Singapore Airport: Secret of Success

Changi remains in the lead as one of Asia's biggest hubs. Its secret? The ability to take the unconventional route to increase air traffic

By Cuckoo Paul

Published: Apr 6, 2010 07:21:41 AM IST

Updated: Feb 28, 2014 01:07:07 PM IST

Other than buying chewing gum and a few more things that minister mentor Lee Kuan Yew would frown upon, there is little that those transiting through Singapore’s Changi airport cannot do. It has for years been a benchmark for airport excellence and passengers from all over the world know it for the calming little islands with orchids in the arrival hall, efficient baggage handling (bags are on the conveyor within 12 minutes of touchdown) and duty free shopping.

But Changi is not content. It is going all out to add more attractions: The newest terminal has spacious art deco styled powder rooms for women, and for those with time on their hands, a butterfly park and movie theatres. And adding a completely new dimension, the airport, will also offer an exclusive area for storing and trading gold, diamonds and high value art. In the process, Changi, or at least a part of it, will turn into Fort Knox.

The Freeport is a 25,000 square metre area with a containment perimeter of reinforced concrete walls and invisible laser beams to secure it. Since it is located on the runway with permanent air/land access, customers can be picked up straight from the plane and taken to exclusive viewing suites.

Changi’s latest addition is being built by Singapore Airport Freeport, a company co-founded by private investors from Singapore and Switzerland. “It will operate as a round-the-clock free trade zone that customers can use for tax-free storage and trading,” says Alain Vandenborre, vice-chairman of the company. Auction house Christie’s has taken up 40 percent of the space in the first phase; the rest is likely to be booked by art dealers, sovereign institutions, and companies active in the storage or trading of fine art and physical gold.

The Freeport is part of Changi’s attempts to increase activity that attracts more traffic into the airport. It has shielded airline users from increase in landing fees and offers incentives to those who bring in more traffic or use Singapore as a hub to link up with other carriers. Three Indian airlines — Jet Airways, Kingfisher and Air India (as well as its low cost subsidiary AI Express) — currently connect to Changi from about half a dozen points in India. These airlines have had to face huge increase in fees at airports back home over the past two years. As airline losses grew to $9 billion in 2009, most were grateful for any reductions that came their way.

Changi was able to freeze fees and offer airlines discounts on various airport services thanks to a revenue buffer created from non-aeronautical income (from shops, food and beverage sales, hotels and parking) — which was 55 percent of the total revenues earned in 2009. In the year ended March 31, 2009, the airport’s operations generated revenues of S$1.23 billion and a net surplus of S$284 million.

As traffic picks up, the discounts are slowly being scaled back for passenger carriers, though they are still in place for cargo airlines where recovery is much slower. Few airports in the region have been able to match this. Airports in India, for instance, have increased landing charges by about 10 percent during the period.

The ability to take the unconventional route to increasing traffic to the city-state, has put Changi in the lead as one of Asia’s biggest hubs. Thirty-seven million passengers used its three terminals in 2009, despite there being virtually no domestic flights in the single-city state. Contrast this with Mumbai airport that handled about 25 million passengers in the same period, counting both domestic and international flights.

Competition is stiff and every new scheme is directed at attracting more airlines. With a capacity of 70 million passengers, Changi is well-provided for growth, a trait not very evident at airports in India.
“The Bangalore international airport that opened in 2008 was saturated from day one. It was built for 11 million passengers, and traffic was already over 10 million the year it opened,” says D.P. Singh, general manager, corporate planning, at the Airport Authority of India.

At Changi they are already taking the next step. Last year the airport structure changed from a government to a corporate entity. The Temasek-led Changi Airport Group (CAG) is the new owner that bought the airport from the ministry of civil aviation. (Temasek owns and manages the Singapore government’s direct investments.) This has been followed by better salaries and hiring from the non-aviation sectors like retail. This will allow the airport to improve revenues, says a report by the Sydney-based think tank Centre for Asia-Pacific Aviation which closely monitors airlines and airports in the region.

One way that Changi manages to keep its edge is by providing for the entire spectrum of airline traffic. High-value passengers, whether they are flying by a commercial airline or a business jet, can pay about S$500 to be met at the aircraft and whisked away to JetQuay, a small exclusive terminal. The service is available for arrival and departure, and the JetQuay team helps with immigration and other travel formalities.

On the other end of the band is the budget terminal that caters to the no-frills customer. Though only 20 percent of Changi’s passengers use the terminal, it allows airlines to save on aerobridge and office rental charges. There are no aerobridges or escalators and passengers have to walk on the tarmac to reach the aircraft. They are charged S$15 for using the budget terminal as opposed to S$28 for the ones with frills. “Three airlines — Tiger, Sebu-Pacific and Firefly — operate from it, even as others like AirAsia and Jetstar choose to use the main terminals so that they can interline with carriers like Qantas,” says Ivan Tan, director communications, CAG.

One formal way devised to funnel the changes needed to keep ahead is the Changi Airport Growth initiative, launched this year. Yam Kum Weng, executive vice president, Air Hub Development, says incentive programmes and joint collaborations are tailored according to the airline’s business model and needs.

Yet competition is creeping up fast in the form of other very aggressive regional airports like Kuala Lumpur and others in the Middle East like Dubai and Doha. CAG will have to think on its feet to keep ahead. The most recent case of a tough fight over a customer was for Australian budget carrier Jetstar. The Aussie carrier committed to make Changi its largest air hub in Asia. The choice was made over Kuala Lumpur airport, after much negotiation. Changi airport is the sixth largest in the world now, but keeping ahead in the future will not be easy.

(This story appears in the 16 April, 2010 issue of Forbes India. To visit our Archives, click here.)