CHANGI AIRPORT (Competitiveness)

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CHANGI AIRPORT:

(Competitiveness): 5.

Mdm Ho Geok Choo asked the Minister for Transport what are some of the new measures and steps that his Ministry is taking to keep Changi Airport a competitive and leading airport in terms of (i) uniqueness; (ii) costs; and (iii) service levels in the midst of growing competition from Asian capitals developing their airhubs and establishing budget airlines.

The Minister for Transport (Mr Yeo Cheow Tong): Mr Speaker, Sir, as I informed hon. Members late last year, my Ministry's goal is to anchor our existing airline partners here, attract new airlines to use Changi Airport, and position Singapore for the long term. These fundamentals have not changed.

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Let me describe some of the key measures to achieve these objectives. Changi Airport has to maintain and even improve upon its unique "Changi Experience" to its passengers and airlines. Passengers using Changi enjoy speedy immigration and other processes, a lively and bustling shopping mall, friendly service, a wide range of passenger facilities and first-rate infrastructure. Surveys have shown that passengers do value this very pleasant experience. To continue to enhance this "Changi Experience", we will continue to innovate and improve our facilities and services. Terminal 2 (T2), which opened in 1990, is now undergoing its first major upgrading at a cost of some $240 million. The upgrading works will be completed by the end of next year. The construction of Terminal 3 (T3) is on schedule. When completed in 2008 at a cost of $1.75 billion, T3 will provide capacity for 20 million additional passengers in an exciting setting. Plans are also underway for the major upgrading of T1, to revitalise it and enhance the range of services available there. We expect to begin upgrading works at the end of 2005, and to complete them in 2008.

The upgrading of T1 and T2 will rejuvenate these buildings and give them a modern, fresh look with its own individual distinctive character. In addition, the current retail areas will be enlarged and re-configured to offer passengers an even wider range of shops and merchandise. They will be given more interesting and appealing shopfronts. There will also be better integration of the shops, F&B outlets and new passenger facilities. All these will give passengers a new and even more interesting and exciting "Changi Experience". The new T3, with its outstanding architectural and interior design, will also provide passengers a brand-new and enjoyable experience in air travel.

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Sir, we will continue with our efforts to attract and anchor airlines at Changi Airport. One key factor is our connectivity. Strengthening our connectivity will attract even more airlines to fly here. In the past year alone, Changi welcomed six new airlines, bringing the total number of Changi's airline partners to 69. Our international network has also grown to 150 cities. By facilitating more airlines to build their network to and through Changi Airport, we will also strengthen our status as a regional air hub.

We are also looking at ways to address the needs of low cost carriers (LCCs) at Changi Airport. The success of LCCs hinges critically on their ability to keep their costs low. This, in turn, enables them to keep their air fares low. They do so by doing away with frills. LCCs are a phenomenal success in the US and Europe, and this phenomenon has now arrived in Asia. At home, Valuair and Tiger Airways expect to be flying later this year. To maintain Singapore's position as a regional air hub, we will need to attract not only more of the traditional full service airlines but also the LCCs. CAAS is now studying the feasibility of building a LCC terminal at Changi Airport that will meet the operational requirements of these airlines.

Sir, our efforts to improve Changi's competitiveness focus both on reducing costs and incentivising traffic growth. Last year, we introduced a $210 million Air Hub Development Fund and the SARS relief package which include landing fee and rental rebates to help the airlines through the difficult times. There was also the post-SARS Air Traffic Development Scheme to incentivise the recovery of passenger traffic at Changi Airport. This year, we have put in place a new $40 million Growth Incentive Scheme (GIS) for airlines. This new scheme will operate from 1st January this year to 31st December next year. It will

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reward each airline based on its passenger growth, and will be on top of the other incentive schemes or rebates.

Finally, as announced recently, we will be introducing a third ground handling company at Changi Airport. The enhanced competition will improve ground handling services at Changi, and make them more price-competitive. I have just described some of the measures to maintain Changi Airport's status as a leading air hub in the face of the changing, more challenging and competitive environment. These measures are dynamic, and we will continue to evolve them to meet changing circumstances.

Mdm Ho Geok Choo: At this point, Sir, I would like to declare that I work for SIA Engineering Co.

Sir, what actually is the rationale for the establishment of a third ground handling company? Has the number of foreign carriers or the volume of business activities at Changi grown to warrant the establishment of a third ground handling company? Has the overall business pie grown bigger, or is it the intention to have the three ground handling companies fighting over the same pie? May I ask the Minister: is it a belief that with three ground handling companies, there will be a higher motivation to cut operating costs to survive? If not, would not the existing two ground handling companies have taken the initiative to reduce drastically costs in the first instance when the aviation industry was hit by the downturn last year? Has it been studied that with three ground handling companies, there will be an overall improvement at Changi with better service levels and more attractive pricing for handling of aircraft in Singapore? Will it make Changi a more attractive airport for the operators to fly to? Will there also be a review of the special permission to US carriers to self-handle?

