Singapore Changi: The Times They Are A-Changing

The hub of choice in South-East Asia, Changi Airport in Singapore is served by some 73 airlines, offering more than 3,600 flights to 172 cities in 54 countries. This year alone the gateway has welcomed seven new airlines, including Tiger Airways, Austrian Airlines and Thai AirAsia.

The impressive figures don't stop there. September's cargo numbers show a 10.2 percent increase over the corresponding month in 2003, while passenger traffic rose 8.8 percent.

It is no surprise to find the airport growing to meet demand. A new terminal - the airport's third - will come into operation in 2008. It will add 28 gates, some specifically designed for the Airbus A380 superjumbo and increase capacity by 20mppa (million passengers per annum), bringing total capacity to 64mppa.

In addition, a single-story facility especially for low-cost carriers, the first of its kind in Asia, is scheduled to be ready early in 2006. The Civil Aviation Authority of Singapore (CAAS) has received bids from 28 companies for the tender to design and build the terminal and the winner will be announced late in 2004. It is expected to feature a simple and functional layout with the capability for future expansion. Tiger Airways has already committed to its use.

Other work at Changi includes the S$240m renovation of Terminal 2. More natural light and greenery will be introduced and the layout, amenities and retail offerings will undergo extensive improvement.

While developments such as these may be the norm for an expanding gateway, Singapore ? not usually associated with rapid or radical change ? has taken progress a step further and is assessing the working processes and operations behind such success. The ground handling market has come under particular scrutiny, and a dramatic shift is planned.

SWISSPORT JOINS THE FRAY

Singapore's decision to award a third ground handling licence is rooted in its airline-friendly ethos. The Asian Financial Crisis of the late 90s, 9/11 and SARS all hit the airline business hard but Changi reacted with lower charges, keeping both its business, and that of its airline customers, on an even keel.

Intense competition and lower yields have kept the pressure on carriers and it is this constant drive for a lower cost base that has pushed CAAS into offering the third licence at the airport.

"We are introducing a third ground handler to provide more choices for the more than 70 airlines currently operating at Changi Airport," agrees a CAAS spokesperson. "We believe the increased competition will help to bring about lower ground handling costs for airlines.

"We believe the market at Changi Airport can support more than two ground handlers. We studied the Changi ground handling market closely and compared it with the situation at major airports in Europe and America. More often than not, for airports with similar passenger and cargo traffic, there are more than two ground handlers operating. Feedback from international industry players also indicated that Changi could support more than two ground handlers."

Currently, ground handling at Changi is provided by Singapore Airport Terminal Services (SATS) and Changi International Airport Services (CIAS). The third contractor will be Swissport, beginning operations in 2005.

"The tender for the third ground handling licence at Changi Airport closed in April 2004," continues the spokesperson. "The bidders were evaluated based on such criteria as their experience, track record, business plans and the vision for their proposed operations at Changi Airport. After careful evaluation of the various proposals, CAAS chose Swissport as we believe they can add value to Changi Airport's ground handling market."

UNCHARTED TERRITORY

Swissport is delighted to have won the Changi contract, a 10-year renewable licence that includes passenger, ramp and cargo handling. Says Peter Kohl, Managing Director, Swissport Singapore Pte. Ltd: "Swissport's recent success in securing the third ground handling license at Singapore Changi Airport marks our first major step into the Asia-Pacific market. While Swissport has a strong foothold in the Americas, Europe and Africa, Asia-Pacific is largely uncharted territory on our global network map.

"As such, the Civil Aviation Authority of Singapore's decision to award Swissport the third ground-handling license is a landmark development for both parties," he adds. "For Changi, it represents the first significant opening up of its ground-handling market in 20 years, while for Swissport, the decision fulfils a long-held wish to add a key Asian gateway airport to our growing global network.

"Changi will become Swissport's home base in Asia and a launch pad for business development activities in the region," affirms Kohl. "At the present time, we are busy establishing a dedicated regional office in Singapore from where we will continue the business development work previously conducted remotely from Switzerland. Together with our newly opened representation in Shanghai, Swissport is now well-positioned to take advantage of the exciting opportunities in this increasingly important part of the world."

The signs are certainly very good. Singapore's economic and business outlook is positive, passenger and freight traffic is up and the dedicated low-cost terminal could place Changi Airport at the center of an explosive growth in low-cost carrier activity in the region. "And because Swissport can commence operations with a cost-effective structure right from the start we will be able to offer attractive terms to such carriers," concludes Kohl.

Swissport believes that the capture of a 4-5 percent market share in the first full year of operation would be a reasonable expectation, rising to 8?10 percent in years two and three. It will focus on client needs that have been largely overlooked by the incumbent handlers and plans to bring a fresh approach to what is a rapidly changing market place. "In the medium-term, though, we have no interest in being a niche player and will work toward a level playing field in the contestable market," comments the MD.

"The challenge for the incumbent players is to adapt to a new environment, whereas Swissport can actually drive that new environment," he continues. "Hence, our strategy is to provide more than a one-size-fits-all solution; the goal is not just to offer high quality, but more flexibility and customer dedication at the right price."

To help provide such service, CAAS is constructing an airfreight terminal (AFT) on Swissport's behalf, which the company itself will equip with modern material handling and security systems. The AFT will have an initial capacity throughput of 125,000 tons of cargo, and will be gradually upgraded to accommodate a capacity of more than 500,000 tons annually. Inauguration of the warehouse is scheduled for October 2005, but ramp and passenger handling operations could commence as early as March 2005.

"While our license commences officially on 1 July, 2005, we have received the green light from CAAS to start operations anytime," Kohl reveals. "In fact, Swissport is in final talks with CAAS to lease an existing cargo warehouse that is in move-in condition, which could be used to bridge the gap until our main AFT goes live in October 2005."

ALL CHANGE

The introduction of Swissport isn't the only ground handling change at Changi. CAAS has also restructured its franchise fees. The fee is levied to cover investment in the necessary airport infrastructure that allows the ground handlers to do business in Changi, as well as the time and effort spent attracting new airlines.

According to the CAAS spokesperson the organization constantly reviews its charges to make sure it is competitive. "The restructuring of our ground handling franchise fee will translate into S$10 million savings for the ground handlers and we hope they will pass on the savings to their airline clients," the spokesperson adds.

One of the existing ground handlers, CIAS, is also changing hands. Dnata, a division of the Dubai-based Emirates Group, has bought a 78.4 percent stake in the company, previously owned by Singapore's state investment firm Temasek Holdings. It is also holding talks with the companies holding the remaining 21.6 percent stake ? Air France-KLM, GlobeGround, China Airlines, Garuda and Lufthansa.

CIAS has about a 20 percent share of the baggage handling business at Changi and also operates ground handling services at Guangzhou Baiyun International Airport. According to a Dnata spokesperson the company represents an excellent investment. "The many synergies between Dnata and CIAS will come from sharing the expertise both organizations have in their respective markets."

Dnata is keen to retain the current management, given its experience and track record. "We would like the team to continue to focus on its business and strategy, and work toward the vision of becoming a global leader in ground handling, in-flight catering and airport related services," adds the spokesperson.

The Dubai organization is currently working closely with the management to explore opportunities, develop strategies and maximize synergies between the companies. It reports it will not standardize for the sake of standardization, but where it makes good sense will certainly do so.

"There are many parallels between Singapore and Dubai, one of which is the important role that the aviation industry plays in the country," notes the Dnata spokesperson. "We believe in the growth of Changi and the growth opportunities for CIAS at the airport. We will also work with the management to explore opportunities in China and the region."

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