The Asian Aviation Infrastructure Challenge: Where Will The Money Come From And What Kind Of Facilities Should Be Built?
Transcript
Anup Mysoor:The first panel for the day is, where will the money come from and what kind of facilities should be built? You could almost say that the topic of what should be built, Tony has given his impression, but we have a panel who has some opinions as well. And where the money comes from will also be dealt with by this panel. Let me very quickly introduce the panelists. We have to my extreme right Emmanuel Menanteau. He is the CEO of Cambodia Airports and part of the Vinci conglomerate and— but sitting here both as an investor but very much as an operator. Next to him is Bara. You know Bara very well. His picture came up on the video. CEO of Jetstar Asia, a CEO who I see very frequently in Changi Airport. In fact, whether it's landside or airside, he somehow is able to buttonhole me. Next to him is Philip Petit from AviAlliance. And sitting there as an airport investor, very keen on putting dollars to work in Asia, and we have Andreas Hilz next to me here, a partner at PwC, and Andreas has very kindly said that he's happy to take the full-service carrier position in this panel. I'm very happy to be here. I'm not going to go into any further introductions of their bios. It's all in your pack. But I will tell you this about the panel format. There's no wobblies. They've all seen the questions I'm going to ask them, and so my role is somewhat superfluous, but I'm still going to stay here. And we will have some time for you to ask questions as well. Just to remind the panelists, I'm going to try and keep us on time, but if you disagree with anything anyone says, that's something which we'd want to hear. So disagreement's welcome, otherwise we'll stick to format. Let me start off with Bara to ask you this question which may or may not be in agreement with what Tony says. You know, what do LCCs need? How do they differ in terms of hard and soft infrastructure compared to what governments like to build in Asia? And how will the needs of these terminals from your perspective change over time? And after you, if I can direct that same question to Andreas from an FSC perspective.
Barathan Pasupathi:Thank you, Anup. You've seen the earlier presentation by Tony. Let me describe the Jetstar Group and how we see the airport realm for our group, as we have got 5 Jetstar-branded airlines across Asia-Pacific. We have Jetstar Asia, which I run, Jetstar Australia and New Zealand, huge domestic markets. Jetstar Japan, phenomenal success in the last 3 years in Japan, a fully domestic carrier going international now, and Jetstar Vietnam, Started out as a domestic carrier and now it's going international. In the Jetstar world, across the group, we have got 118 aircraft flying to more than 70 destinations and we have topped close to 165 million passengers across the group. Now, I talked about 5 airlines and I'd like to start the commentary on what LCCs need for each airline by saying that no 5 fingers are the same. Each one of the airlines creates a unique market in which we operate. In Jetstar Asia, I don't have a domestic market. And many well-informed commentators here in the audience know that Changi went to build a low-cost carrier terminal very early in 2007, 2008, and soon after, a number of years, it was knocked down And we have a phenomenal development on Terminal 4 in Changi Airport taking root and taking shape. The fact is, across all groups or all airlines, fundamentally we need the airports and even the regulators in some cases to help keep costs low. And costs— keeping costs low at the airport doesn't only mean by lower taxes. It's also enabling technology to drive productivity increases at the airport. I'll talk about a couple of things we're doing in Singapore and T4 in Melbourne as well. Then we talk about operational reliability. We need to make sure the front-of-house and the back-of-house operations in the airport are seamless. So I like the comments of what the AOT President Nithinai said earlier, that it's not only about the airport and the airline. And I like the view that we have taken that the airlines or low-cost carriers are not necessarily the enemies of the airport. I like to see us as collaborators. In this world of collaboration, it means working not only with the airport but all the stakeholders around the airport, be it immigration checkpoints, airport police, customs, and public infrastructure, with governments making sure there's connectivity between the airports and the cities in which we operate in. Then we talk about something that we have not touched about is customer experience at airports. Our customers across the markets are getting very savvy. They want to make sure that any airports— and airports are competing with each other. You could drive international traffic out of Malaysia and Indonesia into Singapore. Likewise, the airports at both sides can also drive international traffic out of their own domestic markets.
Emmanuel Menanteau:Right.
