BLOG / The strategic reshaping of Singapore Changi Airport after COVID-19

Management note

Singapore Changi Airport, like most of the aviation sector, is no stranger to crises. In the last 25 years the airport has experienced the Asian Financial Crisis, September 11, SARs, the Global Financial Crisis, and most recently COVID-19. The pandemic, of course, dwarfed all those that came before in terms of scale and severity.

But Changi Airport looks set to emerge from the pandemic even stronger than before. And given that it has weathered the storm better than some of its closest competitors, it is likely to quietly emerge as the pre-eminent aviation hub in the southern Asia Pacific region, extending all the way up to and including Hong Kong.

This is no accident. Changi Airport has achieved this position by design. The foundations were established all the way back in the 1970s when the then-Prime Minister, Lee Kuan Yew, had a vision that Singapore could emerge as a leading global hub and identified Changi as the site where this could be achieved.

Ever since then, there has been a relentless focus on adhering to this vision with a commitment to excellence in operations and customer experience. The airport has recognised that developing a world class airport not only requires investment in infrastructure, but also in employee learning and development; understanding customers; technology and digitalisation; collaboration with partners; and engagement with the local community.

Changi has repeatedly taken advantage of crises and turned them into opportunities to re­invent itself. And COVID has been no exception. During these last two years the airport has continued to invest in training, service quality, digitalisation and community engagement, to become structurally stronger. And it expressed its confidence in the future by taking advantage of the temporary closure of Terminal 2 to press ahead with upgrade and expansion works.

Changi was able to demonstrate resilience during the pandemic precisely because the airport had been consciously investing in becoming a smart and agile airport in the years prior. As a result, when the pandemic hit, the airport was well-placed to respond.

Meanwhile, Singapore’s key competitors in the region, Hong Kong, Bangkok and Kuala Lumpur have become strategically weaker. Hong Kong’s role as a global financial hub was already being challenged even prior to the pandemic, as a result of China asserting greater influence over the special administrative region, and due to political unrest related to pro-democracy protests. Stringent border restrictions in Hong Kong and the continuing zero-COVID policy in China have resulted in its airport recovering more slowly than Singapore.

Hong Kong’s relative weakness is likely to create space for Changi Airport to emerge as the leading hub in the southern Asia Pacific region, especially as other competitors such as Suvarnabhumi Airport in Bangkok and Kuala Lumpur International Airport may see their growth compromised due to the weakness of the national carriers based at these two airports. Thai Airways is rehabilitating under bankruptcy protection and Malaysia Airlines is undergoing restructuring, as a result of which both airlines have shrunk.

The advantage that is emerging for Singapore in the near term can be converted into a structural, long-term positive by leveraging the strategic initiatives that Changi has been investing in over several years.

Further afield, competition for Changi from Middle Eastern hubs will continue to intensify for long haul traffic between Europe, the Middle East and Africa on the one hand, and Southeast Asia and Australasia on the other. Gulf airlines and airports remain highly ambitious – as evidenced by the recent announcement about the expansion plans for Riyadh Airport – but they are not in a position to serve intra-Asia Pacific traffic, which will be one of the key growth markets of the future.

However, Changi will need to keep an eye on the prospects for Indian airports emerging as competitors. Such competition is likely to develop in two phases:

  • India OD Traffic: Indian carriers – especially the two largest operators, IndiGo and the Air India Group – are planning to aggressively expand their international networks. This will see them launch more non-stop services between India and points in Asia, Australia, New Zealand and the West Coast of the USA and Canada, enabling passengers to bypass intermediate hubs such as Singapor Foreign carriers too are launching more non-stop services to India on routes where Changi Airport was earlier capturing the largest share of traffic e.g. Qantas’ Sydney-Bengaluru and Melbourne-Delhi services, both of which have commenced in the last year.
  • Sixth Freedom Traffic: In due course, as a consequence of Indian carriers expanding their international networks, they will increasingly have the ability to carry sixth freedom passengers via Indian hubs. In future, a passenger travelling for example, from Jakarta to London, or from Paris to Melbourne – and such routes where Singapore is a competitive hub – will likely have the option of flying via Delhi or Mumbai on an Indian airline instead.

Changi is vulnerable to competition emerging as a result of more non-stop eastbound services to/from India. But for Indian airports to capture a significant share of sixth freedom traffic away from Singapore will require them, and their home carriers, to offer a comparable experience to Changi and Singapore Airlines. That is easier said than done.

There is no question that infrastructure and the passenger experience at Indian airports have been transformed beyond recognition in recent years. Iconic terminals such as Mumbai’s T2 and the soon-to-be-opened T2 at Bengaluru are physically world class terminals. But building an airport is not the same as building a Changi. Indian airports will need to bring all stakeholders together to create a unified system that delivers a seamless experience. And it will require a transition from an infrastructure mindset to a service mindset.

There is a further challenge in that Indian airports and airlines have different owners. And the concept of a Singapore Inc. approach in missing in India (where the airport, airline, tourism board and government agencies such as immigration, customs and security, all collaborate to deliver a seamless experience).

Nevertheless, India, and in due course Indonesia, represent arguably the greatest threats to Singapore’s pre-eminent position. Although realistically, this is a 10-20+ year proposition. But as is highlighted in this briefing, Singapore’s success is founded on the fact that it has always taken a long-term, inter-generational view of the future.

Changi undoubtedly recognises that the rise of Indian airports and airlines is inevitable. It is therefore likely to be pragmatic enough to realise that while they may represent competition on the one hand, collaborating with them opens up opportunities that are otherwise not available to Singapore.

For example, Changi by itself can never capture a share of India’s westbound traffic, which will be one of the key intercontinental growth corridors of the future. Singapore Airlines recognised this, which led to it taking a 49% stake in Vistara, which may shortly convert to a shareholding in the recently-privatised Air India.

Pursuing a similar strategy, Changi Airports International (CAI) could therefore consider making strategic investments in one or more major Indian airports, to participate in the wider and long­term growth of the Indian market. CAI has held a stake in the greenfield Durgapur Airport since 2009, but with its inconsequential traffic volumes, this appears to have been a tactical move rather than one designed to further the strategic interests of Singapore Changi Airport itself.

In conclusion, Singapore Changi Airport has been designed to succeed as a result of its unique combination of vision, capital, infrastructure, customer-centricity and agility. While capital and infrastructure can be replicated, it is the other less tangible elements that have enabled Changi to offer a consistently superior and differentiated proposition.

The airport stands to benefit from structural weaknesses that are visible at its key competitors in Southeast Asia and Hong Kong. That said, new competition is emerging from India, and in future possibly from Indonesia. And while it may take a couple of decades before they become genuine threats, Changi has never been one to be complacent and it cannot afford to be so today. Now is the time for it to be considering how to turn them into opportunities.

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