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Copenhagen to charge less at ‘CPH Go’ while Kuala Lumpur’s new LCCT will cost more to build

9-Sep-2010
  • Copenhagen Airport reaches pricing agreement with airlines;
  • Includes a price differentiated offer for the forthcoming 'Go' LCCT;
  • Comparisons drawn with Geneva’s abandoned attempt at an LCCT;
  • KLIA faces cost overruns on its new LCCT.

Denmark’s Copenhagen announced it has reached a new price agreement with a number of airlines, so that the passenger charge for the airport's LCCT, ‘CPH Go’, will be approximately 35% lower than the current passenger charge.

The airport will be one of the first major facility in Europe to offer differentiated prices, a practice that has had dangerous overtones in the past.

The new long-term charges agreement recently approved by the Danish Civil Aviation Administration is a supplement to the existing price agreement from autumn 2009 and will be in force until 31-Mar-2015. The parties to the new agreement are CPH and SAS, Cimber Sterling, Norwegian Air Shuttle and IATA, jointly representing approximately 88% of traffic at the airport. In addition to the changed passenger charges, the agreement also includes a new charge based on aircraft emissions of nitrogen oxides, designed to promote the use of more environmentally friendly aircraft. The airport stated the new prices “will mean new growth opportunities for CPH and key airlines, improve Denmark’s international accessibility and give passengers access to more cheap tickets to a wider range of destinations.”

The terminal is scheduled to open on 31-Oct-2010. It was originally envisaged by a private sector group made up of former employees in Jul-2008 to attract new budget airline routes. Several airlines, notably easyJet had been vociferous about charges, which also prompted the airport authority to consider such an option. A keen supporter was Sterling, which subsequently went out of business though much of its asset base was acquired by Cimber.

On the basis that the private group’s scheme conflicted with the airport’s master plan, Copenhagen Airports decided to press ahead with its own smaller scheme, at an envisaged cost of EUR20 million, considerably less than the EUR50 million estimated for the private scheme. The terminal will have an annual capacity of six million passengers and will offer a 30-minute turnaround time. Turnaround times had been a source of irritation to Ryanair, which for several years operated flights to Malmo, which is in Sweden, promoting it as Copenhagen Malmo. Although the Malmo flights have been withdrawn, Ryanair still does not operate into Copenhagen, though easyJet has an eight city network.

Copenhagen Airport announced (02-Sep-2010) the new LCCT has now officially been named “CPH Go”. Until now, the low-cost pier has been known as “CPH Swift”.

One of first major European airport to offer differentiated pricing

Meanwhile, Budapest Airport has been operating a LCCT since Sep-2005 which offers lower services for lower Passenger Service Charge, with carriers including Ryanair, easyJet, Wizz Air, Norwegian Air Shuttle, Jet2.com and Germanwings making use of the terminal, while other carriers operating from Terminal 2 at the airport.

Alongside Budapest, Copenhagen will be one of the first major European airport to offer differentiated pricing and will attempt to accommodate the interests of both network carriers and low-cost carriers.

Passenger charge for airlines using the Copenhagen facility will be lower than the charge currently paid by airlines using the existing terminals. The low price has come about because a number of operating requirements must be met by airlines when using CPH Go and because of the location and type of construction of the new facility, what the airport’s CEO, Brian Petersen, describes as “a simple, inexpensive and efficient product”.

He adds: “With the number of low-cost passengers higher than ever, there is a raison d’être for [Go] already, two months before the opening. A very large part of the low-cost traffic growth seen during the past 18 months has come about exactly because we had announced the opening of Swift.” In Jul-2010, Copenhagen Airport recorded more than 400,000 low-cost passengers in a single month for the first time ever, and the low-cost market share was 18.5%. The LCCs’ year-to-date market share is 17.6%, which is about three percentage points higher than in 2009.

The price for using CPH Go has been determined based on detailed discussions during which the parties sought to take into account the many different interests of the various users in connection with determining the terms and conditions for using Copenhagen Airport. “The price structure means that Copenhagen Airport will strengthen its position in the intensive competition among the major European airports. The opening of CPH [Go] and the differentiated prices will enable us to accommodate the different demands that network carriers and low-cost carriers have for airport facilities,” stated Brian Petersen.

Overview of charges

The table below shows the prices for using Copenhagen Airport under the new charges agreement as from 31-Oct-2010 (all figures in Danish Kroner [DKK]. DKR1 = EUR0.134):

Type of charge

New agreement

Existing agreement

Passenger charge at Go

67,18

-

Passenger charge for other international departures

87,18

103,75

Passenger charge for domestic departures

39,11

28,81

Passenger charge for international transfers

52,65

41,65

Passenger charge for domestic transfers

23,62

23,81

Security charge

38,92

32,43

Security charge for transfers

25,69

21,41

Handling charge for international departures

12,50

10,42

Handling charge for domestic departures

6,25

5,21

Although Copenhagen will be one of the first European airport to offer differentiated pricing, the mere suggestion of the practice has elicited negative responses in the past. Much hangs on whether or not the facility will be offered to those legacy airlines that wish to take‘advantage of it. In this instance that is the case, saving them DKR20 per international passenger departure and it is also in several LCCTs in Asia, such as Singapore, where no major legacy airline has yet taken up the offer to use the Budget Terminal there. Although the Malaysian regional airline Firefly operates from there and will be joined by Berjaya Airlines in Nov-2010, but where some LCCs prefer to use the main terminals! The Budget Terminal is dominated by the LCC Tiger Airways.