Barathan Pasupathi:So the airports are actually competing with each other to give great customer experience, both in F&B, in non-aero and aero areas, and that's also very important in the realm. Now, the one thing that I will disagree with some of the comments that was made earlier is— let me first set the comments straight. There is no Hate and love relationship between Qantas and Jetstar. It's love and love relationship between Qantas and Jetstar. And we are a phenomenal group. And if you've seen the performances that was announced 2 weeks ago, it has been an outstanding, outstanding year for the group. And we collaborate not only from a low-cost carrier perspective, we collaborate from a full-service carrier and a low-cost carrier perspective. To date, our group has 32 codeshare and interline partners. So the needs from the perspective I see for Jetstar Asia are very different from Jetstar Australia. They are moving into Terminal 4, which is a spanking new terminal in Tullamarine. It has got 36 slimline kiosk check-ins, amazing automated bag drops. In Changi Airport, Jetstar Asia coexists with a multiple number of full-service carriers. So what do we do? When you have 32 codeshare and interline carriers, we need to make sure that we can accommodate full-service carriers coming on Emirates, Qantas, SriLankan, and multiple number of interline partners we have into our hubs, and it's a hub-and-spoke model and distributing them across the markets. So we really need to move on interline baggage transfers, seamless transfers, And making the— making it a hassle-free experience for the customers.
Philip Petit:Thank you.
Anup Mysoor:Andreas, if you could add, or—
Andreas Hilz:Yes, definitely. So I think when you cast the net a bit wider, looking beyond Jetstar as a low-cost carrier, you will see that sort of the low-cost carrier industry is not one uniform thing anymore. It has come to age and Tony alluded to many comments he probably wouldn't have made 10 years ago. And this has to do very much with growing customer needs. I want to start with drawing an analogy to the car industry. So for everyone who is experienced enough to remember how, like, a Volkswagen Golf looked 25 years ago, it was sort of an engine, a wheel, a steering wheel, 4 tires, and a bit of metal around. When you look at the Golf right now, it's a very different car, right? It's grew up with increasing customer expectations. And this is something that I think many low-cost carriers are facing right now. So basically, it's not only those travelers that travel the first time with them. They also need the travelers that go every week, like business travelers. And their expectations grow, and those airlines have to grow with them. And so from that perspective, I think many of those carriers more and more act and behave like network carriers. But more like Network Carriers 2.0, more cost-efficient focus, more efficient operations and all of that. So from that perspective, I think airports will need to accommodate that. But on the other hand, as those low-cost carriers move up in the sort of quality and requirements chain, that leaves again a lot of space for new entrants, for ultra-low-cost carriers that really then with the original, very simple model attract the new breed of customers that then travel for the first time again. Like Volkswagen now has a lot of models under the Golf because they needed to. And I think this is sort of a shift that also comes in the industry as it matures, and especially in the low-cost carrier industry. And so from that perspective, I think airports don't only have to focus on— I have to think about low-cost carriers for the first time, But really get more closely into it. What do those specific carrier segments need?
Anup Mysoor:Thanks, Andreas. I like this LCCT 2.0. I'm going to borrow that phrase. Tony spoke with some nostalgia of LCCT 1.0. Bara spoke about another concept and you spoke about 2.0. Emmanuel, is that still practical in the current scenario? How is that evolving as we move from 1.0 to 2.0? And, you know, what's the fair price of an LCCT? The KL LCCT of $150 million contrasts to KLIA2 of $1.5 billion. I mean, what is today a fair price for a low-cost terminal?
Emmanuel Menanteau:Maybe I— before I answer, I would like to make 2 small quotes. First, I do regret we did not have the rock music when we entered, like Tony. Maybe it might attract more people to the scene. And second, I would like to say to our low-cost friends, we have a tie, but we are not a different animal from you. So we are not in a hate-and-love relationship.
Anup Mysoor:Right.
Emmanuel Menanteau:of course, very happy to have a good partnership. About the LCCT 1.0, 2.0, I'd like to say that I don't really like the concept of LCCT. And as you mentioned, Barath, the example of Changi was a good example, starting from a budget terminal to now Terminal 4.
Anup Mysoor:Yes.
Emmanuel Menanteau:Kuala Lumpur is a little bit different, but in a way, the LCCT was really to push down Malaysia Airport, to bring down the cost, and especially the passenger service charge. I think airports, and especially in this region, airports made by public and governments, need to adapt to the capacity and the right capacity. The question is not, is it an LCCT, Or is it a normal or legacy terminal or airport? The question is how airports adapt to the need of the different airlines. The advantage of low-cost airlines anywhere in the world is that they are addressing different airports who are different people, different investors, different companies coming from government, state-owned enterprise, investors, private investors like us. So they are different people with different goals. Ourselves, of course, we need to adapt as a company, as an airport operator, to also the needs of these different airlines. So the question is, how do we adapt ourselves? How do we propose different type of service? And of course, I like the idea that— A low-cost terminal or low-cost airport is not a low-quality airport. So we really need to bring to our clients, who are of course airlines, what the airline is expecting. So rather than to talk about a new LCCT concept 2.0, is rather to say, how do we adapt ourselves to the requirements or to the—
Andreas Hilz:The needs.
