cent of seats are available via Dubai, up from 32 per cent in June 2010.

“In recent years, Singapore’s position as the long-haul connecting airport of choice has been challenged by rival hubs, in particular Dubai, and more recently Istanbul,” says OAG. “Upon completion, Dubai’s World Central Airport will be able to handle up to 240 million passengers and the new Istanbul Airport will have capacity for 150 million when it opens in 2018… While no-one expects Changi to develop infrastructure on the basis of ‘build it and they will come’, the case for a doubling of traffic seems less certain than it might have been a few years ago. ” When it comes to T5, Singapore’s government has given some indication it does intend for the facility to be flexible. Senior Minister of State for Transport Josephine Teo has said that while ultimately, the aim is for T5 to handle up to 70 million passengers a year – more than T1, T2 and T3 combined, flexibility is key in the design to ensure efficient use of resources. During seasonal or other lull periods, for example, parts of the terminal could be shut down if necessary to minimise waste. While there is confidence that there will be strong growth, depending on air traffic numbers and projections, there could be a Phase 1A and 1B.

While OAG says it certainly appears additional capacity will be required by the mid-2020s, it also warns that, on top of the potential gap between projected capacity and the demand trend, the rate of traffic growth may be slowing.

“Annual scheduled capacity at Singapore Changi Airport was 74. 1 million seats in 2015, up 1. 7 per cent on the previous year. Capacity has grown at 4. 2 per cent in the first six months of 2016 and at this rate Singapore might end the year with capacity having risen above 77 million in 2016. ” In terms of its global ranking, Changi remains in the top 25 biggest airports in the world for seat capacity, ranked 17th, just ahead of Guangzhou and Bangkok and just behind Amsterdam and Jakarta. But its ranking has slipped slightly from five years ago when it was in 15th position, ahead of Amsterdam and Jakarta. This June there were 72 airlines operating scheduled services in and out of the airport, with Singapore Airlines the largest operator, offering 31 per cent of the total scheduled capacity. The four airlines which make up the SIA Group – Singapore Airlines, Silk Air, Scoot and Tigerair – comprise just under 51. 5 per cent of all scheduled capacity at Changi.

For a while the ‘Kangaroo Route’ connecting passengers between Europe and Australia via SIN had a high profile and contributed to the airport’s reputation as the connecting point for travel between the continents, says OAG.

“So if SIN is losing its role as a long-haul connecting point, where is the real focus for the network? Today, the majority of routes are regional and exactly a third of routes are under 3,000km (approximately four hours flying, June 2016). With low-cost airline penetration of the market appearing to have stabilised at around 30 per cent following rapid growth over recent years, close to half of all capacity (46 per cent) to and from SIN is destined for, or arrives from, airports in South-East Asia. The next largest market is North-East Asia (25 per cent), followed by South-West Pacific (10 per cent). This signals the strength of SIN’s role primarily as an airport serving Asia, albeit one with a significant volume of long-haul. ” One thing which has become vital to Changi, given the stresses on its traffic emanating from rival hubs such as Dubai, is the progress of its home flag carrier, Singapore Airlines (SQ). With the SIA Group now making up over half of Changi’s scheduled airline capacity, the success of the airport in achieving passenger growth is closely tied to the successful implementation of the airline group’s strategy. “And that strategy appears to be working,” believes OAG. “Ten years ago Singapore Airlines operated 46 per cent of seats at Changi and other airline brands within the SIA group operated a further 5 per cent, taking the group share to 51 per cent. Recognising the problems faced when legacy carriers compete with low-cost carriers, the group has pursued a clear strategy which has focused on aligning specific markets with the type of air service best suited to market conditions. So, the SIA group has adopted a multi-brand strategy with four clear product offerings – Singapore Airlines as the full service long-haul carrier; Silk Air which is the regional full service carrier; Scoot, the long-haul, low-cost airline; and with the acquisition of Tigerair, the group now has its own short-haul, low-cost airline. The creation of Budget Aviation Holdings in May 2016 as a holding company for Tigerair and Scoot is a step towards the eventual merging of these brands.

