Aviation's shifting centre of gravity

The US and Europe are being surpassed by China and the Asia-Pacific when it comes to air traffic - to Changi's gain

There was a time not too long ago when Middle Eastern airports were Changi's bane.

They posed a threat due to the seemingly insatiable appetites of the Gulf carriers to expand their networks through their home hubs, and thereby divert transit traffic away from Changi Airport.

The menace though is less serious today, industry experts concur.

The bigger headache in fact is for Singapore Airlines (SIA), which competes head on with the Middle Eastern carriers on many of its long-haul routes.


In the last few years, SIA has sealed countless deals with like-minded airlines. What may be seen by some as brand dilution is a seemingly small price to pay for a greater good because the tie-ups have allowed SIA to expand its global reach and network. ST PHOTO: SEAH KWANG PENG

While the fates of SIA and Changi Airport are inextricably intertwined, SIA's shrinking market share in the premium air travel market is not necessarily a huge problem for Changi. More critical is whether the airport is able to grow overall flight and passenger numbers despite the challenge, not just from airports in the Middle East, but elsewhere in the region too.

"The threat of the Middle Eastern airports is, in my view, overrated and overplayed," says Mr Loh Hean Ho, partner and head of aviation at Boston Consulting Group's Singapore office.

Mr Abbas Ismail, course manager, aviation management and services at Temasek Polytechnic, says: "Airports in Dubai, Doha, Abu Dhabi and elsewhere in the Gulf are in fact increasingly more a threat to one another, given that each national carrier has ambitions to outdo the rest."

Though still a force to be reckoned with, the Middle East threat has been mitigated through the years by Asia's rise - a change in air travel patterns so major it has effectively shifted civil aviation's centre of gravity, opening up a wealth of new opportunities for Singapore.

THE MIDDLE EAST SURGE The year 1985 marked the start of a period of turbulence for Changi and SIA with the launch of Dubai's airline, Emirates.

The then upstart in the aviation scene took to the skies with just two planes but grew swiftly. Today, it has more than 230 planes flying to over 150 destinations in more than 80 countries, as compared with SIA's 100 planes and just over 60 destinations.

Emirates was but the start of the Middle East surge. In 1994, Dubai's neighbour Doha started its own national carrier. In just over 20 years, Qatar Airways has grown to have more than 150 destinations with a fleet of over 180 passenger and cargo aircraft.

With South Asia and in particular the booming Indian market as their effective backyard, and with airlines there unable to meet a growing demand for flights, Emirates and Qatar have cashed in.

Their phenomenal growth spurred the launch of a third player, Abu Dhabi's Etihad Airways. It is the smallest of the three carriers with about 120 planes but continues to grow.

Today, the Gulf states are home to three of the world's major carriers with a combined fleet of over 530 mainly widebody aircraft. Three airlines, one strategy: Carry travellers - including those from Singapore - to home base and, from there, connect them to the world.

More than nine in 10 passengers that fly the Middle Eastern carriers do a stopover in Dubai, Doha or Abu Dhabi en route to their final destinations either in Europe, the United States or elsewhere. That means the three rely heavily on transit traffic which is a key part of SIA's strategy as well, given its limited home market. It does not help SIA and the Singapore air hub that Emirates, Qatar and Etihad have been ramping up services to and from Singapore in recent years - effectively channelling potential transit traffic away from Changi.

But SIA has fought back, through tie-ups with other established full-service airlines. These partnerships are a way to expand their reach and networks, says Mr Mark Clarkson, Asia-Pacific business development director at industry consultancy OAG.

That the Middle Eastern surge has effectively turned carriers that were once foes into friends is testament to the scale of its disruptive force. For SIA, it has led to a radical rethink of its business strategy which, for decades, was to stay above the fray and go it alone so as to protect its prized premium branding and status.

But falling yields and shrinking market share have forced SIA to adapt and, in the last few years, it has sealed countless deals and partnerships with like-minded airlines, even if their products and service standards are not always on a par with SIA's.

What may be perceived by some as brand dilution is a seemingly small price to pay for a greater good because the tie-ups, which include codeshares, have allowed SIA to exponentially expand its global reach and network.

With partner carriers like Lufthansa, Ethiopian Airlines and Air China, SIA - which itself flies to about 60 destinations - is able to offer its customers flights to more than 200 points worldwide.

Professor Graham Hunt, head of Asia at Embry-Riddle Aeronautical University, says: "Can SIA take on Emirates? Probably not. But can SIA and Lufthansa and other carriers possibly put pressure on the carrier? Possibly."

The Middle Eastern carriers are fierce rivals but SIA and its partners are determined to stay in the game.

Even as the battle for the long-haul premium sector plays out, a paradigm shift in global travel trends is fuelling a second disruption that looks set to overtake the first. The good news for SIA and Changi is that the winds are now blowing in Singapore's favour with the growth of new opportunities in this region.

ASIA'S RAPID RISE Without doubt, the centre of gravity for aviation has shifted to Asia.

That upturns a well-established order which dates back to 1947 when the United Nations' civil aviation arm - International Civil Aviation Organisation - was set up. For half a century from then until the mid-1990s, global aviation revolved around North America and Europe. Those were the two key markets, accounting for the bulk of air travel.

But their dominance started to wane towards the end of the 20th century as a burgeoning middle class sprouting across Asian nations began to fuel demand for air travel in this part of the world.

Then came the launch of Malaysian budget carrier AirAsia in 2001, which in turn spurred the rise of other low-cost carriers including Jetstar, Tigerair and Lion Air. Thereafter, there was no stopping the Asian travel revolution.

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In just 15 years, Asia has redrawn the face of global aviation - but its climb has only just begun.