Emmanuel Menanteau:new demand of airlines and they are evolving, so we need also to change at the same speed.
Anup Mysoor:Thank you. Philip, can you also take up that comment as an investor? Would you rather spend $150 million or $1.5 billion but get 2 different concepts?
Philip Petit:I think I have absolutely no doubts that you can make a viable business model for an FSC airport, for an LCC airport, for a hybrid airport, one-roof concept, you name it. But when you talk about this suitable concept, you better keep the investment horizon in mind. And as an airport investor, we take concession projects with 20, 50, 100-year durations, and we make our investments obviously with a very long-term horizon. The airlines, that we talk to, they want to know what is the price today. We might fix rates for a year. We talk about incentive programs for a year or so. They test routes and they might disappear. We've seen, for instance, Budapest Airport, one of ours in Hungary. The main carrier went bankrupt. So from one day to the other, we had 40% less passenger there. You need to have, I think, an airport that is somewhat flexible to adjust to the changing environments, and I think this is one of the conflicting areas, the horizon that you have in mind, the horizon that we have in mind, and this is where we have to, let's say, communicate fair and set up a suitable business model.
Anup Mysoor:Thanks, Philip.
Barathan Pasupathi:If I can just comment on that, Anup. Everyone knows the return on investment capital between airports and airlines. If you put a return chart, you know, you get the airports here and you get the airlines here in a very good year, even when fuel prices are low. And I like the comments of having a long-term horizon in terms of engaging stakeholders at the airport. But today's price builds tomorrow's growth. Think about that. It's— if you don't stimulate the growth, you won't fill up the F&B outlets or the other non-aero ancillary services you have at the airports. So it's very important that you have the right mix between aero and non-aero charges and look at all airlines holistically on an even platform and say that, look, we need to build this growth.
Anup Mysoor:Yes.
Barathan Pasupathi:And if airlines are struggling, I'll give you a very good example. In the last couple of years, the excessive capacity growth in Asia was phenomenal. That drove yields down. And in the last conference, if I remember, in November, out of 22 to 24 low-cost carriers in this part of the world, you can count— you can't even count in one hand the number of airlines that are profitable. So airports need to play a function in that. By keeping it— we're going to peaks and troughs. When you're going to troughs, we need to help airlines absorb the capacity where they can.
Anup Mysoor:Thanks, Barath. Andreas, can I bring you in to talk about the Australian experience? Australia is a small place, but you've had LCCs come in, take a lot of market share. You've had bankruptcies. You've had privatization of the airports. You've had changes of— Airport ownership. How has that worked and what's, what's the implications for Asia?
Andreas Hilz:I think it's been quite an interesting journey, but it's a very different market. So when, when I look at the world right now, for example, in Australia, we— it's basically a duopoly. Both low-cost carriers there are very much controlled by their parents, and as much as Baro talks about the love-love relationship, I'm sure there would be many routes Jetstar would be flying if it wasn't in team with Qantas. So from that perspective, the, the low-cost carrier growth in Australia has been much slower than it would have been otherwise from that perspective. But also, it's not an emerging market. It's a very mature market. So from that perspective, I think when you, when you look at it from an airport investor's perspective, Most of the investments go to the— either to the big airport with diversified demand so that the Budapest example doesn't play out that badly, or you look into secondary airports. But usually investors look into the airports based on the underlying demand there. So for example, take Sunshine Coast as one example where there's a lot of population growth, and so investors are happy to invest in. Do they care that much whether low-cost carriers or full-service carriers fly there? Not so much. It's a small airport, so the, the infrastructure that is needed doesn't deviate that much between a low-cost carrier and a full-service carrier that flies to a smaller airport. And so from that perspective, they very much look into the markets. And then when you translate that to Asia with all the underlying growth, then it's obviously a very different, very different investor's game. So A lot has changed in Australia over the last couple of years and some good, some painful experiences, but I think the one thing that kept it reasonably steady was also the stable regulation. And I think we come back to that a bit later because that played an important role.
