Two of the biggest strategic events in Asian Aviation this year occur on 28-Sep-06 – the long-awaited opening of the new Bangkok Suvarnabhumi (pron: soo-wa-na-boom) Airport and the completion of the takeover of Dragonair by Cathay Pacific.
The competitive impact of both events will be felt for years to come.
Bangkok’s new airport will help ease congestion at the Thai capital, although the airport’s capacity for 45 million passengers will be quickly swallowed up. Don Muang airport handled 39 million passengers last year (almost ten million more than its design capacity) and 21.3 million in the first half of 2006 alone, up 15.4% year-on-year.
Reported plans to develop more capacity at Suvarnabumi, including an LCC terminal with capacity for up to 15 million passengers p/a, may need to be expedited to give Bangkok the room it needs to continue to grow.
Passengers vs capacity: Key Asian airports 2005 (millions)
Capacity crunch at key Asian airports as growth spikes. Some of Asia’s leading airports are operating close to or beyond design capacity, due to continued strong traffic and internati onal traffic demand. The capacity shortages run the risk of undermining hub competitiveness, not to mention inconvenience for passengers.
But while the opening of Suvanabhumi generates significant media interest and speculation, two other leading Asian hubs, Singapore Changi and Hong Kong International Airport (HKIA) are also attaining development milestones. Both are adding significant capacity a head of demand, which will raise the competitive stakes with Bangkok and other major airports in Asia and the Middle East.
Changi this month completed a USD150 million upgrade of Terminal 2 – the facility’s first major overhaul since it opened in 1990. The upgrade involved extensive improvements to the terminal's commercial and retail areas. Combined airport retail and F&B revenues totalled almost USD640 million at Changi in 2005, up 14% from 2004.
Meanwhile, retail and F&B sales at Hong Kong SkyMart, the 30,000 sqm retail complex at Hong Kong International Airport, reached a record high of over USD1.0 billion in 2005, an increase of more than 20% over 2004. Outgoing Airport Authority Hong Kong (AAHK) CEO, Dr David Pang, recently confirmed the Authority is studying the feasibility of constructing a third runway at HKIA in expectation of exponential growth in Mainland traffic. Earlier this year, AAHK outlined a multi-million dollar, five-year expansion plan to capitalise on growth opportunities, particularly driven by Mainland China’s expansion.
To the west, the ten leading Middle East airports are investing USD23.5 billion in new airport capacity by 2012 that will provide capacity for 318 million passengers p/a, up 292% on current levels, and taking total airport capacity to 399 million.
Bangkok may have a new airport, but the competition in the years ahead will be intense.
Cathay’s ‘Deal of the Decade’
Meanwhile, 28-Sep-06 marks the date when Cathay Pacific will take complete ownership control of Dragonair – signaling the start of an integration process that will give Cathay coveted access to 22 Mainland destinations that Dragonair serves. Other synergies are expected to flow from the deal, in the streamlining of sales and marketing functions, and the overall strengthening of the Hong Kong hub.
The Cathay-Dragonair union is part of a bigger restructuring of airline ownership in Hong Kong, Macau and the Mainland, involving a cross-equity deal between Cathay and Air China, which is also set to consummated shortly.
The restructure will increase Beijing’s direct ownership control in Hong Kong and Macau aviation, which will allow Beijing to meter the overall pace of development of the Air China-Cathay Pacific relationship – and its role in wider Mainland aviation policy evolution. It will enable Beijing to progressively reduce its controls on the domestic sector, including fares and access, which could unleash the next wave of market growth and development, including the establishment of a viable LCC sector in the Mainland.
The Air China/Cathay ownership restructure is also the next logical step of reform following the consolidation of the Mainland market around the “big three” carriers. Both moves are consistent with the CAAC’s eventual aim to strengthen the aviation sector and raise its international competitiveness. It allows Air China-Cathay to consolidate their market position, while providing China Eastern and China Southern impetus to restructure ahead of the onslaught of new domestic and international competition.
The increased Cathay shareholding in Air China sets a precedent for China Southern and China Eastern to seek strategic partners, to obtain fresh investment and management expertise.
So, 28-Sep-06 should be marked down as a key date in the development of Asia’s vibrant aviation sector.