15-Apr-2013 8:00 AM

Singapore Changi traffic growth to slow as Qantas drops hub and AirAsia closes base

Analysis

Passenger growth at Singapore is slowing significantly, making it very unlikely Changi will expand in 2013 its current streak of three consecutive years of double-digit expansion. Growth in the low to mid single digits will provide some breathing space for authorities to tackle increasing congestion problems. But Singapore authorities should still accelerate airport expansion, particularly the opening of a third runway, because the current congestion has already become an impediment to growth.

In the latest blow to Changi, AirAsia has decided to close its Singapore base. Shifting back to Malaysia the group's small contingent of Singapore-based crews will have a very slight impact on total passenger figures at Changi. But it signals the challenges Changi faces as its LCC growth figures start to slow down while other airports in the region continue to record rapid increases.

The AirAsia decision follows Qantas moving its transit hub for European services from Singapore to Dubai, leading to a reduction in total Changi capacity of more than 2%.

Summary

Passenger growth at Singapore's Changi Airport is slowing significantly, with growth in the low to mid single digits.
AirAsia has decided to close its Singapore base, signaling challenges for Changi as LCC growth slows down.
Qantas has moved its transit hub for European services from Singapore to Dubai, resulting in a reduction in total Changi capacity.
Changi needs to accelerate airport expansion, particularly the opening of a third runway, to tackle increasing congestion problems.
Changi's current congestion has become an impediment to growth, with longer taxi times and takeoff queues during peak hours.
Changi is addressing the parking issue by building a new parking area and is considering opening up the third runway to commercial aircraft.

Changi passenger traffic grew by only 5% in first two months of 2012

Changi recorded 10% growth in passenger traffic for 2012 to 51.2 million. This follows 11% growth in 2011 and 13% growth in 2010.

Changi annual passenger traffic: 2009 to 2012

But passenger movement growth for the first two months of 2013 was only 5% to 8.44 million. (Growth in Feb-2013 was 9% while growth in Jan-2013 was 2%. The two month aggregate figure is more reflective of market conditions as the Chinese New Year holiday fell in February in 2013 while in 2012 it fell in January.) Figures for Mar-2013, which will be released in about one week, will likely be similar to the Jan-Feb average.

Changi monthly passenger traffic: Jan-2011 to Feb-2013

The rate of growth will likely be even more moderate in 2Q2013 as the first phase of Qantas changes in Singapore was implemented on 31-Mar-2013, when Qantas moved the stopover of its Sydney-London and Melbourne-London A380 flights to Dubai. As part of a second phase that is being implemented on 15-Apr-2013, Qantas is discontinuing its daily Sydney-Singapore-Frankfurt 747-400 service and reducing Perth-Singapore from double daily to daily. Qantas also dropped its three weekly flights between Adelaide and Singapore on 14-Apr-2013.

In the current week commencing 15-Apr-2013 Qantas has only about 19,300 seats to and from Singapore, down over 60% from the approximately 50,000 weekly seats it provided in Mar-2013, according to CAPA and Innovata data. As Qantas adds back capacity on the Sydney-Singapore route its total capacity at Changi will increase to about 22,600 weekly seats in Jul-2013, resulting in approximately a 55% reduction compared to Mar-2013 levels.

The number of seats available to passengers travelling between Australia and Asia will actually increase as about half of Qantas' passengers between Australia and Singapore had been continuing onto Europe. Qantas, once double daily service on the Sydney-Singapore route is restored, will have about 22,600 weekly seats between Singapore and Australia, compared to about 30,000 previously.

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Qantas had accounted for 16% of capacity in Singapore-Western Europe market

While Qantas can save face by saying there are more seats available to the local Singapore-Australia market, for Changi the over 50% capacity reduction by Qantas stings as it loses several hundred thousand annual transit passengers to rival Dubai. Changi has already seen its share of "kangaroo route" Australia-Europe passengers drop steadily over the years due to the rise of the Gulf carriers and their hubs.

The growth of Singapore-Europe traffic also has slowed in recent years due to the challenging economic conditions in Europe. Passenger traffic between Changi and Europe grew by less than 8% in 2012 while traffic between Changi and Asia grew by about 10%.

Singapore to Europe traffic could shrink in 2013 as Qantas accounted for about 16% of seat capacity between Singapore and Western Europe. Singapore Airlines (SIA) has seen its share of capacity in the Singapore-Western Europe market grow from 55% to 65% as a result of the Qantas cuts. But SIA has not been growing significantly in Europe as it focuses most capacity increases within the Asia-Pacific market, where market conditions are more favourable. SIA regional subsidiary SilkAir and medium/long-haul LCC subsidiary Scoot are both growing rapidly but operate only within Asia-Pacific.