Anup Mysoor:Let me bring it back to the investors. And can I take— bring you in, Philip? Which investors are really investing in airport infrastructure? Are they only the large international funds who are dominating this space? Is there room for new investors, smaller investors? And is Asia just too difficult a market for the Western investor?
Philip Petit:Tony Fernandes, I think, said he would love the business of owning airports, so I think we should happily welcome him to this industry too. We see since many years already the strategic investors, meaning airport operators, airport investors with operational know-how. We see sovereign wealth funds. We see pension funds. What we see, I think, these days is that more and more pure financial investors try to enter into this market. Let's talk, for instance, about life insurance. The logic is there. This market has been established now since, let's say, 20 years or so and has proven to be a good add-on to the portfolio. You see stable revenues, you see quick recovery periods after issues like SARS or alike. So it's, it's proven, track record is there. At the same time, since many years, we see very low interest rates, so the need for different asset classes is there. You look at equities that are historically high-valued now, you see also a rather tough real estate market, so it's quite logic that there is more and more requirement to look into this portfolio mix of infrastructure at the moment.
Anup Mysoor:And Emmanuel, you are— you've put money where your mouth is. Would you like to comment here on the same question?
Emmanuel Menanteau:Yeah, probably. I mean, I think we are changing too. Tony, you said that low-cost airlines are changing, adapting. First, we need to do the same and we are. I guess investors in these airport opportunities are changing. First, they are fantastic opportunities, and especially in Asia, we see a lot of interest from many groups, but more and more from airport specialists, which is a good thing. Good thing first in Asia to see more and more opportunities for privatization, and second, to see investors who are not only funds, but we are also a large group, concession group, investing and operating those airports with a key strategy, which is to optimize the investment, the capital, and drive revenues for the right return, which means that— which is to build and optimize the capacity and the—
Andreas Hilz:Yes.
Emmanuel Menanteau:The investment that will make this capacity. So, and of course, for those private companies and probably the same strategy as private airlines, which is to build something which is not as we used to be and to see a big white elephant airport, but really what suit the growing traffic and the demand. I think the market is changing. Airports are adapting also to the demand, to their clients, to airlines, and there are fantastic opportunities, especially in Asia.
Barathan Pasupathi:If I may add on, I like the concept, Emmanuel. It's— I said through a recent gathering of ICAO LNCUs in Singapore. There was a very good debate about state money and private money into airports, and there was a clear example in India where you see Mumbai and Delhi privatized, and you've seen private investors coming to the market, or smart money. Smart money wants smart return, and smart money would not have the tenure or longevity that you guys have, or the specialists have. And so what happened? The rates went up by 2 to 3 times and capacity was impacted. So that's very important to have a blend of not only smart money but smart money with expertise and long-term strategic shareholders at the airports.
Anup Mysoor:Well, let me— can you go a little deeper on that one? When you look at airport development, whether it's 1.0, 1.5, or 2.0, So, Anup, if you look at the data that you go through and you look at investor returns and what unlocks growth for an airport, what do you think the investors are getting wrong?
Barathan Pasupathi:The investors have to first realize that smart airlines need to earn their growth from their shareholders. I'm not only talking about state-owned airlines but state/private-owned airlines, listed airlines. We all have a responsibility to earn our right to grow. Before we make those aircraft orders or, you know, you've heard some amazing stories in India about 500 to 700 orders, in Indonesia and Malaysia likewise. Before we make those orders, we have to go back and justify an airline. It's hard work running an airline. Everyone will attest to it. It's not only dealing with costs at the airports, we have to deal with the metal, maintenance, customers. The airport is not necessarily dealing with customers, we have to deal with customers. It's hard work running the airlines, let it be alone earning the right to grow. The airports need to understand that. Many times when I engage airports, they first ask us, what's your growth plan for next year? I just reply to say, what can you do for us to enable us to grow? So the models can be very different for each airline. I'll give you Changi as a very proactive airport. Changi Airport is very proactive in the way they engage the airlines and they build sustainable growth versus You see in some other markets there's irrational growth. Whereas irrational growth is not good, it's good for the airports in the short term, but in the long run it will come back and not good for the market. So as investors in airports, one, they have to make sure that you keep the cost low for the airlines, you enable technology and operational excellence, you enable the airlines to make sure they can execute customer excellence to the customers and also because each airline has a different model, adapt for each airline's service delivery.