Proposed LCCT at Geneva fell through on pricing issue

The greatest controversy was at Geneva, where a decision was taken effectively to divide the airport into two sections. The first (T1), using the existing terminal, would continue to be used by those airlines wishing to offer the usual standards of comfort and convenience. The second terminal, up to then handling winter charter flights and special operations, would be designated for low cost airlines with reduced fees and services – and only those airlines. The proposed passenger fee was SFR14 at T2 compared to SFR19 at T1. Other T2 charges would be around 40% lower than T1. The proposal was challenged by legacy airlines Air France, KLM and Lufthansa, and lawsuits filed.

Although both the Swiss Supreme Court and the EC (indirectly, through EU competition provisions – Switzerland is not in the EU) supported Geneva Airport, T2 was never converted into an LCC-only facility and the project was shelved. Check-in for all scheduled flights, legacy or LCC, is in T1 and easyJet and Baboo, the two main LCCs (Baboo is really a hybrid regional) are reported to be happy with pricing and efficiency at the airport. Around 35% of Geneva’s traffic now is LCC.

The key differences between the Copenhagen and Geneva examples are that facilities will be available to all airlines at CPH Go assuming they want them (Emirates, for example would almost certainly not do) and that the main airlines are on board. At Geneva, there was a suggestion that Air France, the most vociferous of the objectors, was using the issue to sharpen its talons ready to take on French regional airports if they chose to construct or convert terminals for LCC use – as Marseille was doing at the time, and Lyon and Bordeaux have done since.

The other difference is that the EU Directive on Airport Charges, which demands a greater degree of transparency on facility-specific pricing, has come into effect since the Geneva proposals in 2009 and will be implemented into Danish law by 15-Mar-2010.

Cost of KLIA 2 spirals

Meanwhile, at Malaysia’s Kuala Lumpur International Airport (KLIA), which opened what proved to be a small, inadequately sized and too remote LCT in Mar-2006, at much the same time as Singapore Changi Airport’s LCT, the issues surrounding its new, replacement LCT are more concerned with cost over-runs, with the new LCC looking as if it will cost almost 25% more than originally estimated.

Malaysia Airports Holding Berhad (MAHB) announced that the cost of construction for the new LCCT – known as KLIA 2 – may increase due to potential delays. The terminal had an initial budget of USD636.5 million (MYR2 billion) and was to be completed by the end of 2011. A ground-breaking ceremony for the terminal was held on 30-Aug-2010, with the terminal now expected to be completed by Apr-2012. The project could now cost more than USD794 million (MYR2.5 billion). The runway for the facility is meanwhile expected to be completed by Jun-Jul-2012. MAHB Managing Director, Bashir Ahmad Abdul Majid, stated the delays were due to the extensive tender process for the terminal taking longer than expected, adding that the company does not want to rush the project to compromise its quality. All major works have now been awarded. The terminal will increase capacity from 15 million passengers p/a at the current LCCT to 30 million passengers p/a, with the flexibility to expand. MAHB is also planning for an Express Rail Link (ERL) extension to the terminal and will look into a Kommuter (KTM) line in due course. Prime Minister, Najib Tun Razak, expects KLIA 2 to increase tourism revenue from MYR53 billion in 2009 to MYR168 billion in 2020.

MAHB may employ Islamic financing techniques to fund the terminal. Early in Aug-2010 it announced it is proposing to undertake an offering of Islamic Commercial Papers (ICP) and Islamic Medium Term Notes (IMTN), with a combined aggregate nominal value of up to MYR3.1 billion (USD981.5 million). Proceeds raised from the proposed sukuk programmes will be used to part-finance the construction of KLIA 2, and/or to refinance existing borrowings/financings. Subject to all regulatory approvals, the programmes are expected to be implemented by 3Q2010.

Subsequently, MAHB’s CFO announced the company would appoint CIMB Group Holdings Bhd and Citigroup Inc as lead arrangers for these bond issues. The issue will be ringgit-denominated. The inaugural 10-year tranche issue of ITMNs was completed on 01-Sep-2010. The notes were issued at a yield of 4.55% pursuant to its Islamic commercial paper (CP) programme and Islamic medium-term notes programme. MAHB's issue attracted more than MYR9.9 billion (USD3.2 billion) from a diverse group of investors.