“Having dipped as low as 40 per cent a few years ago, the SIA Group share of capacity is now back up above 50 per cent, made up of SQ (32 per cent), Tigerair Singapore (eight per cent), Silk Air (seven per cent) and Scoot (three per cent). ” OAG says the SIA Group has been “putting its house in order over the last few years”, focusing on regional brands and matching the product with the market… Singapore Airlines acknowledges that they have not pursued aggressive growth in long-haul markets in recent years but this will change as Airbus A350s start to arrive into the fleet. There are two A350- 900s in the fleet now and a further 65 on order, seven of which are the A350‑900ULR version capable of flying for up to 19 hours. The airline has already announced the intention to operate non-stop flights again to the US from 2018… A look at the map of routes operated by Singapore Airlines that are over 3,000km shows that there are plenty of long-haul destinations they don’t currently fly to. ” SQ also has 30 Boeing 787s on order which seem set to replace their ageing 777s. While the 787 will not offer them a capacity increase, the aircraft is more fuel efficient and may allow existing long-haul routes to be more competitive.

Overall, there is a slight but discernible evolution of the Changi route network over the past three years with a small decline in the number of routes under 1,000km operating to and from SIN, but also fewer routes over 6,000km. Back in June 2010, 29. 9 per cent of all routes operated were under 1,000km and this has slowly but steadily fallen to 27. 6 per cent in June 2016.

At the other end of the market, the proportion of routes over 6,000km has fallen from 13. 0 per cent in June 2010 to 11. 3 per cent in June 2016.

“The effect of this is that SIN appears to be focusing more on the Asian market. With the advent of new long-range aircraft which reduce the need for connections, as well as the rise of the Middle East hub airports, this should come as no surprise,” says the OAG report.

Changi itself certainly hasn’t been blind to the pressures it is facing from elsewhere. Last year it announced a series of fee cuts and extended rebates for airlines and other partners amid intense competition from rival airports such as Hong Kong, South Korea and the Middle East. The perks included lower passenger service fees for transit travellers, extended discounts for aircraft landing, parking and aerobridge fees. The rebates were as high as 50 per cent in some cases. When it comes to growth, with its relatively small domestic population of around 5. 5 million – outbound travel accounts for only a fifth of the airport’s traffic – most of it will have to come from inbound traffic. OAG says China and Indonesia are the two most important markets for international visitor arrivals to Singapore and this will continue. Vietnam and Myanmar will also be strong markets. The other strand of potential traffic growth will come from connecting traffic.

“The airport is fortunate to be located conveniently between some of the largest and fastest growth markets in the world and whilst the SIA Group strategy appears ready to make the most of the opportunity, it will have to compete hard with the Gulf carriers who have already secured their position,” says OAG. “The greater opportunity for the SIA Group may be in facilitating connectivity between Scoot and Tiger, so that the airport becomes a hub for low-cost connections as well as full-service connections.

“Aircraft orders across the region provide supporting evidence for where growth will come from. After Lion Air (with 464 aircraft orders), AirAsia has the next largest order with 246 aircraft orders in place, followed by IndiGo with 221. The three largest Chinese carriers have orders for a further 476 aircraft between them. ” In concluding, OAG says that while it is right to be sceptical of the ‘build it and they will come’ mentality that some airport authorities have had in the past, there is no doubt that Changi has an ability to influence passengers to want to visit, whether that’s as a tourist spending time in Singapore or just transiting.

“Undoubtedly there is a case for significant expansion of Changi to accommodate future growth – the question remains whether there is a case for the full expansion to capacity of 135 million per annum. ” But having reviewed the recent growth, analysed the served markets and assessed the evolving airline relationships and business models, it suggests that while the full capacity of an expanded Changi will ultimately be needed, it’s estimate is that it won’t be until around 2035, about a decade after it becomes available.

Singapore’s position as the long-haul hub of choice has been challenged.