Singapore to Western Europe capacity by carrier (one-way seats per week): 19-Sep-2011 to 29-Sep-2013

Qantas sees its share of capacity in Singapore drop to only 1.4%

Qantas historically has been one of Changi's largest carriers. Prior to the cuts Qantas had been the sixth largest brand and second largest foreign brand after AirAsia at Changi, accounting for almost 4% of total seat capacity at the airport. In terms of full-service carriers, only SIA and SilkAir were larger than Qantas.

But in the current week commencing 15-Apr-2013 Qantas accounts for only 1.4% of seat capacity at Changi, according to CAPA and Innovata data. Qantas becomes only the eighth largest full-service carrier at Changi, behind SIA, SilkAir, Cathay Pacific, its new partner Emirates, Garuda, Thai Airways and Malaysia Airlines. In terms of low-cost carriers, Qantas now has a smaller presence in Singapore than Singapore-based Tiger, sister carrier Jetstar (which has an affiliate in Singapore), AirAsia, SIA subsidiary Scoot and Lion Air.

Singapore full-service capacity by carrier: 15-Apr-2013 to 21-Apr-2013

Singapore capacity share (% of seats) by brand: 15-Apr-2013 to 21-Apr-2013

LCCs now account for 30% of seat capacity at Singapore, compared to virtually zero a decade ago. The LCC growth in Singapore has been driven primarily by Tiger and Jetstar Asia, which launched services in 2004. (A third Singapore-based LCC, Valuair, also launched in 2004 but was acquired by Jetstar Asia in 2005).

AirAsia also has been able to build up a similarly sized presence in Singapore without having a local affiliate or operating certificate. The group currently serves Singapore from 13 destinations using four of its subsidiaries or affiliates - Malaysia-based AirAsia Berhad, Indonesia AirAsia, Thai AirAsia and AirAsia Philippines.

AirAsia currently offers 288 weekly flights from Changi, the equivalent of 41 daily frequencies. Jetstar in comparison has 267 weekly flights (includes Jetstar Asia, Valuair and Australia-based Jetstar Airways) including 18 widebody flights, according to Innovata data. Tiger, with 337 weekly flights (includes affiliates SEAir and Mandala), is the LCC leader in the Singapore market but not by a wide margin.

Singapore LCC return frequencies by carrier: 15-Apr-2013 to 21-Apr-2013

AirAsia's Singapore base to be closed less than two years after opening

AirAsia decided in late 2011 to start basing aircraft in Changi to enable early morning departures and late night arrivals on its biggest Singapore routes, which rivals Tiger and Jetstar Asia are able to offer as they are based in Singapore. The original plans was for the Malaysian, Indonesian and Thai affiliates to all have at least one aircraft based at Changi with interchangeable crews that are licensed in more than one country.

AirAsia initially based one A320 at Changi from its Malaysian subsidiary. Subsequently it attempted to base additional aircraft at Changi but repeated attempts were not successful with Changi telling AirAsia there were no available overnight parking spots. The overnight parking issue along with no progress in securing authorisations to launch new Singapore routes and longer turnaround times due to runway congestion have dampened AirAsia's appetite for pursuing further expansion in Singapore.

AirAsia recently decided to close its Singapore base. It was not practical to base just one aircraft at Changi as it could not enjoy the synergies that would come with basing multiple aircraft at Singapore. With the group now realising it remains unlikely it will be able to get approval in the short to medium term for additional overnight parking spots, it is not logical to continue with a one-aircraft base. The group's early morning departure to Kuala Lumpur also has not been successful from a load factor standpoint although it was important in providing connections to other AirAsia and AirAsia X flights.

As a result of its decision to close the Changi base, AirAsia will be moving back its Singapore-based crews to Kuala Lumpur. The 555am departure from Singapore to Kuala Lumpur will be discontinued - a date has not yet been set but it is expected to be pulled from the AirAsia schedule within the next couple of months.

AirAsia will cut its Singapore-Kuala Lumpur schedule by only one daily frequency, from 13 to 12, maintaining its market leading position on the route. But the changes will mean its first departure from Singapore to Kuala Lumpur will be 745am, later than the first departures for Jetstar Asia, Malaysia Airlines (MAS) and SilkAir. (MAS overnights an aircraft at Singapore, putting crews up in a hotel, something AirAsia will not consider given its low cost focus.)

