Non-aeronautical revenues have become critical to airports meeting their facility modernisation and infrastructure expansion needs, along with their being cost-competitive in attracting and retaining airlines, as highlighted by John D Kasarda, an expert in this arena.
In addition, to incorporating a variety of commercial functions into passenger terminals, airports are developing their landside areas with hotels, office and retail complexes, conference and exhibition centres, logistics and free trade zones and facilities for processing time-sensitive goods.
Consequently, many airports now receive greater percentages of their revenues from non-aeronautical sources than from aeronautical sources.
Airports are very much complex multi-functional enterprises serving both aeronautical needs and profitable commercial development.
The current trend in airport management and planning is therefore to complement traditional technical airport functions with revenue-generating terminal and landside commercial activities.
The emphasis is on infrastructure. For instance, in case of Hong Kong International Airport, there are several options from the both the terminals to get connected to local destinations. Features include: Airport Express Line arrives in Central downtown in 24 minutes, AsiaWorld-Expo in 1 minute; Franchised bus companies operate 40 routes; Local tour coaches make 550 trips a day from HKIA to downtown; Connection with the Pearl River Delta etc.
A recent survey has indicated that Asia possesses four out of the five top spots in a global survey of airport quality. Asia with airports in Seoul, Singapore, Hong Kong, and Nagoya accounted for four of the first five spots.
Seoul, according to the annual Airport Service Quality Survey (ASQ) released by Geneva-based Airports Council International (ACI), has the world's best airport in Incheon International Airport.
The ACI announced the results in March this year from nearly 250,000 questionnaires completed by passengers in 2008. The survey was taken each quarter throughout 2008, in 34 airport service factors (seven services and 27 facilities/operations), against 126 major airports around the world.
To its credit, Seoul's Incheon Inter-national Airport Corp. (IIAC) won the award for the fourth successive year.
Last year, with the opening of the second phase facilities, IIAC relocated airline check-in counters to the new concourse and renovated existing duty-free shops and retail outlets in the passenger terminal, causing some inconvenience to passengers. In this context, the company says winning the ACI annual ASQ Award is especially significant as IIAC overcame such disadvantages to win the prize.
IIAC heightened effectiveness and convenience through relocation of facilities throughout the terminal, and improved transit facilities as a new concourse and third runway began operating in 2008. Also, a faster and simpler customs procedure is now in operation with self check-in and automated immigration clearance system.
Two years before opening the $5 billion airport in 2001, airport administrators set up a task force that analysed what some of the world's best airports were doing right. According to BusinessWeek, the task force looked at Singapore, Hong Kong, Denver, and Atlanta. Then planners set about figuring out how the new Seoul airport could offer services that would outdo those hubs. The airport, which last June completed the $3 billion addition of a passenger terminal and runway, has earmarked $120 million for further upgrades in parking and other amenities this year.
In 2009, IIAC is going to work on its third phase of construction projects earlier than initially planned, participate in foreign airport construction and development projects, and also actualise the development plans of the surrounding areas of IIAC.
The authorities are looking at becoming one of the top five global air hubs in 2010.
Leading the way
Be it for IIAC or any other country in the region, it is quite obvious that airport infra-structure is key to gaining a upperhand in terms of positioning a destination as a hub.
For ASEAN countries, increasing competition from the People's Republic of China and India has created a new impetus to enhance their competitiveness, including a renewed effort to improve their transportation and logistics support services, for several reasons.
Malaysia has invested substantially in overall infrastructure development, including airports, while other member countries within ASEAN, notably Singa-pore and Thailand, have also followed a similar investment-intensive strategy to develop their international airports into airport hubs.
According to ADB Institute, the dream to turn Kuala Lumpur International Airport (KLIA) into a regional hub requires Malaysia to undertake several measures to overcome the competitive pressures from neighboring hubs.
This includes joining a strategic global alliance group to improve the traffic feed of the national carrier. It will also require the government to accelerate the construction of the new Low Cost Carrier Terminal (LCCT) at KLIA. The strategy to build a cargo hub at Senai should be reviewed while the promotion of tourism, especially to non-ASEAN countries has to focus on a distinctive product appeal that will enable the country to differentiate its tourism products from those of regional competitors.
In the case of Malaysia, besides investing in infrastructure and controlling airline competition, the government also implemented some specific policies to promote KLIA as a regional hub.
In 2008, the government announced the construction of a new permanent LCCT in three to four years' time with a capacity of handling 25 million passengers a year, thereby increasing the capacity of KLIA to 50 million passengers per annum (ppa). The new terminal will be located closer to the main terminal than the existing one and an Express Rail Link service will be built to link the new LCCT with the main terminal. It is expected that this new facility will be built together with the second satellite terminal during the forthcoming Tenth Malaysia Plan (2010-2015).
The new satellite terminal and new LCCT will probably increase the capacity of KLIA to 75 million ppa. There is, however, sufficient land and capacity to develop facilities to handle up to 100 million passengers and five million metric tons of cargo per annum, including four runways, by 2020.
For its part, for the 12-month period between April 2008 and March 2009, Hong Kong International Airport (HKIA) handled a total of 47.7 million passengers, 3.4 million tonnes of cargo and 296,230 flight movements, which represented yearly decreases of 2.5 per cent, 10 per cent and 1.1 per cent respectively.
India in midst of a make-over
Air services and airports do not operate in a vacuum. Rather, their operations are contingent upon the aviation policies of each country and the region.
Recognising the same, the Indian government undertook a major step towards both when it not only started signing liberalised air services agreements with several countries and at the same time opened up its airport infrastructure.
