Kuala Lumpur Airport’s new low cost terminal uniquely aims to be a model of connectivity Part 1

It is instructive to take an overview of how KLIA2 came to be built at all, and how the original budget terminal at Kuala Lumpur quickly became too small partially as a result of the incredible growth of AirAsia.

Kuala Lumpur vied with Singapore for supremacy in a fledgling low-cost aviation environment

Essentially, the first budget terminal at Kuala Lumpur International Airport and the eponymous (and now abandoned) 'Budget Terminal' at Singapore Changi Airport were built to compete with each other for predominance in the then relatively fledgling low-cost air transport environment in Southeast Asia. Indeed the two terminals opened within a month of each other in Mar-2006. For some time the two remained the primary examples of this sort of structure in Asia. Bangkok did not respond in a like manner and became embroiled in endless discussions over what to do with its Don Mueang Airport when Suvarnabhumi Airport opened, again in 2006. Only fairly recently (2012) has Don Mueang been given the chance to prove its mettle as a budget airport facility, which is what it probably should have been for the last eight years.

The host airport in Malaysia, Kuala Lumpur International Airport or KLIA, opened in 1998 at a cost of USD3.1 billion and is situated in Malaysia's 'Silicon Valley', but 60km south of the capital. The alternative, Subang Airport, was much closer (20km) and had been considered for conversion into a low-cost airport previously. After KLIA was constructed it was then earmarked for decommissioning and conversion into a maintenance, airfreight, warehousing and distribution facility (as was Don Mueang airport in Bangkok).

However, a series of system failures immediately after KLIA's opening, together with surface transport hold-ups, meant that some domestic airline operations were temporarily retained at Subang, and Malaysia Airlines (MAS) relocated some domestic services back there following a drop-off in traffic.

Amongst the carriers staying at Subang was AirAsia, which then, as now, was led by the mercurial Tony Fernandes, a character in the colourful man-on-a-mission mould of Virgin Atlantic's Branson, Ryanair's O'Leary and easyJet's Hali-Ioannou. During 2004, the year in which AirAsia held a successful IPO, the first for an Asian LCC, the government ordered the carrier to move to KLIA.

AirAsia's Tony Fernandes was not keen to move to KLIA

But AirAsia, having just placed an order for 100 A320s, a whole new experience for an Asian LCC at the time, did not want to move to KLIA, which was considered inappropriate to the airline's operating model. Mr Fernandes lobbied the government to keep both facilities open, quoting examples as disparate as Rome and Rio de Janeiro where two airports cater to different market sectors. His attitude was encapsulated in the statement: "Give us Subang and we will give the Singaporeans a run for their money. Why not improve what we already have?" Subang would cost "only" MYR25 million to refurbish, as it was already an international standard airport while "KLIA is as packed as the Don Mueang airport in Bangkok and Heathrow in London". That was perhaps an exaggeration at the time; KLIA was designed to handle 60 million passengers by 2020 and it sprawls over 4,000 acres, one of the largest airport areas in the world.

The lower cost base at Subang, especially the reduced taxiing time at peak periods and consequentially reduced fuel burn, along with the airport's proximity to the city, was critical to Mr Fernandes. He estimated the excess costs at KLIA to be of the order of 20%-30%. He also did not want to go head to head with MAS, a feeling that was reciprocated. Moreover, it was going to cost his passengers an extra MYR35 one way to use the train to and from KLIA. KLIA management tried to be co-operative; to show that it was equally keen that the airport should work as a base for LCCs. Landing and parking charges at Malaysian airports were broadly similar, the differentiation being with passenger charges. But Mr Fernandes still felt that profitability could be better achieved at Subang.

In Jun-2004, the Malaysian Ministry of Transport intimated it would consider designating Subang as a budget, point-to-point airlines base and commenced a study to investigate the value of that option versus building a low-cost terminal at KLIA. By now the Ministry's wider strategy was to make the country a "low-fare hub" for the region, to build on the strength and reputation of AirAsia. Naturally, MAS did not see things the same way and declared itself against any low-cost development at Subang.

As time progressed the Transport Ministry started to favour the plan to build a separate terminal for budget airlines at KLIA instead of reconstituting Subang Airport, on the basis that KLIA seemed a more logical choice to handle international flights of any variety. Moreover, a large sum had already been spent building KLIA.