Emmanuel Menanteau:Maybe if I can react. We all do remember what LCC, low-cost model, created to the legacy airline 10, 15 years ago and especially in this region. It was a wake-up call. I do think that probably airports are reacting a little bit late, but we are probably at this stage where public airports, public assets, as any infrastructure and public infrastructure, their goal are basically to recover from high debt and control the cost. Private assets, or Changi, even if it's a state-owned enterprise, driven as a private asset, are here to maximize investments and maximize revenue or develop revenues non-aeronautical. So I think we are on the same line. I like the idea, meaning in Cambodia, we have a small airport, Sihanoukville. This year, we have been investing $150 million to double the capacity of our airports in Siem Reap and in Phnom Penh. We are small airports in Cambodia. It's our own money, so return on investment capital is very high. Sihanoukville is a very small airport, 100,000 passengers a year. I like the idea to give Sihanoukville to a low-cost airline almost for free and to develop, meaning the asset is there. The difference between an airport and an airline Airlines are moving planes. We are not moving airports. Airports are there. They stay there. So Tony is right. If the airport is there and there is no passenger, what's the incremental cost for an airport, especially this kind of airport, to bring new airlines? So yes, that's the difference because it's the difference between how you see the asset as a product private or as a public shareholder or investor.
Anup Mysoor:Thank you. Thank you, Emmanuel. That answers my next question, but I'm going to ask Philip to answer part of it as well. Philip, what do investors do right? They're taking a bit of a beating in the last 2 comments. And do public or private investors do a better job at infrastructure development? And what's the correct mix, in your opinion, of private versus public investment in aviation infrastructure?
Philip Petit:Well, Anup, I could say ask someone else because obviously I'm a bit conflicted in this question.
Emmanuel Menanteau:That's okay.
Philip Petit:But I think what is sometimes underestimated is the investment complexity of an airport. In our portfolio, it's usually that we see at our airport some 200-300 companies working on these grounds, and it is the airport who plays a crucial role in bringing all these activities together. So you need a good level of operational expertise. I like the example that you mentioned with airline marketing. For us, it is the most natural thing to proactively approach airlines and not only say, hey, do you want to test out a route to us? But we give you a full data set. We tell you exactly what kind of passengers you can, you can expect, what routes are flown, what are connectivities, spending behaviors, etc. We know what you need for your, let's say, data model to make a viability study. We know that we have to offer certain incentive schemes to airlines. This is one example of where certain training in this industry is certainly required, and there are many other examples. I think if you are public or private, in any case, you will try to bring the airport up to speed that the airport staff knows to manage the day-to-day business. But you see so many special let's say, projects going on. Here you need a new luggage handling system, here you need to attract new airlines, here you need to develop some property, etc. So I think private operators that have a portfolio of airports have gained to some extent maybe more experience than those governments that have more or less one main airport at their place. So governments obviously can bring in consultants trying to help them to face these challenges, but I think a consultant sometimes has a different view than an airport operator, an investor that puts his skin in the game and is somewhat more risky handling the money approach. So there are, I think, good reasons for private Andreas, would you think there's good reasons for privatizations?
Andreas Hilz:I think there is. Let me answer it a bit more general. When I look into Asia and when I look into where aviation infrastructure stands right now, in Asia, it's very much underserviced. So there are, I think, 0.2 airports per million travelers. In Europe or Australia, it's about 1 airport per million. In the US, it's 2.5 airports per million. And then you look at— and then that's today. When you look at the growth numbers moving forward, this ratio will just get even wider. So from that perspective, the question for me is not so much is it either/or, I think it has to be both, otherwise this will become a huge bottleneck and huge constraint moving forward for aviation in this important part of the world. So from that perspective, I think it only comes together. When I then think of the core capabilities of those players involved, I'm still of the opinion that an airport investor focuses their entire working life on airport So they surely must do something right. On the other hand, when I think of the public sector, one key element that makes it successful or not is regulation. And sometimes I wish governments would focus more on creating this investment-friendly environment and the stable regulation that really makes— takes one of the risks away from investors, which is usually one they are very nervous about because they have no control over it, right? So dealing with the terminal, dealing with 300 parties involved is something they do every day. Being involved in the regulation, they can't. So from that perspective, I think that was one example why Australia fared reasonably well in investment, so that there's enough airports because it was reasonable growth but very stable investment environment. If the stable investment environment wouldn't have been there, like, no one would have invested there. It's an island far away from everything else and the growth in Asia is much bigger. So I think that's a very important element and this is another example where I think this collaboration needs to be very focused on who can bring what to the table and how to make the most together.