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Mr Yeo Cheow Tong: Sir, Mdm Ho asked about the reason for having a third ground handler. As I mentioned very briefly in my reply, it is to ensure that the situation in Changi is more competitive and that the airlines will be able to enjoy better service and, hopefully, better pricing as well.

Sir, Mdm Ho asked whether there has been growth in the passenger load and number of airlines to justify having a third ground handler. Let me bring the hon. Member back to 20-odd years ago, way before her time, when Changi Airport started at T1.

At that time, we only had two ground handlers - today's SATS and CIAS. The passenger traffic at that time was only 8.1 million, compared to 28.9 million in year 2002. She asked whether the passenger load has increased. I would say yes. Since the birth of SATS and CIAS, passenger traffic has more than tripled. In fact, over the next few years, I expect the traffic to quadruple over the 8 million that Changi registered in its first year of business. She asked about the number of airlines. Yes, I am happy to tell her that when we started at Changi, there were only 34 airlines. Today, there are 69.

In terms of cargo, the growth has been phenomenal. When we started in 1981, the cargo volume was only 200,000 tonnes a year. Today, the cargo traffic has gone up to 1.6 million tonnes. That is an increase of eight times. So I would say that the business pie has definitely grown and we expect the business pie to continue growing in the years ahead. I think it would be instructive for me to show the experience elsewhere.

Hong Kong International Airport has a throughput of 27.4 million passengers last year and they have seven passenger handling companies there and three apron handling companies, as well as three flight catering companies. That is in

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comparison with our two operators. Amsterdam Schiphol Airport has about 40 million passengers a year. They have four ground handling companies and three flight catering companies. It shows that in Changi, there is plenty of scope for a third operator. The third operator would definitely stimulate the existing two operators to become more innovative, and perhaps come up with new methods of work, improve their productivity and therefore be able to offer a better service and, hopefully, at a better price.

She asked whether we will review the special permission given to US carriers to self handle. Sir, this is part of the bilateral air services agreement that Singapore has with the US and therefore it is something that is entrenched. Although the US carriers have the right, so far, they have not done so because there are other factors involved, such as whether it is more cost-effective for them to do it versus buying services from SATS, CIAS or the third ground handling company that we will be setting up.

Mr Steve Chia Kiah Hong: Sir, in view of the cheaper alternatives sprouting around us, should not the Minister consider cost reduction as the top priority, rather than simply the upgrading and enhancements as detailed? Also, will this upgrading and enhancements add to the cost for the users?

Mr Yeo Cheow Tong: Sir, if Mr Chia had listened to my answer just now, I did mention that we have embarked on significant cost reductions for the airlines. But, in the first place, Changi Airport is already very cost-effective. Today, Changi Airport is the second least expensive airport in the whole of Asia. So we are already very cost-effective, but we are finding more ways to be even more cost-effective. One of the ways, as I have said, is to make the ground handling market in Changi more competitive. And if the third operator comes in and is able

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to stimulate the market and help to reduce ground handling cost, it will make Changi Airport even more attractive.

Mr Chia also asked whether we are spending too much money on enhancements of the airport and whether it will end up costing passengers more. Sir, the situation with regard to the airport facilities is a very competitive one. T1 was built in 1980. T2 was completed in 1990. Between 1990 and now, I think Mr Chia would have realised that many new airports have opened and they are all very modern, very advanced and very attractive. If Changi Airport does not take steps to continue upgrading itself and keep pace with the competition, we are going to be left far behind. So we have no choice but to continue making sure that our facilities and services are tip-top so that passengers would choose to fly through Changi Airport if they have a choice of other airports to fly through.

Will the cost be passed on to the passengers? Sir, as I have mentioned just now, our costs are already kept very low. We will try not to pass on any upgrading cost, but of course, when operating costs are increased, because of manpower cost increase and technology, we may have to pass some of that to the passengers. But, so far, we have tried not to increase our costs to the passengers.

Mr Inderjit Singh (Ang Mo Kio): Sir, I would like to ask the Minister whether the Ministry will be opening the position of the third operator to foreign players or is there a plan to set up another Government-linked company as we did in the past.

Mr Yeo Cheow Tong: Sir, in preparation for the appointment of a third operator, CAAS actually went round the world, talking to all the major international players, to alert them to what we are doing and to interest them in bidding for that licence.

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Mdm Ho Geok Choo: Sir, the apparent effect of having three operators is that the third ground handling company will also have its own fleet of equipment. With an increase in the operating equipment and vehicular traffic at Changi, will it not become more hazardous for staff operating at the airport? What measures are being considered to ensure a high level of safety?

Mr Yeo Cheow Tong: I can assure Mdm Ho that all these will be well looked after and that the safety at Changi will definitely be maintained at the highest possible level.