In the end the Malaysian Government's Cabinet unsurprisingly favoured KLIA over Subang.

It was decided that the low-cost terminal's structure would be simple and basic, for example it would not include aerobridges, travelators or escalators, and it would be built quickly, the work commencing in Apr-2005. The race was on to complete it before Singapore's was finished to benefit from the prestige of being the 'first' in the region.

The projected cost was MYR50-100 million for a 35,000sqm edifice with 72 check-in counters. It would cater for up to 40 aircraft initially, offering a 20-minute turnaround and have an annual capacity of 10-12 million passengers with potential expansion capability to 50 million. The existing apron could accommodate 23 aircraft simultaneously, and could be extended to accommodate another 48 aircraft. Food & beverage, retail and duty free facilities were provided, together with a foreign exchange counter, pay phones, auto teller machines, hotel reservation, car rental, taxi service and a prayer room.

Poor location of KLIA's original low-cost terminal meant a very long road journey for some passengers

One very significant drawback right from the start though, was that it was located on the opposite side of the apron from the main terminal building, which meant a road journey of up to 20km for passengers switching between terminals or if they accidentally went to the wrong terminal. In contrast, Singapore's LCT was a short drive from the main terminals. The government approved a rail link between the main terminal and LCT to tackle the problem.

KLIA Locator Map: showing original LCT and Sepang F1 motor racing circuit

Source: Malaysia Airports

As a consequence of the construction, 2-3 million passengers per annum would be shifted away from KLIA's existing congested LCC area until a new satellite was built there.

Overview of original LCT at Kuala Lumpur International Airport

Source: Kuala Lumpur International Airport

AirAsia gave up the fight to stay at Subang

It was at this stage that AirAsia gave up the fight to remain at Subang, a press statement issued at the time from Tony Fernandes stating: "We will refocus and re-energise ourselves to focus on making the low cost terminal in KLIA into an efficient design for AirAsia's low cost model, and make it into the centre for low cost travel in Asia despite stiff competition from Singapore.

"We will work closely with MAHB [Malaysia Airports Holding Berhad, the operator] to develop our country's first dedicated low cost terminal that will serve to meet the needs and wants of a low cost airline. We are pleased that Malaysia Airports have delivered a blue print of KLIA that will almost mimic Subang in KLIA, even down to the low cost transport to the terminal."

The final cost of the original LCT came to MYR108 million (about USD25 million), similar to the cost at Singapore and a price which is minuscule in comparison with the subsequent development of KLIA2.

Relatively few airlines chose to use the KLIA LCT, but more than at Singapore

There were different ways of assessing the LCT's success. Apart from AirAsia, and as big as that airline is, there were few other users of the LCT terminal; mainly subsidiaries Thai AirAsia and Indonesia AirAsia, long-haul affiliate, AirAsia X, plus Cebu Pacific of the Philippines. Australia's Jetstar commenced a three times weekly service in 2007, but it operated from the main terminal, reflecting Jetstar's wish to access long-haul connecting traffic in that terminal (and in contrast with what is happening now).

Despite the relative paucity of airlines and because AirAsia became so big the terminal began to approach its capacity within two years. In 2007, passenger volume at KLIA reached 26 million, including seven million utilising the LCT. MAHB approved expansion of the terminal and preparations were made to accommodate the use of bigger aircraft by AirAsia X for its operations subsequent to its operational start-up in Nov-2007.

The expansion was intended to take it up to 15 million ppa capacity from 10 million and would include a new food court. That expansion was completed in May-2009, extending the LCT to 64,067sqm, double its previous size.

It was about this time that MAHB first considered it might have to look for a new site altogether if the LCT reached the expanded maximum capacity. Already the budget terminal was outpacing Singapore Changi's with three times as many passengers. Changi's LCT was struggling to attract LCTs at all, some of which opted to use the main terminals, though it performed better at generating non-aeronautical revenues.