Anup Mysoor:Bara, the examples you gave were of an airport which was 100% and owned publicly. And you also made a couple of comments about private investors coming in and jacking up charges. Can you talk about the public-private mix?
Barathan Pasupathi:If you look at Singapore, we don't have a domestic market and Singapore has championed Changi as a hub for many, many years and it's been a phenomenal success story. The advent of low-cost carriers in Changi started pretty much in 2004, with the arrivals of low-cost carriers. And today, if Changi's traffic is around 54 to 55— sorry, 54 to 55 million passengers, almost 38% of that is low-cost traffic. But still, the penetration levels are different compared to Malaysia or Indonesia. Now, given Singapore is a city-state, given that there are national interests that precede investment appetites in certain circumstances, the state has played a fantastic role through its government-linked corporations to invest in those infrastructures. Whether private investors would have seen that Without a hinterland in the market, it's a different story. It's a national story. It's a phenomenal national success in Singapore. Now, in other markets, the markets are different. In Emmanuel's case, in Cambodia, he'd be very pleased to know that Jetstar is the only low-fares airline to fly to Cambodia from Singapore when others had pulled out. And we work with them phenomenally, and it's a successful model. And come northern winter, we will actually increase our services to Phnom Penh, and he's happy about it. I just need to talk to him about better rates for the additional services. And we are also doing that— Andreas will be pleased to know that we have brought international services from Townsville now to Bali, and end September we will be starting international services from Gold Coast to Wuhan in China.
Anup Mysoor:Right.
Barathan Pasupathi:Now, these airports have a mix between state and private money. In those markets, they have to respond differently. Their tenures may not be as long as a state or government-linked fund who is owning an airport. They may be shorter, but they still need to engage the airlines to make sure they stimulate growth in the short to medium term to sustain the so-called OpEx and CapEx investments.
Anup Mysoor:Let me move on to non-aero revenues. And are non-aero revenues given enough importance when it comes to the development of LCC airports and LCC terminals? Can I direct that one to Philip to give his unbiased opinion? Give us a biased one, Philip.
Philip Petit:I guess, I guess that's up to each airport operator to, to adjust his portfolio in a suitable way. I mean, we know that aero/non-aero revenues are almost 50/50 split. This is, this is the case in North America, the case in Europe, the case in Asia. But we are always well advised to look at the big spread that we see. This is a very diverse setup at the end of the day. The reason is quite logic. If you are a hub, a big hub, you have your, your passengers that are transferring, spend a lot of time at the airport, and you have a different revenue stream in the commercial area. It depends very much on the region where you are. If you are, let's say, Japanese airport these days, you are, you are blessed with Chinese travelers who buy all these toilet seats. It's a fantastic business these days. You can be in different locations where there is not so much spending, so it's quite reasonable that there is such a big variance. Now, for us, for instance, what we try to do is to really diversify the portfolio. What I want to say is that A lot of non-aero revenues, they are called non-aero, but they are of course still highly linked to the aeronautical development of an airport. One example where this is not the case is airport cities. If they are set up in the right way, if they do not only consist of, let's say, hotels for airline crews, because then again it's much aero-linked, but if they are, for instance, office spaces for the cities itself, then you really manage to diversify your own portfolio in a suitable way. We try to do this. Example, Düsseldorf Airport. When we bought Düsseldorf Airport, this came without idle land, and only after the acquisition we developed the plans of property development. We acquired land next to the airport, and today they Andreas, a couple of quick comments from you?
Andreas Hilz:Quick comments. So I think there's a lot to talk about on that topic. I focus on one element.
Anup Mysoor:Thank you.
Andreas Hilz:I'm putting my full service carrier hat on now. I find it very interesting that airlines and airports so far very much competed. So when you think of a passenger that comes into an airport and goes into to the airline lounge and then goes on to the aircraft and then the duty-free program of an airline is now very, very big, much more than can be carried on an aircraft and you usually get the things you purchase on the aircraft delivered to home. My question would be airlines, are they really online retailers? Probably not, right? And I see for the future a huge potential in more collaboration between airports and airlines. And on that front, why can't I just buy my duty-free purchases in the aircraft when I have time and have nothing else to do because I exhausted the in-flight entertainment system already? Buy the stuff, and when I walk through the airport, I just pick up my bag from the duty-free there. And that's just one example. There are many others where I think there's a lot of potential with more collaboration moving forward amongst Emmanuel, if I can direct that one to you specifically with the use of—
Anup Mysoor:taking up the point on aerotropolises, airport cities, and usage of land banks.
