Low Cost Terminals – “the pace is quickening” tweets Tony Fernandes, but there is actually little evidence to prove that

The AirAsia Group CEO, Tony Fernandes, never one to be shy where Twitter is concerned, came up with what was close to a President Trump-like tweet recently when he commented on the development of airport terminals for LCCs.

Well, like “stock market going up” that might not always be the case. Mr Fernandes is, after all, a frequent critic of costs at KLIA2, the USD1.3 billion ‘Low Cost Carrier Terminal’ (LCCT) that was constructed by Malaysia Airports Berhad (MAHB) and which opened at his home-base airport in 2014. Mr Fernandes is particularly outraged that the airport regulator, the Malaysian Aviation Commission (Mavcom) sought recently to level out the Passenger Service Charge rates at the KLIA and KLIA2 terminals at Kuala Lumpur International Airport, though it should be noted that MAHB representatives have in the past admitted that KLIA2 is “not an LCCT.”

But what of Mr Fernandes’ comment that “The pace of LCC terminals is quickening”. Well that is not really the case, according to our own analysis.

It is clear the nature of the airports that host LCCs has changed. Owing to the financial pressures increasingly placed on them by hard-bargaining airlines many have had to increase the scope of their non-aeronautical revenue activities, for example to counter the loss of impulse-sales of food, beverages, gifts and so on to the airlines, and whether or not the airlines agreed with that or not.

More recently, smaller secondary airports have felt the need to match the service levels of primary airports, which were leaving them behind. After all the travel industry is selling a dream. They have responded also to demand for long haul services. Whether or not these are provided by charter services or by long haul LCCs, the airport client offer has to be higher.

In a 2015 report – ‘Low cost airports and terminals (LCATs) 2015 – Can Asia learn from models elsewhere?’ – the hypothesis was that contemporary characteristics were now more often measured in terms of their degree of hybridity; i.e. the coming together of low cost and full service/network models and the adoption by both sides of that equation of characteristics evident in the other. Indeed there was an argument that few airline CEOs want to be seen to be managing specifically `full service’ or `low cost’ airlines any longer and that these descriptions were in danger of becoming representative of a previous era.

Of course the low-cost momentum has not gone away as the chart below suggests. But instead, it might be argued that it is a different kind of ‘low-cost’ today, that the bar has been raised,  and that must reflect in the nature of LCCTs. This has been particularly manifest in Asia Pacific where, taking their lead from mainland Europe, most of the construction activity was in budget terminals rather than entire airports.

CHART – The proportion of domestic and international LCC seats continues to rise, though not as dramatically in recent years as it has done in the pastSource: CAPA – Centre for Aviation and OAG

The LCCT equivalent of boxing’s ‘Rumble in the Jungle’ and the ‘Thriller in Manila’ took place in 2006 when competing low cost terminals opened within weeks of each other at Singapore’s Changi Airport and Malaysia’s Kuala Lumpur International Airport. KLIA won that particular battle, Changi having subsequently ditched its LCCT in favour of operations at existing and two new mixed operation terminals. KLIA opened the AirAsia dominated KLIA2 terminal in May-2014 (described above), with a price tag a galaxy away from those attached to earlier models, which were typically in the order of USD25 million.

The 2015 CAPA report pointed out that while LCCTs were not threatened as a species the demand for them was waning noticeably in the countries where they began – in Europe and especially the UK – while it was bottoming out too in Asia Pacific.

A quick trawl of collective news items from Aug-2017 to the present day (six months) reveals only three that are relevant to LCCTs:

  • Argentina – the intention to build a dedicated USD52 million LCCT at Buenos Aires El Palomar Airport
  • Japan – the award of a contract by Central Japan International Airport Corporation to construct a dedicated LCCT at Nagoya Chubu Centrair International Airport
  • Sri Lanka – a proposal (by AirAsia) to construct a USD100 million LCCT at Colombo Bandaranaike International Airport via a PPP.

When the original reports on this subject were written there would be one such news report every week. In summary, while Mr Fernandes is a determined advocate of these terminals as well he should be, to say that their pace is quickening is not really true.

YOU CAN READ THE ORIGINAL REPORTS referred to in this story on the CAPA – Centre for Aviation website.