Alternative Labu LCT project influenced MAHB's views on a bigger LCT at Kuala Lumpur

There was a domestic political factor behind MAHB's decision as well. In 2008 a Malaysian-based multinational conglomerate, Sime Darby, together with AirAsia, concocted a proposal to construct a USD500 million low-cost airport in Labu, to be known as KLIAEast@Labu, with capacity for 25 million ppa, at that time at least 10 million ppa greater than the capacity at the original Kuala Lumpur LCT. Moreover, it would be 8km closer to the capital. The proposed financial package was a private finance initiative.

Location of proposed Labu airport (denoted with red A)

Initially the government approved the project but later (end Jan-2009) changed its mind following the intervention of IATA (which argued in favour of further development of the KLIA 'hub' and against the traffic management implications of two neighbouring airports); also from Malaysia's Khazanah Nasional Berhad, which holds a majority stake in MAHB. Khazanah Nasional stated it preferred to stick with the National Airport Master Plan as a lot of resources had already gone into it.

Despite the fact the government was supportive of the venture, as it would have boosted the country's building industry that had been hit by recessions in many Asian countries, the project was later cancelled.

The original Kuala Lumpur LCT was intended to be an expandable terminal and indeed that happened, but if growth was going to reach previously unanticipated levels it was appropriate to be considering another new terminal, and one that had greater proximity to the central terminal and associated buildings.

By now MAHB forecast passenger traffic at the LCT would grow by 30% in 2009, reaching 300 aircraft movements per day, as LCCs launched new destinations and increased service frequencies, and believed the existing terminal would hit full capacity in 2011 with the majority of this growth coming from international traffic, forecasting slower than normal increases in domestic traffic.

A further LCT terminal became a reality and was earmarked early on to be a regional 'hub' for budget travellers

Early negotiations commenced for a permanent LCT for up to 30 million ppa, expandable to 45 million ppa, and MAHB quickly became committed to it. The terminal would boost overall capacity by 60% to 50 million ppa and the intention was that it would turn Kuala Lumpur into a major regional hub for budget travellers to combat KLIA's inability to shift full service and hub/network traffic away from Singapore and Bangkok. It would be situated adjacent to the main terminal and be ready by 2010, later 3Q2011, and the earliest cost quoted was USD573.7 million.

The original LCT would be transformed into a cargo-handling terminal once the planned new LCT was completed.

The new 150,000 sqm LCT would be located in Sepang, 1.5km from KLIA's main terminal building. The main building and the new LCT would be linked by an Express Rail Link (ERL) connection. Early features of the new terminal included 6,000 car parking spaces, a transport hub both for buses and taxis and 70 aircraft parking apron bays. Furthermore, a third 4km runway would be built at KLIA to cater for the new terminal, as well as a parallel taxiway for Runway 2 and 3 to allow quick turnarounds.

Kuala Lumpur International Airport (KLIA) new LCCT master plan map: 2009

Source: Kuala Lumpur International Airport

Thereon in, the construction of the new terminal was beset by cost and timeframe issues. The terminal's completion and opening was successively rescheduled to 01-May-2013 and 28-Jun-2013 respectively, and the cost rapidly more than doubled to USD1.3 billion; the final price amounting to a budget overrun of around USD800 million.

The opening date was further put back by a month, then to 4Q2013 and eventually to 02-May-2014, the final delay and the sixth published completion date. The reason given was "insufficient resources."

During this period and following re-evaluation of passenger traffic projections and LCC sector developments the terminal design was expanded to increase floor space from 150,000sqm to 250,000sqm (adding a third storey), increase the number of arrival and departure gates from 55 to 68, improve baggage handling systems and add a premium lounge at the request of AirAsia.

AirAsia also influenced the airport's decision to extend and widen its runway to accommodate larger aircraft. These additions contributed to the cost of the facility doubling in price and MAHB determined to raise at least MYR1 billion (USD306 million) through Islamic bonds to finance its completion.

At that stage it was determined that KLIA2 would no longer be a dedicated low-cost terminal.

Part 2 of this report will be published shortly.

Technical data sourced from the CAPA Airport Construction and Cap Ex database and from MAHB. For more information about subscriptions to CAPA's Airport Construction and Cap Ex database, contact info@centreforaviation.com

Parts of this report were paraphrased from the Low Cost Airports & Terminals Report, published by CAPA in 2009. The report is available for download at https://centreforaviation.com/reports/