AirAsia plans to continue operating all its other Singapore departures to Kuala Lumpur using Malaysia-based aircraft. The Singapore-based aircraft returned to Changi for a crew change in the middle of the day, after operating some domestic sectors within Malaysia. But these flights will continue to be operated using Malaysia-based crews. From Kuala Lumpur to Singapore, only the 1040pm departure will be cut, leaving its 925pm flight as AirAsia's last departure from Kuala Lumpur to Singapore.

AirAsia at a competitive disadvantage on Singapore to Jakarta and Bangkok routes

The AirAsia base was also originally intended to operate an early morning departure to Jakarta as Indonesia AirAsia's first flight from Singapore to Jakarta is now at 850am. Jakarta is one hour behind Singapore and Kuala Lumpur, making it difficult to fly an aircraft to Singapore in time for an earlier departure. This puts Indonesia AirAsia, which has six daily frequencies on Jakarta-Singapore, as it is unable to offer attractive schedules to business passengers going from Singapore to Jakarta for the day. Garuda, SIA, Tiger and Jetstar all offer earlier departures than Indonesia AirAsia.

Bangkok is also one hour behind Singapore and it is also a longer flight than Kuala Lumpur or Jakarta. Thai AirAsia currently operates five daily flights on the Singapore-Bangkok route but its first departure from Singapore is not until 1055am. Jetstar, Tiger, SIA and Thai Airways all have significantly earlier departures to Bangkok than AirAsia.

The lack of overnight parking spots is one of many challenges Changi faces. The airport also has seen takeoff queues during the morning and evening peaks increase in recent years, prompting Changi to reject some applications for new services during these hours.

Changi to increase parking spots in project in parallel with T4

Changi is addressing the parking issue by building a new parking area that will accommodate 17 narrowbody aircraft and nine widebody aircraft, resulting in a 24% increase in parking stands. Changi unveiled plans in Feb-2013 for the new parking area, which will be on a 38-ha plot of land south of Terminal 3 that now houses the airport nursery and reservoir. An overhead vehicular bridge will be constructed to enable buses and airside vehicles to move from the new Terminal 4.

But Terminal 4 is not slated to be completed until 2017. T4 is being built on the old site of the budget terminal, which closed in 2012, but will be a new full-service facility with aerobridges available along with access to the new parking area. The new parking area could open before T4 but it will likely take at least two years before the project is completed.

T4 will increase Changi's capacity to 82 million passengers per annum. But while Changi's existing three terminals can become crowded during peak hours, terminal capacity is not the most pressing problem. Runway capacity and to a lesser extent parking capacity have become impediments to growth.

Changi still has not yet decided on third runway

The Changi site already includes a third runway but it is now used by military aircraft and is not currently linked to the two commercial runways. It is inevitable Changi will eventually need to open up the third runway and build the necessary links to the existing airport. As CAPA reported in Mar-2012:

The most pressing issue at Changi may be runway rather than terminal congestion. Over the last several years, LCCs have accounted for almost all the growth at Changi Airport. As LCCs primarily operate narrowbody aircraft, this has led to higher growth in aircraft movements than passenger movements. As a result, taxi times have increased steadily and it is now common during peak periods for aircraft to queue for takeoff at Changi for over 30 minutes.

There are now at least 40 hourly movements at Changi from early morning to late at night with the only exception of a brief quiet period in the late morning. The biggest peak is in the late afternoon and early evening, when there are 50 or more hourly commercial aircraft movements scheduled.

... While Changi has been proactive at adding terminal capacity (with the opening of the budget terminal in 2006 and Terminal 3 in 2008) to keep up with overall passenger growth, it has not yet added any runway capacity to keep up with the even faster growth in movements. Singapore needs to make a decision on opening up to commercial aircraft the third runway at Changi, which is now only used by military aircraft and belongs to the Changi airbase, to reduce the current runway congestion and provide sufficient runway capacity for future growth.

The third runway, located to the east, is currently separated from the commercial airport and is not linked to the existing two runways. But the third runway could potentially be accessed through a new fifth terminal. Given the relative isolation of the east side of Changi, it would be logical for such a terminal to be a budget terminal and accommodate at least some of Changi's LCCs.

The Singapore government has again delayed a decision on the third runway and instead is pushing an initiative to increase capacity of the existing two runways through air traffic control improvements. A year-long study conducted for the Civil Aviation Authority of Singapore concluded in Dec-2012 that capacity can increase by 40% using Changi's runways by adapting ATC practices common at European airports. But Singapore has not yet provided details with carriers on how this 40% increase will be achieved. Carriers do not believe a 40% increase in movements can be implemented during peak hours given the current congestion during these times.