The airlines carried over 30 million domestic passengers in 2006 in India. Overall, the domestic market size is expected to cross 60 million and international traffic 40 million by end of 2010. To its credit, despite pressure from several quarters including adverse political connotations, the current coalition government has taken a series of initiatives to herald a new era in the history of airport infrastructure in India. In a landmark decision, the Indian government finalised the restructuring and modernisation of the two international airports at Delhi and Mumbai through public-private partnership in the joint-venture mode few years ago.
In the joint venture, Airports Authority of India (AAI) holds 26 per cent equity and the remaining 74 per cent is held by the strategic partner i.e. GMR consortium for Delhi airport and GVK consortium for Mumbai airport. The Foreign Direct Investment (FDI) in this transaction has been capped at 49 per cent. It has been estimated on preliminary basis that the capital investment to the extent of US$1770 million and US$1362 million will be required for Delhi and Mumbai airports, respectively over a period of 20 years, in four stages of five years each.
The two international airports were handed over to the JV companies, namely, Delhi International Airport Private Limited and Mumbai International Airport Private Limited respectively in 2006.
The Delhi airport will become capable to handle 37 million passengers per annum by the year 2010. Special care is being taken to ensure readiness of the Delhi airport in preparation for the 2010 Commonwealth Games.
Other than Delhi and Mumbai, the government is examining the upgradation and modernisation of airports in Chennai in southern India and Kolkata in eastern India on a priority basis.
Other than four major cities, there are plans to modernise 35 non-metro airports to world-class standards with focus on airside and city side development and enhancement of non-aeronautical revenue, at an estimated cost of US$1036 million. The government decided that instead of phasing airports in a sequential manner, development of all the 35 airports may be taken up under the authority and responsibility of AAI. In selected airports, particularly the larger ones, there are plans for setting up of wholly owned subsidiaries of AAI for development and operations of the respective airports.
New forms of non-aeronautical revenues
Governments across the region have transformed their policies, especially for private partnerships to bring in sector-related expertise.
In India, the favourable government policies have also been instrumental in the industry's development. The various steps taken by the government including liberal FDI norms, the AAI Amendment Act (July 2003) allowing the private airlines to fly to SAARC countries (January 2004), reduction in landing charges at the AAI airports (February 2004), and a spate of liberal air service agreements signed in the last few years have encouraged growth of airlines and related infrastructure.
To its credit, the Indian government has already given its nod for developments of airports in New Delhi, Mumbai, Hyderabad and Bangalore.
In fact, the Bangalore International Airport is the first public private partnership (PPP) in the airports sector in India. The project has been pioneering on several counts such as:
• Indian legislation had to be amended to allow private sector participation in green field airports;
• Concept of a Concession had to be introduced to the Ministry of Civil Aviation;
• Substantial State Financial Support was required to make the project viable; and
• Privately financed Greenfield Airport Construction Project.
The Greenfield airport project at Devanhalli near Bangalore is being implemented on a Build Own Operate and Transfer (BOOT) basis for 30 years with Public-Private-Participation (PPP).
In Malaysia, Malaysia Airports Holdings Berhad (MAHB), a privatised entity, manages and operates all the airports in the country, with the exception of the Senai Airport in Johor and the Kerteh Airport in Terengganu.
The advancements in technology and a need to catch consumers outside their homes has resulted in several new concepts for digital out-of-home solutions at airports. Digital advertising at airports is getting more popular as advertisers begin to understand the medium and its strengths. Experiential advertising is also getting more popular at the airport as it not only engages the passengers, but also allows for sampling and converts into point-of-purchase.
For instance, when Singapore Changi Airport launched its Terminal 3 (T3) last year, it came up with big screens to attract advertisers.
Options range from a Broadcast Digital Network featuring a range of 65-inch digital advertising screens known as Digital Eyelites that traces the arriving, departing and business passengers' airport journey, a Landscape Digital screen outside the SIA Silver Kris Lounge and "a landmark LED screen at the transit shopping street".
In the Broadcast Digital Network, the multiple locations offer high frequency of messages.
Made up of 18 42-inch digital screens measuring 1.56m (height) x 5.56m (width), the Landscape Digital screen delivers unavoidable impact to the audience with its head-on orientation. Last year, it was shared that the LED screen at Singapore Changi Airport - the landmark LED screen in T3's shopping street - is the largest digital display of its kind in an airport worldwide, measuring 3.5m x 9.8m.
Given the environment, corridor length and high dwell time in the shopping area, the airports and their contractors are looking at something large and attractive to capture attention and at same time complement the area.
Such advancements have reached other markets, too.
For instance, as India gears for a major overhaul in its aviation infrastructure across the country, the public private partnership business model is expected to embrace attractive propositions in airport advertising, which for years have eluded India owning to poor state of airport infrastructure. One such project is GMR Hyderabad International Airport Limited (GHIAL). The authorities had awarded the advertisement services management contract to Mumbai-based Laqshya Media Pvt Ltd. The contract, for a seven-year period in mid-2007.
In the pre-operation term, Laqshya's mandate included preparation of a Master Plan that includes in-terminal advertising and outdoor advertising facility with concept designs, themes and location planning etc for advertising at the airport. GHIAL was also involved with the preparation of the advertising master plan.
From a challenges perspective, for Laqshya the foremost challenge was to refrain from cluttering up the airport by planning excess signages. The other challenge was also to maintain the design concept of the airport but the ultimate challenge was of course to manufacture high quality signages in such a short period of time.