This article first appeared in The Edge Malaysia Weekly on November 11, 2019 - November 17, 2019

WHILE the government has yet to concede that the regulated asset base (RAB) will be the framework for funding and developing the country’s airport network, it is proceeding with plans to expand the Sultan Ismail Petra Airport in Kota Baru, Kelantan, and Sandakan Airport in Sabah.

That is because the release of funds for this is not governed by the RAB framework but comes from the government’s development budget.

However, critics say money and attention should be channelled to airports handling larger passenger volume and that are already operating near or above the design capacity such as the Penang International Airport and Kota Kinabalu International Airport.

Penang airport saw 7.8 million passengers pass through its gates last year, 20% above its design capacity of 6.5 million passengers per year, while Kota Kinabalu airport is close to maxing out its space, handling 8.6 million passengers in 2018 versus its designed capacity for 9 million passengers.

In March, the government approved a RM450 million allocation to boost Kota Baru airport’s capacity by nearly three times, from 1.5 million to 4 million passengers per year. The expansion includes extending the 2,400m runway to 2,500m to allow bigger aircraft to land and turning the terminal into a two-storey building to accommodate arrival and departure halls.

The Ministry of Economic Affairs later revealed that the procurement process for the expansion and upgrading of Kota Baru airport was underway, led by the Ministry of Transport and is expected to be completed in the fourth quarter of this year.

At the same time, Finance Minister Lim Guan Eng announced that the government would invest RM80.9 million in upgrading Sandakan Airport, including extending its 2,133m runway to 2,500m and building a new taxiway. The project is part of the 49 development projects worth RM2.28 billion pledged by the Pakatan Harapan government for Sandakan. In September, Sandakan member of parliament Vivian Wong Shir Yee was reported as saying that the project will be completed by the middle of 2021.

Khair Mirza, associate director at transport infrastructure consultancy Modalis Infrastructure Partners, notes that conversation about the Kota Baru airport expansion project started during Datuk Seri Najib Razak’s administration five years ago for the same amount of funding.

“We can, therefore, conclude that nothing has changed in the way the ministries are handling the airport expansion projects,” he tells The Edge.

While he agrees that the government needs to expand Kota Baru airport where passenger volume hit 1.7 million in 2018, or 13% above its design capacity of 1.5 million passengers a year, he believes the RM450 million budget should be reviewed.

“We (Modalis) believe that, looking at global practice, the Kota Baru airport’s capacity can be expanded to handle at least six million passengers per year, if not eight million, with a funding of RM450 million to RM500 million. So, why are we settling for [only] four million passengers?” says Khair.

“The plans are devised with a myopic, short-term view. The government is just redoing what it has done before [in terms of airport economics] and repeating the same mistake. If nothing is changed now, we are likely to be preparing a study again for Kota Baru airport’s next expansion in five years.”

He also believes that the government could shave RM100 million to RM150 million off its RM450 million budget if it is still aiming to increase the airport’s capacity to four million passengers a year — at a time when the government is tightening its belt.

“Better access to Kota Baru airport also means international airlines can mount direct flights,” Khair says, noting that the airport can cater for demand from Thailand and Indonesia.

Malaysia Airports Holdings Bhd (MAHB) forecasts that Kota Baru airport will reach its new capacity of four million passengers by 2037, based on current passenger growth. The airport handled a record 2.06 million passengers in 2015.

The airport operator notes that five airlines — namely Malaysia Airlines, AirAsia, Firefly, Malindo Air and Scoot — currently make stopovers at Kota Baru airport, which combined provide 512 flights per week.

“Apart from these commercial airlines, Kota Baru airport also serves as a hub for offshore helicopter service provider Weststar Aviation Services Sdn Bhd’s operations in the eastern region,” MAHB tells The Edge.

MAHB is of the view that a 2,500m runway is ideal for Code C aircraft such as the A320 and B737-800. “Based on the current flight movements at Kota Baru airport, the runway is still able to accommodate Code C aircraft operations. However, ideally, a 2,500m runway is more suitable.”

An industry expert, who declined to be named, says the Kota Baru airport expansion project needs to be assessed based on various factors, including the economic development plans of the state, tourism projects for Kelantan in general and Pulau Perhentian in particular, and key drivers of passenger traffic.

“The government will need to focus on larger airports in Malaysia that are operating near or above design capacity. This is important as these airports are the major gateways to Malaysia and any delay in providing additional capacity can impact the tourism industry and overall economy of the country,” he says.

“Should the government have budgetary constraints, the public-private partnership model can be considered to attract private investors and operators. This is a development seen now in many Southeast Asian countries.”

The industry expert points out that airports can be awarded on long-term concession basis to foreign airport investors-cum-operators, who are keen to contribute towards the development of Malaysian airports.

“Such long-term strategic airport investors-cum-operators will help bring in additional flights, improve airport operations and service quality standards as well as be able to operate these airports on a financially sustainable basis,” he says.

“This will significantly help reduce the fiscal burden on the government as it will not be required to contribute to the development expenditure of these airports.”

Meanwhile, the lack of capacity is not an issue at Sandakan Airport, which handled 900,000 passengers last year against its design capacity of 1.5 million. MAHB says Sandakan Airport currently serves four airlines, namely Malaysia Airlines/MASwings, AirAsia, Malindo Air and Royal Brunei Airlines, providing 224 flights per week.

“We understand that the government plans to attract other regional airlines to fly direct to Sandakan Airport. For example, flights from China,” it adds.

Still, an aviation expert points out that Tawau Airport requires more urgent attention than Sandakan Airport. Tawau Airport’s passenger volume hit 1.64 million last year, 9% above its design capacity of 1.5 million passengers per year.

Last month, Transport Minister Anthony Loke threw a spanner in the works when he told an investor forum that his ministry was looking at alternatives, besides the RAB framework, for the future development of domestic airports, just a few months ahead of its implementation in January.

“At the end of the day, the government has to decide what it wants — airport development or low passenger service charges.

“You cannot have both. If you want a low-rate environment, then you have to accept that your airports will be cramped,” Khair says, pointing to the Indian government’s focus on privatisation of its state-owned airports in a bid to spur economic growth.

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