Changi has been trying to push airlines to add services during non-peak hours but the reality is for some markets airlines cannot easily stimulate demand outside peak times of the day. Airlines also point out that Changi has not been incentivising off peak hour flights by offering discounts.

The slower growth now being seen at Changi has become in some respects a self-fulfilling prophecy. All airports always want growth but Singapore is no longer taking all the necessary measures to make sure it stays ahead of the curve, thinking perhaps the growth of recent years will not be repeated. But if airlines are unable to add flights when people want to fly, that becomes the reason behind the slower growth.

Changi needs more short-haul LCC growth

Unlike the AirAsia example, the Qantas cutbacks are not driven by congestion issues but commercial realities. However the congestion issues make it harder for Changi to offset the reductions at Qantas with more flights within the region, where demand remains strong.

For example, 16 new LCC narrowbody movements would be needed to make up the loss of four A380 flights and two 747 flights. Changi has already seen a disproportionate increase in aircraft movements in recent years, leading to the current congestion issue.

The 38% growth in passenger traffic seen over the last three years was faster than expected and driven predominately by narrowbody carriers - LCCs and to a lesser extent SilkAir, which also has been pursuing ambitious growth. In 2008, LCCs accounted for only just over 10% of seat capacity in Singapore compared to 30% currently.

Singapore annual LCC penetration rate based on total seat capacity: 2002 to 2012

The expansion of the emerging long-haul low-cost sector has helped Changi achieve over the last year a better balance in terms of aircraft movement versus passenger movement growth. Scoot, which launched in Jul-2012, has accounted for a large share of Changi's growth over the last year and now accounts for 2% of total capacity at the airport. Scoot plans to take a fifth 402-seat 777 in May-2013 while Jetstar also bases three A330s at Changi.

But Scoot will be taking a hiatus in expanding from mid-2013 until after it takes its first 787 in late 2014. Jetstar also is no longer planning to grow its widebody base at Singapore for at least the short to medium term as it also transitions to 787s.

Changi will need to once again rely on short-haul LCCs to drive growth. But the growth in this sector will not be nearly as rapid as seen in recent years - partly because of the congestion issues limiting new flights at peak hours. In some cases the short-haul LCC market in Singapore is also reaching maturity. LCCs now account for over 50% of seat capacity in the Singapore-Southeast Asia market, a very high figure given that Singapore does not have domestic market.

But there are still opportunities for higher LCC penetration in non-ASEAN markets such as Singapore-China, where LCCs account for less than 20% of seat capacity. And while the period of market share grab in the Singapore-Southeast Asia market may be over, some of the individual markets are expanding rapidly, giving LCCs growth opportunities even if their LCC penetration rates do not further increase.

For example, Singapore-Myanmar and Singapore-Indonesia could see rapid growth, driven by the opening up of Myanmar and a new bilateral with Indonesia. But growth can only occur if the carriers are able to secure the slots at Changi necessary to respond to the demand.

In the Singapore-Myanmar market traffic grew by 23% in 2012 to 406,000. But there is room for more rapid growth in 2013 as Golden Myanmar recently launched services to Changi and as existing carriers in the market continue to add capacity. Growth in the Singapore-Indonesia market has been limited by bilateral constraints, which are now in the process of being lifted following a new bilateral agreement between to the two countries.

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Changi LCC growth to start lagging other Southeast Asian countries

For 2013, LCC growth will be higher in other Southeast Asian countries. The total LCC fleet in Southeast Asia is expected to grow by over 20% in 2013 to over 400 aircraft. But the number of LCC aircraft based in Singapore is only expected to increase by less than 10%, or four aircraft, from a base of 42 at the end of 2012.

The relatively slow LCC growth combined with the Qantas reduction will result in relatively anaemic growth figures for Changi in 2013. Faster growth could return in 2014 and beyond but Changi will need to resolve the current peak hour congestion issue and accelerate expansion.

Singapore Changi traffic growth to slow as Qantas drops hub and AirAsia closes base

Changi passenger traffic grew by only 5% in first two months of 2012

Qantas had accounted for 16% of capacity in Singapore-Western Europe market

Qantas sees its share of capacity in Singapore drop to only 1.4%

AirAsia's Singapore base to be closed less than two years after opening

AirAsia at a competitive disadvantage on Singapore to Jakarta and Bangkok routes

Changi to increase parking spots in project in parallel with T4

Changi still has not yet decided on third runway

Changi needs more short-haul LCC growth

Changi LCC growth to start lagging other Southeast Asian countries

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