RM5 billion capital spending won’t make KLIA a ‘space-age airport’

This article first appeared in The Edge Malaysia Weekly, on July 1, 2019 - July 07, 2019.

Azmir: In our view, the proposed RM5 billion capex for MAHB’s projects can definitely provide an airport that is of a good standard and practical. Photo by Haris Hassan/The Edge

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THE Kuala Lumpur International Airport (KLIA) in Sepang is unlikely to join its regional peers on the list of world’s top airports for passenger experience anytime soon.

The latest consultation paper by the Malaysian Aviation Commission (Mavcom), released on June 18, indicates that KLIA will not be getting the latest luxuries found in airports such as Singapore’s Changi Airport, Hong Kong International Airport and Seoul’s Incheon Airport.

The paper sets out the development and maintenance capital expenditure (capex) allocation for Malaysia Airports Holdings Bhd (MAHB) based on the level of aeronautical charges it can impose on its 39 airports in the next three years.

According to Mavcom chief operating officer Azmir Zain, the aviation regulator has halved MAHB’s proposed capex for the 2020 to 2022 period to RM5 billion.

As a result, for instance, plans to build a new satellite building at the main terminal, and an aero-train to connect transfer passengers from the main terminal to the second terminal — otherwise known as klia2 — have been dropped.

“We reviewed MAHB’s proposed capex plan of RM10 billion for the 2020 to 2022 period (known as first regulatory period or RP1), and [concluded] that RM5 billion can only be admitted into the regulated asset base (RAB) framework during that period,” he tells The Edge in an interview.

“If we had allowed for the [proposed] RM10 billion capex, the aeronautical charges such as the passenger service charges (PSC) (to be applied under the RAB framework come Jan 1, 2020) would also increase commensurately.

“Our view is that with the RM5 billion, KLIA can already achieve that (high standard in airport comfort). The basis is to keep the PSC at a reasonable and justifiable level. With this in mind, the capex and charges can only be so much,” he explains.

Of the total capex of RM10 billion for RP1, MAHB suggested that RM7.08 billion be spent on KLIA to increase capacity. However, Mavcom reduced the capex to RM3.29 billion.

“MAHB had proposed several projects within the regulatory period, including the construction of a new satellite building, the expansion of the main terminal and link bridge in both right and left directions and expenses relating to its rebranding.

“However, after an assessment, we felt that there was no need to build a new satellite building and that the expansion of the main terminal and piers are to be allowed to proceed only after optimisation projects have been performed,” explains Azmir.

“We need to be prudent and smarter with how we spend our money. We need to think of alternative solutions first. We are of the view that MAHB has to optimise what it has first and see whether it can manage more passengers through the usage of technology and adjustments in its processes.”

Azmir also says Mavcom is agreeable to having passengers at KLIA move seamlessly between the main terminal and klia2, without the need to exit and re-enter customs and immigration counters.

“In this regard, you can build a space-age train connection between the terminals like Changi Airport or you can provide airside shuttle bus service like airports in Dubai and London’s Heathrow Airport.

“The train option would be more expensive and involve a higher capex and consequently higher [aeronautical] charges. Therefore, our view is that using buses for airside connectivity is a perfectly acceptable solution during this regulatory period. It is already being applied in many good airports across the world.”

Asked whether this would be a setback to KLIA returning to the world’s best airport ranking, Azmir says: “We would argue that the likes of Dubai and Heathrow, which are using bussing, are also on the list of the world’s top 20 airports. The absence of a train or a space-age connection (between terminals) in our view would not prevent MAHB from achieving a good Skytrax rating.”

Still, the onus is on MAHB to justify its proposed projects in RP1.

“In our view, the proposed RM5 billion capex for MAHB’s projects can definitely provide an airport that is of a good standard, practical and functions as it should be.

“If everyone says they want a space-age airport with an indoor waterfall, we ask whether they are prepared to pay more? We want to ensure that people know what they are paying for. Mavcom accepts that the whole industry may take a completely different view to us,” he says.

Not every capex proposed by MAHB has been reduced. In the case of the Penang International Airport (PIA), Mavcom is proposing a higher capex of RM1.05 billion compared with MAHB’s RM890.9 million, as it concurs that there is an urgent need to expand the airport.

Mavcom says PIA is bursting at its seams, operating at 120% of its 6.5 million passengers per year capacity. Last year, MAHB saw 7.8 million passengers pass through PIA and this number is projected to grow to 9.7 million in 2022.

MAHB has commenced its plans to expand the airport capacity to 12 million passengers per year and has initiated airport user consultations.

Nevertheless, aviation and non-aviation stakeholders have until July 18 to give their views on the matter. “We are giving the stakeholders an opportunity to express their views on whether the capex, the projects and the rate of return that MAHB is proposing are justifiable or not,” says Azmir.

Also, any hopes that the commission will roll back its decision and allow passengers flying out of klia2 to pay a lower PSC than at KLIA have been dampened as the second consultation paper was done based on the premise that the PSC for KLIA and klia2 are the same.
 

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