Asia-Pacific airports face funding challenges as air traffic set to quadruple by 2042

With air traffic in Asia-Pacific expected to quadruple over the next 20 years, customers and airlines will need to contribute to the cost of infrastructure improvements required to satisfy future demand by paying higher airport fees, according to the leader of a regional industry association.

The rapid growth in air travel across the Asia-Pacific region presents both opportunities and challenges for airports and airlines alike. As more people take to the skies, airports must expand and modernize their facilities to accommodate the influx of passengers. This surge in demand is not only a testament to the region's economic growth but also highlights the increasing interconnectedness of global markets and cultures. However, the financial burden of these necessary improvements is substantial, and industry leaders are grappling with how to distribute these costs fairly among stakeholders.

"To attract the necessary resources, you must cover the costs. In one way or another, this implies raising fees," said Mr Stefano Baronci, director-general of Airports Council International (ACI) Asia-Pacific and Middle East, which represents over 600 airports in the two regions.

"There is no free meal," he told reporters during a media roundtable on September 3 at Jewel Changi Airport. "If you cannot find other sources of financing, such as state support, then the primary beneficiaries of the (airport's) service are the ones that have to bear the cost."

Mr Baronci attempted to downplay the impact of such taxes on plane tickets, pointing out that international airport charges in Asia-Pacific and the Middle East have remained consistent since the Covid-19 outbreak. Instead, he contended that the cost of an airline ticket is determined by other factors such as demand, supply, and price elasticity.

Noting how air rates in Singapore have fallen as airline seat capacity has recovered, Mr Baronci referenced preliminary industry estimates for April and May 2024, which show that fares are now roughly 7% higher than in 2019. In comparison, during the peak of the epidemic, plane fares were more than 20% higher.

"Competition, which is very high at Changi Airport, will allow, to some extent, the air fare to be controlled because airlines will find a way to be competitive versus the others," Mr. Baronci explained.

"I don't think that in Singapore... the increase of (airport) charges has a huge impact in terms of a decrease in demand."

Many airports throughout the world have hiked or plan to boost passenger costs now that air travel has mostly recovered from the pandemic's effects.

In Malaysia, for example, the service price for travelers flying out to other Asean nations was increased in June from RM35 (S$10.50) to RM73, while six Thai airports boosted passenger charges by 30 baht (S$1.15) in April to fund new automatic check-in and luggage drop-off counters. Closer to home, Seletar Airport increased its fees and charges for both passengers and aircraft operators in July.

The trend of increasing airport fees is not unique to Asia-Pacific. Airports worldwide are reassessing their financial strategies in the wake of the pandemic. In Europe, major hubs like London Heathrow and Amsterdam Schiphol have also proposed fee hikes, citing the need to recover from pandemic-related losses and invest in future infrastructure. This global shift towards higher airport charges reflects the industry's recognition of the need for sustainable funding models to support long-term growth and development. However, it also raises concerns about the potential impact on air travel accessibility, particularly for budget-conscious travelers and emerging markets.

Meanwhile, Changi Airport last raised its fees and levies in November 2022, with the current total price of $65.20 per leaving passenger valid until March 2025. This includes a $10.80 airport development fee, which was enacted in 2018 to help fund new infrastructure including the forthcoming Terminal 5 (T5).

Mr Baronci stated that congestion is an issue for Asia-Pacific airports, with domestic and international passenger traffic expected to exceed 8.7 billion by 2042, more than doubling levels in 2019.

ACI also predicts that Asia-Pacific will be the fastest-growing region for passenger traffic. China is predicted to replace the United States as the largest market by traffic volume in 2042, with Indonesia and Thailand joining the top ten.

According to ACI, the predicted rise in demand will entail around US$1.3 trillion (S$1.7 trillion) in capital expenditure on regional airport infrastructure, however Mr Baronci believes such a high level of investment is unrealistic.

"Even if 50 per cent of (the $1.3 trillion) is achieved, it means a lot for the region because we will have to build new infrastructure," said he. "There is a gap that we have to address, since the demand will be higher than in other regions."

The good news is that airport construction has resumed, with Mr Baronci referring to a number of airport development projects in Asia Pacific. Examples include the new Western Sydney Airport, which will open in 2026, Cambodia's forthcoming Techo International Airport, which will begin operations in 2025, and terminal expansion projects in New Delhi, Bangkok, Seoul, Tokyo, and Taipei.

These ambitious airport projects across Asia-Pacific are not just about increasing capacity; they're also focused on enhancing the overall passenger experience and embracing cutting-edge technologies. Many of these new and expanded airports are incorporating sustainable design principles, aiming to reduce their environmental footprint while accommodating increased traffic. For instance, the new Western Sydney Airport is being designed with a strong emphasis on sustainability, including plans for solar power generation and water recycling systems. Similarly, expansions at major hubs like Seoul's Incheon International Airport are integrating advanced technologies such as biometric screening and automated baggage handling to streamline operations and improve efficiency.

When asked about the issues Singapore will face over the next 20 years, Mr Baronci stated that Changi Airport operates in a highly competitive sector.

"There are airports that are trying to catch up very fast in terms of infrastructure development, like Hong Kong, which during Covid-19 (pandemic) has built huge infrastructure and is planning to improve the quality significantly."

Mr Baronci, on the other hand, believes Changi's competitive advantage stems from its ability to combine efficient airport operations with a unique passenger experience, as well as investments in technology and staff.

"Something like Jewel, which has nothing to do with the service of moving a traveler from A to B, is a model that other airports have begun to emulate. When this was debated, there was a lot of debate about the cost."

He added: "To me, tactically, what is crucial is that you make the right decision in a timely manner... You cannot wait for the demand to arrive at your door."

The success of Changi Airport's Jewel complex has indeed set a new benchmark for airport amenities and experiences. This innovative approach to airport design, which blends retail, dining, and entertainment with lush greenery and architectural marvels, has redefined what travelers expect from a transit hub. Other airports around the world are taking note, with projects like Istanbul Airport's "Airport City" and Denver International Airport's "Great Hall" renovation drawing inspiration from Changi's model. These developments signal a shift in how airports are perceived – no longer just as transit points, but as destinations in their own right. This evolution could potentially create new revenue streams for airports, helping to offset the costs of infrastructure improvements and potentially reducing the financial burden on passengers and airlines.