According to the International Air Transport Association, global annual passenger traffic is expected to hit seven billion by 2034. By then, more than four in 10 passengers will either be flying to, from or within the Asia-Pacific.

Today, the figure is about three in 10.

Of the five fastest-growing markets in terms of additional passengers, three are in Asia - China, India and Indonesia.

In less than 15 years, China is expected to overtake America as the world's largest air travel market, defined by the number of people flying to, from and within the country.

Asia's air traffic dominance will drive a corresponding shift in related activities such as aircraft repair and maintenance, says BCG's Mr Loh.

"Overall, this will create a significant growth opportunity for Changi, given its strengths in connectivity not just for intra-Asia traffic but also long-haul traffic to Europe and North America."

COMPETITION

Ongoing issues with Indonesia over air space matters need to be closely watched. A significant reduction in the air zone under Singapore's watch will have serious implications for Changi's competitiveness.

MR ABBAS ISMAIL, course manager, aviation management and services, at Temasek Polytechnic.

Changi fully intends to cash in on the region's projected growth.

 

With flights to more than 30 Chinese cities, Singapore already has more air links to China than any other South-east Asian nation.

The Singapore-Jakarta route served by 12 airlines is the second-busiest international air route worldwide after Hong Kong-Taipei.

Changi is also pushing to grow air links to and from India. Last month, SIA's long-haul budget arm Scoot launched flights to Chennai in South India and Amritsar in the northern state of Punjab.

Flights to Jaipur, capital city of the state of Rajasthan and an increasingly popular tourist destination, will be launched in October. SIA also owns 49 per cent of Indian carrier Vistara which started flying in January last year.

With the demand for air travel in the Asia-Pacific set to skyrocket, it is airports within the region that Changi should watch closely, instead of those in the Middle East and elsewhere, says Mr Loh.

"All are vying to capture the projected growth. Bangkok, Hong Kong and Kuala Lumpur are planning to almost double their capacity over the next decade or so," he says.

What Singapore has going for it is the ability to plan long term, say experts. By the time Changi Airport opens Terminal 4 next year and T5 by the end of the next decade, the airport will boost its annual passenger handling capacity from 66 million now to 135 million.

It is important to build ahead, so that Singapore is ready to ride the wave when it comes. The alternative is congestion which keeps travellers and airlines away.

The development of T5 and related facilities is a huge investment, expected to run into tens of billions of dollars. It's a huge bet and the risk is that the mega terminal, planned to hold about 50 million passengers a year when it opens, could end up being a white elephant if traffic projections are inaccurate.

But planning ahead - dating back to the historic decision to move its main airport from Paya Lebar to Changi in 1981 - has long been a hallmark of Singapore's success. So critical is the airport to the economy and Singapore's identity that Prime Minister Lee Hsien Loong highlighted Changi's expansion plans at his National Day Rally in 2013. He announced plans to build a third runway and fifth passenger terminal as proof of his Government's confidence in Singapore's ability to thrive in the decades ahead.

The airport expansion is a massive undertaking and numerous issues remain to be sorted out. Chief among them is the question of who pays. Last month, the Ministry of Transport called for consultants to study if, in the longer term, alternative models for the ownership of new airport facilities might better support the national objective of keeping Singapore a competitive global air hub.

The existing three terminals, built and paid for by the Government, are now run by Changi Airport Group, a corporate entity set up in 2009. Experts, however, have no doubt the financing model will be sorted out and T5 will be developed as planned.

The ability to push such mega projects through and bring different parties together is a strength Singapore has over its rivals. Mr Clarkson of OAG says: "Hong Kong airport and Incheon in South Korea, for instance, have some serious constraints. Even if Hong Kong starts to reclaim land now, it will be five, seven years before a third runway can be ready.

Kuala Lumpur's KLIA2, which opened in 2014, is not seamlessly connected to the first airport. Since transit transfers within the restricted areas are not available, travellers with connecting flights have to take a taxi or use the express rail service that plies between the airport and city. Given this state of affairs, Malaysia's challenge is "how to unlock future connectivity potential", says Mr Clarkson.

LOOKING GOOD FOR CHANGI Among experts who track aviation in the region, BCG's Mr Loh is clear on which airport he deems a front runner. "Overall, I'm quite bullish about how Changi is positioned against other competing airports."

There are unknowns, of course. How oil prices and the overall global economy move will impact airlines' growth plans and air travel demand. Terrorism is a constant threat. A major attack could be a devastating blow to the aviation sector. A major disease outbreak could also throw a spanner in the works.

Barring all unforeseen circumstances, though, the biggest factor in Changi's favour is its location at the heart of the world's biggest aviation market, experts say.

That, coupled with plans within the 10-member Asean bloc to further liberalise air travel and remove restrictions on airlines from member countries flying within the region, will open up even more opportunities for Singapore.

But it will be important, even as steps are taken to build infrastructure capacity, to also build flexibility into the plans in line with travel patterns and trends, Mr Loh says.

How the traffic mix evolves, whether the growth will be mainly in point-to-point or transfer traffic are all important factors to consider.

Even as it keeps a close watch on external threats, Changi also cannot afford to lose sight of internal challenges, says Mr Abbas, the aviation lecturer.

"When an airport is as successful as Changi has been for many years, complacency can set in. The thinking that 'we know best because we are the best' can be damaging," he warns, adding that "something that has worked the last 30 years may not be the best way today".

For Changi to stay at the head of the pack, the close collaboration that has been vital to its success to date between the Civil Aviation Authority of Singapore, Changi Airport Group, the immigration and Customs authorities and other airport partners, must endure.

The journey ahead is long haul and offers rich rewards, but to remain first in class means never taking any challenge lying down.

A version of this article appeared in the print edition of The Straits Times on June 04, 2016, with the headline 'Aviation's shifting centre of gravity'. Print Edition | Subscribe