Different to any other LCCT apart from Stansted

One glance at the financial size and scope of the KLIA 2 undertaking is sufficient to identify it as being quite different from just about any other LCCT that exists so far, with the possible exception of London’s Stansted Airport, which is a single terminal facility (and likely to remain that way) but which did not begin life as an building dedicated to LCCs. It is certainly on an entirely different scale from the Copenhagen, Marseille, Geneva and Bordeaux LCCTs mentioned earlier. In fact KLIA 2 is what the new terminal at Ireland’s Dublin Airport might have been had Ryanair’s representations to the effect that it should have been allowed to develop it (for itself, of course) had been entertained.

The over-riding reason is that KLIA is the home base of AirAsia and of AirAsia X, the long-haul part-owned spin-off, Asia Pacific’s largest and most successful LCC with subsidiaries in Thailand and Indonesia. AirAsia X did not want to move from its Subang Airport base but is probably glad it did now that a purpose-built facility will be prepared for it; one that is much larger than the present terminal, which it dominates along with its subsidiaries and AirAsia X. In fact only two other airlines use it, LCCs Tiger Airways and Cebu Pacific.

Not only is it much bigger than anything than has gone before, its nature is set to be different in other ways. For example, AirAsia has been put under some pressure to use the aerobridges that will be included in the design. Most LCCs (not all) do not like aerobridges because they slow down access and egress through one door (usually the front one), while it can be done much quicker via steps at each end of the aircraft, even if that entails a sweltering walk in equatorial heat and humidity. KLIA’s CEO commented that it was important for all airlines using the new terminal use its aerobridges adding that its aerobridge charges are “probably” the lowest worldwide, at USD27 (MYR85) per flight. AirAsia’s CEO, Tony Fernandes, stated it will consider using the aerobridges if MAHB provides the LCC with a "good package".

High-cost Narita to add low-cost terminal

The global trend towards LCCTs that began at the turn of the century shows no signs of abating and that is hardly surprising while LCC market share continues to grow in most regions. Within the past two months Japan’s Tokyo Narita International Airport Corporation stated it plans to add a passenger terminal in spring 2013 that will exclusively serve low-cost carriers. Construction is expected to commence in spring 2011, with the total cost estimated to reach up to USD228 million – another huge increase over the USD50 million or less that has typically been allocated for these terminals and especially in a country where LCCs still do not have a serious market share: only 5% domestic and just 1% international. What’s more, Narita is one of the world’s most expensive airports so it will be interesting to see what the price differentiation will be here.

Airlines like Jetstar, AirAsia and Tiger Airways will be the targets rather than Japan’s domestic LCCs and there is a strong suspicion that the decision was driven by the expansion of Haneda Airport and its shift into international operations as well as the opening of Ibaraki Airport. Some real competition in and around the Japanese capital at last. Narita Airport will consider preferential treatment for LCCs, such as lower landing fees. Several possible sites for the new terminal have been proposed, including a location close to the existing terminals.

It would be Japan's first dedicated LCC terminal although Kitakyushu Airport has catered for them for several years now. Kansai International Airport, the offshore airport that may be merged with Osaka’s Itami Airport, is also considering the construction of an LCCT. Kansai is likely to become the main base for low cost carriers operating in the country as it has greater capacity than Tokyo area airports. It is waiving landing fees for any new LCC operating at the airport in their first year. In Aug-2010, All Nippon Airways announced plans to form a low cost carrier as early as 2011, possibly based in Kansai.

Elsewhere, Singapore Changi Airport recently completed a SGD16 million (USD11.7 million) extension to its own LCCT (Budget Terminal), thereby raising capacity from 2.7 million passengers p/a to seven million p/a. Australia’s Gold Coast Airport, which is an entire airport dedicated to the LCC model, opened a USD90 million, 30,000sqm terminal in Jan-2010, doubling the size of the previous facility, while Avalon Airport, which has established itself as an LCC alternative to Melbourne Tullamarine, received a grant from the Victorian State Government of USD1.8 million to improve facilities in advance of the launch of new services by Tiger Airways in Nov-2010.

And as if to demonstrate that not all the action is in Europe and Asia Pacific, Moscow’s Sheremetyevo Airport secured the transfer of the LCC Avianova’s services earlier this year subsequent to its development of a low-cost terminal (the South Airport Terminal Complex) out of terminals D, E, F and Aeroexpress. This budget facility will be able to handle throughput of 25 million passengers p/a. LCCTs are undeniably getting bigger.

Meanwhile, in India, Delhi International Airport Ltd (DIAL) has confirmed it is considering plans to develop Terminal 2 as a dedicated low-cost international terminal. The terminal has capacity for 4.5 million passengers p/a but had been operating as high as 8 million per annum. The airport added that it is considering offering differential or lower rates for services. An estimated 12 million of the airport’s 26 million passengers travel on LCCs.

Stop Press. Ryanair stated it has cancelled plans to launch operations to CPH Go, stating the terminal is too expensive (27-Sep-2010). easyJet is the only carrier to announce plans to operate to the LCCT so far.


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