Kuala Lumpur International Airport Builds ‘Next Generation Hub’

The Kuala Lumpur International Airport (known officially by IATA as "KUL," but often referred to as "KLIA") has ambitions to become a major aviation hub in Southeast Asia.

Located some 31 miles from Malaysia's capital city of Kuala Lumpur, KUL got off to a discouraging start. Press accounts of opening day on June 27, 1998, recount planes kept in holding patterns for up to an hour; passengers locked in aircraft for up to three hours because of a breakdown in the aerobridges and aircraft bay allocation system; delays of up to five hours to wait for luggage; queues of up to 30 minutes just to buy a ticket for a taxi; and queues of more than two hours to finally get a taxi.

What's more, financial crisis, SARS and Avian flu crippled passenger traffic in its first years of operation. The first phase of KUL, for example, projected 25 million passengers annually, but KUL only served 13.2 million passengers in its first full year of operation. It didn't reach that 25 million mark until 2007.

KUL has, nevertheless, since developed into an important traffic point for Southeast Asia. Malaysia Airports Holdings Berhad (MAHB), which manages KUL and four other of the country's international airports and 16 domestic airports, plans to get a bigger share of that air traffic.

LOW-COST TRAVEL

MAHB, for example, is currently constructing KLIA2, a new terminal for low-cost carriers (LCCs) to replace its current Low-Cost Carrier Terminal, opened in 2006. MHAB is keen to develop KUL into a so-called "Next Generation Hub" – a hub airport that will allow for seamless connectivity between low-cost and full-service carriers.

KLIA2 is expected to be completed by spring 2013. The new terminal at 2.6 million square feet will dwarf the current LCCT's 379,850 square feet and accommodate up to 30 million passengers annually with capacity for further expansion of up to 45 million passengers per year. MAHB says it will also invest in the construction of a third runway.

KLIA2 was planned in part to cater to AirAsia, Asia's largest low-fare, no-frills airline and a pioneer in low-cost travel throughout Asia.

KUL's current LCCT is AirAsia's largest hub, but that hasn't stopped a war of words between MAHB and the airline's outspoken CEO Tony Fernandes over the terminal's considerable delays and spiraling costs. Those costs have nearly doubled to $1.2 billion for a terminal that originally was planned to open last September.

Fernandes knows a low price when he sees one. He bought the heavily-indebted airline in 2001 from the Malaysian government for the token sum of less than a dollar at the time (although he assumed about $11 million in debt, too).

AirAsia has refuted MAHB's contentions over the size, capacity and functionality of the terminal. In particular, AirAsia did not want to have aerobridges built at the gates since it did not want to pay to use them. The budget-minded airline also announced that it had only asked for a semi-automated rather than a fully automated baggage-handling system, and that MAHB had "unilaterally" decided to set up a fully automated baggage-handling system.

Yet, another point of friction is the MAHB's imposition of a 28 percent airport tax hike, which was promptly opposed by AirAsia.

Airport taxes and fees are, however, regulated by the government's Transport Ministry, which recently gave MAHB the green light to raise passenger service charges by 28 percent, and aircraft parking and landing charges by 9 and 18 percent, respectively, over three years.

MAHB says its airport charges are still the lowest in the region. The public debate got so heated a few years ago that AirAsia had plans to build its very own airport about 6 miles from KUL.

Although KILA2 may have been conceived predominantly for AirAsia, it will also be open to other LCCs eventually operating from the facility, according to Mohamed Sallauddin bin Hj. Mat Sah, MAHB's general manager of marketing.

"It's being constructed to cater for the expansion of AirAsia because by the end of 2012, the existing LCCT will handle 15 million passengers," he says. That capacity is far below just this one airline's bullish projections for passenger growth of 45 million by 2020.

And although KILA2 will cater to LCCs, MAHB maintains that the terminal costs cannot be kept low.

"The new low-cost terminal is not low cost in terms of the services that we offer the airlines and the passengers," says Bashir Ahmad, MAHB's managing director.

Keep in mind that the current LCCT is a glorified warehouse; it was formerly used for cargo purposes and is expected to revert back to its humble origins when KLIA2 opens. Although MAHB has expanded it twice already, the building does away with amenities and lacked even a rail connection to KUL's main facilities for several years.

There is still no transfer facility at the LCCT. Passengers who need to make transfers, must clear immigration, collect luggage, then clear customs and make their way to the Main Terminal Building, which by road is 12 miles away, to check in for the next flights.

This will not be the case with KLIA2. The project, for example, includes 592.000 feet of retail space. Airport officials also contend that many middle-income people are choosing to travel on LCCs, but expect much more amenities once they land. In other words, building a "high-cost, low-cost" terminal might be a much cheaper way for MAHB to cater to that many more passengers.

"We believe Southeast Asia is a huge untapped hinterland, next to China and India," expalins Abdul Nasir Abdul Razak, MAHB's general manager, planning and development. "When you consider there are 450 milion people in Indonesia and only around 3 percent are currently flying, you can see the potential."

Ahmad adds: "The design of the building takes into account input from all potential airlines. We want to ensure that passengers are comfortable and that the new terminal will provide excellent operational efficiency."

ATTRACTING AIRLINES

With construction of KILA2 under way, MAHB is now working with its airline partners to explore potential route expansions to make KUL an attractive airport in Southeast Asia to other full-service airlines.

Sallauddin says MAHB was looking at adding new routes to Eastern and Central Europe, as well as attracting direct flights to the East Coast of the United States. The country's flagship carrier Malaysia Airlines continues to fly to Los Angeles, but stopped its flights to Newark Liberty International Airport nearly four years ago. Meanwhile, no United States carrier flies to KUL. Northwest Airlines used to, but stopped the unprofitable flights during the airport's early years of operation.

Total passenger traffic at the country's major airports last year rose 10.6 percent to 65.3 million, up from 59 million passengers in 2010. Of this, international passenger traffic grew 10 percent to 30.9 million passengers in 2011, up from 28 million in 2010.

KUL received a total of 37.7 million passengers in 2011, up 10.6 percent over the 34 million passengers in 2010.

"Yes, Singapore Changi Airport has strong business traffic, so does Suvarnabhumi Airport in Bangkok," Ahmad says. "Our traffic may be lower than Singapore and Bangkok, but we have, nevertheless, been recording good growth. Even as most regions of the world were mired in the economic crisis of 2009, we experienced strong growth."

KUL has also spent approximately $39 million to upgrade its facilities to accommodate new generation aircraft. Malaysian Airlines, for example, has already ordered the A380 aircraft while Emirates started operating the A380 to KUL in this past January.

"We can also, of course, accommodate the Dreamliner," Ahmed adds.

In an effort to further develop business, MAHB has created an incentive program for foreign airlines.

"We offer free landing for three years for new airlines," Ahmed says. "We also give monetary benefits based on passenger growth rates." A fully loaded 747, for example, could earn almost $2,500 based on a top growth rate.

Ahmad adds airlines come to Malaysia "mainly for traffic though the incentive program does provide a nice icing on the cake."

Manik Mehta is a New York-basd journalist with extensive experience covering aviation, including ground support, airports, airlines, instructure and passenger/cargo traffic. Mehta travels frequently to Europe and Asia.