Emmanuel Menanteau:Once again, there are different types of airports, meaning these large aerocities, non-aero, are basically things for very large airports. We all know that those revenues are growing faster when, of course, airports are much bigger, meaning we— for small airports from 1 to 5 million or below 1 million, we all know that non-aero or this concept of aerotropolis or aerocities are extremely difficult to develop. And so it's definitely also A question of airport size and market. In Asia, meaning we all know that most of the 80% of airports in the world are losing money. This is what CAPA has said recently. Those airports are usually airports below 1 million passengers, and we all know that, especially in Southeast Asia, there is a tremendous market to develop these airports, especially in Indonesia, for instance. And of course, the first priority is for this airport to develop international routes because they are primarily domestic airports with almost non-existing non-aeronautical revenues. There is no duty-free, there is no F&Bs, there is no lounge, and there is no upside on On that side. So I think the first priority is probably to— and with the ASEAN Economic Communities and Open Skies that are coming up— is to push and help the governments to deregulate, open those airports to international traffic and to private investment. That will be the answer to how this non-aeronautical and development of properties along this airport will help this airport to become positive, economically viable.
Anup Mysoor:Bara, final comments from you on that one?
Barathan Pasupathi:Just touching on Emmanuel, it's a fantastic point. It actually embodies why we have actually launched 2 new markets, Palembang and Pekanbaru, in secondary tier cities in Sumatra. It's the same concept Angkasapura II had. They— Jakarta is congested.
Barathan Pasupathi:International traffic is always funneled out of Jakarta, and that's why they're open to carriers like Jetstar to come in and bring international traffic to secondary-tier cities, and we started that with a big, huge collaboration and model there. And on the back of that, we talked about tourism bodies. The Indonesian tourism body has got a mandate, a phenomenal mandate, to get US dollar receipts into the country given the currency flows you see today, and that supported us as well. So it's a fantastic story and more of that collaboration needs to happen across the markets.
Emmanuel Menanteau:A very good example, sorry, is Makassar. Makassar is a 10 million passenger traffic. They have 2 flights, international flights a day. Sometimes, not every day out of the week for a 10 million passenger airport. I think something has to change.
Anup Mysoor:Thank you very much. Let me open it up to the floor for questions. If you have any questions, do raise your hand. I see a lot of people in the crowd and they all seem very shy. I mean, are the LCCs not in the crowd? Do the airports not have any questions for our investors and airlines here? In which case, it's left to me to ask that. that final question which is, do you think that the rest of the Asian airports, be they large or small, I'll leave that to your own discretion, should be privatized? Can I start with you, Andreas? Very quickly.
Andreas Hilz:I think it's not a one-size-fits-it-all. So I think we talked about very much about diversity and the different needs of different carriers and also the different needs of different airports. So from that perspective, I think there are good examples in both directions, and I would say if it's not working, it should change. If it's working, I don't see a reason.
Philip Petit:Our 100% shareholder has currently some $120 billion under management on its way to $200 billion. In that egoistic sense, I hope for a lot more privatizations to come in Asia.
Anup Mysoor:Thank you.
Barathan Pasupathi:I'll taper that comment with some caution. Yes, I think it's good to get private investment into markets. However, its age and stage of each country and each airport, and for airports which are bursting at their seams, with capacity constraints, and if there's no state money, then it's a good mix to have to bring in some private investors.
Anup Mysoor:Thank you. Manu?
Emmanuel Menanteau:I hope so, but I'm not sure we'll have pockets deep enough to buy all these airports. No, seriously, I do think that it's— of course not, because it's not the same in every country in Asia. I mean, taking the example of Singapore or Malaysia, they are already at a very very advanced stage of developing infrastructure and airport infrastructure where we see tremendous opportunities in countries like Indonesia, Philippines, where there is a huge need of new infrastructure and we can see, we know that governments won't be able to finance all these developments. So they will need private investors like us and, of course, we'll be pleased to help.
Anup Mysoor:Thank you very much. And with that, A big hand for our panel. Thank you very much.
Barathan Pasupathi:Thank you.
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