This article first appeared in The Edge Financial Daily on December 10, 2018

KUALA LUMPUR: Malaysia Airports Holdings Bhd (MAHB) may experience slower non-aeronautical or commercial revenue growth this year as some of the group’s retail tenants’ leases are expiring and travellers from China did not shop as much as they did last year.

The airport operator’s senior general manager for commercial services Mohd Nazli Abdul Aziz said MAHB’s non-aeronautical revenue from Malaysia is likely to grow about 3.5% for the financial year ending Dec 31, 2018 (FY18).

“We did our budget in October, and we are very close to the numbers. With our impending Reset Strategy, which would result in some revenue gap due to some fresh tenders after leases end, we are not as bullish this year. Usually for non-aero, it is about 4% to 5% growth per annum,” he told The Edge Financial Daily.

Mohd Nazli said upon the expiry of these leases, MAHB will develop a better tenancy mix under the Reset Strategy to attract more visitors to five of its international airports, namely the Kuala Lumpur International Airport (KLIA), Penang, Langkawi, Kota Kinabalu and Kuching.

Citing October as an example, Mohd Nazli said there were more retail sales for that month last year, driven by Chinese tourists and the Southeast Asian Games.

“This October was quite quiet. There were still Chinese passengers, but they were not spending as much because their customs are very strict now,” he said.

For FY17, Mohd Nazli said, travel retail sales under MAHB’s non-aeronautical operation were about RM2.6 billion, of which 70% were related to duty-free sales.

“One-third of that 70% were from China tourists. KUL (KLIA and klia2) is our gem. Of the total, RM2.3 billion came from KUL, and only RM300 million from the other airports. But we are seeing [a] very good upward trend in Penang and Kota Kinabalu,” he said.

Under the Reset Strategy, Mohd Nazli said the group hopes to transform these airports from being a transportation hub to be a retail destination.

This is part of the effort for MAHB to put more emphasis on growing its non-aeronautical businesses, which according to Mohd Nazli are on the verge of surpassing the business size of the group’s aeronautical operation.

“Previously, people saw [the] airport as aero-centric, and retail was secondary, but slowly, non-aero is taking the centre stage because the airport will not be just a transportation hub [but] a destination. If you come to this part of town (KLIA) during the weekend, you cannot get parking at Mitsui Outlet Park KLIA. The community comes whether they are flying or not.

“In smaller airports like Langkawi, we understand the location, which is very strategic. So, when we call our tender, we will make sure to take brands that are not available downtown. It will motivate people to come. We also put emphasis on F&B (food and beverages), so people will come whether or not they are flying,” he said.

Mohd Nazli said MAHB had noted this shift of revenue contributions from the aeronautical operation to the non-aeronautical operation in recent years.

“Over the next decade, travel retail is going to be on the radar, while downtown retail will be struggling because of competition and it is not as captive as [the] airport. People have to pass through [the] airport, but they may not necessarily go downtown,” he said.

“We are actually in a happy phase at the moment, just a matter of riding the wave and making sure that we push the boundaries, so we can remain relevant,” he added.