A budget terminal for budget airlines

Low Cost Carriers may be a familiar sight at airports in the US and Europe but in Asia they are an emerging trend, with competition just starting to heat up. Airports that traditionally served hub-and-spoke carriers are now having to re-think how to cater to different needs.

In Singapore, Thai AirAsia was the first low cost carrier (LCC) to start operations into Singapore in February 2004. This was followed quickly by Singapore’s home-based budget carriers, Valuair, Tiger Airways and Jetstar Asia. As of 1 May 2006, LCCs at Changi Airport operated 428 weekly flights to 25 cities. LCCs now account for about 11.3 per cent of Changi Airport’s total passenger flights.

The business model of low cost carriers

LCCs rely on a simple business model; the ticket price paid by passengers covers basic services only. Services that the airline deem as not being demanded by the majority of their customers are not covered by the cost of a ticket. Similarly, LCCs also demand basic services from airports. As they cater for point-to-point traffic, they don’t require complex baggage handling systems to handle transfer bags. These airlines argue that they should not be made to pay for services or facilities that they do not use or require. Consequently, airports are challenged to implement a fair system of charging airlines based on utilisation of airport services and facilities.

LCCs also rely on a business model of high utilisation of assets and quick aircraft turnarounds. To achieve quick turnarounds, LCCs prefer not to use aerobridges so that their passengers can embark and disembark faster from the aircraft using both aircraft doors. They have also been known to ask for ‘power in power out’ operations. On the other hand, hub airports have been designed for operations using aerobridges, to maximise comfort for passengers and minimise accidents due to passenger traffic on the tarmac.

With a business model that focuses on regional routes with, on average, four hour flying times, LCCs want to minimise ground time spent on taxiing and take-offs at airports. Intersection take-offs, faster taxiing speeds and less time spent on queuing for take-offs/ landings are efficiency challenges that airports must manage without compromising safety. Of course, such demands for more efficient airside operations would not be confined to LCCs only, as full service carriers also demand the same.

Singapore’s response to LCC development

The LCC phenomenon is new to Asia. As a regional air hub, Changi Airport is doing what it can to facilitate LCC operations in Singapore and to help this new segment of the travel market grow.

Despite having adequate capacity in its existing two terminals at Changi Airport, the Civil Aviation Authority of Singapore (CAAS) announced in July 2004 that it would build a custom terminal for LCCs because Tiger Airways had said that it needed a purpose-built terminal to help it keep operating costs down. To support this, Tiger Airways has given a written commitment to use the terminal.

CAAS understands that the business strategy of LCCs is to charge very low fares to capture market share, as well as to create a new market or demand. To charge very low fares and yet remain profitable, the LCCs must operate as cheaply as possible. They do so by doing away with many services or ‘frills’ provided by regular airlines, such as meals on board or handling baggage for connecting flights. LCCs try to maximise use of their aircraft by flying the aircraft more hours each day; hence the insistence that airports must turn around their aircraft within 30-40 minutes. LCCs also have to reduce their ground costs through not using aerobridges or minimal bussing of passengers.

A separate terminal for LCCs is not a new concept and is practised by some airports in Europe and the US. LCCs coming to Singapore can choose between using T1, T2 or the customised terminal for LCCs depending on how they want to base their business model. Some LCCs, for instance, may feel that T1 or T2 suit their business model better.

The Budget Terminal

The Budget Terminal is located along Airport Boulevard, less than two kilometres or about a five-minute drive away from Changi Airport.

The operating costs at the Budget Terminal are kept low to meet the needs and operating models of LCCs. In line with this objective, the compact layout of the single-storey terminal has no need for travellators, escalators and aerobridges.While a key consideration is to keep operating costs low, this does not mean that the terminal will not offer any services. For example, there is a free shuttle bus service to link passengers to Changi Airport’s existing terminals and vice versa. Services and facilities such as money changers, Internet facilities, duty-free shopping and food and beverage outlets are also available at the terminal.

Approximately S$45 million has been spent on the construction and related costs of the Budget Terminal. The 25,000 square metre terminal comprises two adjacent singlestorey buildings for departure and arrival and is about the size of three football fields, or about a tenth of the size of Changi Airport’s Terminal 1. The terminal will initially be able to handle about 2.7 million passengers per annum and there is scope for further expansion should more airlines decide to use it. The Budget Terminal was completed in December 2005. Preparatory works, including airport system tests, were completed in February 2006. To demonstrate its operational readiness, trial passenger flights departed from the Budget Terminal on 2 February 2006. Preview visits to the Budget Terminal were also conducted for more than 18,000 members of the public from 15 to 19 March 2006. The Budget Terminal opened for operations on 26 March 2006.

Cost savings

Airlines, retail operators and airport tenants at the new terminal are able to reduce their operating costs at the new terminal, as airport charges such as the rental of shops and office space are up to 50 per cent lower than the existing charges at Terminals 1 and 2. Besides the savings on rental charges, airlines operating out of the terminal also save on aerobridge fees, as there are no aerobridges. Airlines at the new terminal, however, pay the same landing and parking fees as those at Changi Airport’s Terminals 1 and 2 since they use the same airside facilities, such as runways and taxiways. In addition, travellers can also enjoy greater cost savings, as the total passenger charge is also lowered. Travellers departing from the Budget Terminal pay S$13, which is much lower than the S$21 total charge at Changi Airport and is also the lowest passenger charge for international flights in the region. The lower passenger charge is possible because the general operating and maintenance costs are lower.

Retail and F&B

The mindset of keeping operational costs low is matched by a corresponding plan to maximise concession revenue. Up to 3,000 square metres of floor space have been set aside for retail and food & beverage (F&B) outlets at both the restricted and public areas of the Budget Terminal. Chosen to deliver ‘value’ and ‘variety,’ there is in all, a mixture of 13 retail outlets (including two duty-free shops) selling perfumes and cosmetics, liquor and tobacco, snacks and tidbits, gifts and novelties, chocolates and candies, fashion and accessories, books and magazines, sporting goods and general merchandise, as well as four food kiosks and one restaurant at the terminal.