Smearing your landlord, ahead of your new home

Artist impression of the new KLIA2 complex

Yesterday, Malaysia Airports Holdings Bhd. (MAHB) announced that the new low cost terminal dubbed ‘KLIA2′ would expect to cost between RM 3.6-3.9 billion. The increase in cost is because of added features, such as aerobridges and automated baggage handling system, on top of the expanded floor area by 71%, an integrated transportation hub and a third 3.96km runaway.

Improved, larger KLIA2 to cost RM3.9b

Written by Isabelle Francis

Wednesday, 30 November 2011 15:15

SEPANG: Malaysia Airports Holdings Bhd (MAHB) revealed yesterday that the new KLIA2 will now cost 95% more at RM3.6 billion to RM3.9 billion due to significant changes at the terminal, which include the very much debated aerobridges. MAHB managing director Tan Sri Bashir Ahmad Abdul Majid, however, denied any cost overruns at the project, where the deadline has been further pushed to April 2013 from the first half of next year. “After discussing with all our stakeholders, airlines and the public, these are the requirements,” said Bashir at a media briefing on the KLIA2 yesterday. He added that the bulk of the cost swelling stemmed from increased earthworks as a result of the enhanced footprint area of the terminal (RM670 million), bigger terminal building (RM420 million), longer runway at 3.96km from 2.5km initially (RM180 million) and better public infrastructure (RM260 million), among other expenditure. BIGGER AND BETTER … Significant changes to the terminal and facilities at KLIA2, including the much discussed aerobridges, will raise the price tag of the new low-cost carrier terminal by 95% to close to RM4 billion. Interestingly, the incorporation of aerobridges, which was the core of the dispute between AirAsia Bhd and MAHB, cost only RM120 million or just about 7% of the entire cost increase of RM1.6 billion to RM1.9 billion. Of the cost increase, about RM530 million is for the construction of buildings of government agencies. The improved KLIA2 will also see more aircraft stands, which will incur RM160 million more in costs and upgraded air traffic control facilities, which will see an additional RM130 million in expenditure. He also said the cost of the KLIA2 meets global standards at some RM4,900 per sq m while the cost per passenger works out to only 25 sen. Bashir added that the adjustments to the size and design of the KLIA2 came about because MAHB needed to meet the government’s requirement to segregate international and domestic passengers. He said that MAHB had also considered exercising the option to include aerobridges and fully-automated baggage handling system, which were not considered before, as requested by an airline partner. “We have decided to bring forward the capex. It is better for us to delay by a few months rather than doing them (the changes) later and go through a lot of interruption,” Bashir told newsmen gathered for the briefing yesterday. He said as a result of tedious tender processes, requirement changes on aerobridges and runway extensions as well as the baggage handling system, the project’s completion has been delayed to the end of next year and the KLIA2 will only be operational ready by April 2013. “It was only in June that discussions on whether the baggage handling system be fully automated were held… in trying to agree (on the matter), we had weekly discussions with our airline partners. “The best way to handle 45 million passengers is to have a fully-automated system,” said Bashir, explaining the time line and causes of the delay. He added that the terminal has been extended by over 71% in terms of space, enough to handle 45 million passengers per annum versus 30 million as initially planned. He also adressed concerns that a costlier airport does not necessarily mean higher airport taxes for travellers because aeronautical charges are highly regulated. Based on the current numbers, Bashir said, it should be no problem for KLIA2 to break even within its first few years of operations. The aeronautical charges have also been a reason for dispute between AirAsia and MAHB for awhile now. The Transport Ministry recently approved a RM14 increase in airport tax to RM65 per passenger in most of its international airports while the LCCT in KLIA and the Terminal 2 in Kota Kinabalu saw charges go up by RM7 to RM32 per international passenger. Landing and parking charges, meanwhile, will rise in three stages over three years — landing charges will be 9% while parking charges will be increased by 18% per year. This is the first increase in charges after 17 years. “We are not allowed to go back to the government (for an increase) until 2014. It is my understanding that whatever charges at the current LCCT applies at KLIA2,” Bashir added.

Like expected, AirAsia CEO Tony Fernandes used social media and micro-blogging to rubbish the project update announcement and MAHB’s plan for KLIA2:

Taking cheap potshots of the announcement is really unbecoming of a corporate leader which so many youngsters admired. Nevermind the fact that he is now a director of a GLC company, which is listed on the Bursa Malaysia and taking potshots against another GLC which is also listed.

The fact is that MAHB expanded its earlier plan which the addition of 24% more gates and piers, a fully automated baggage system, a separate level for arrival and departure and separation between domestic and international flights. On top of that, aerobridges for the safety, comfort and efficient or embarking/disembarking passengers would be introduced and the strategic ’3.96km runaway 3′ is added to the current 32R and 32L runaways.

A second air traffic control tower would also be build. This would compliment the existing ATC tower, already been in operation since day one KLIA was in business since 1998.

AirAsia group of low cost carriers are expected to be the airlines which will benefit the most. As per now, AirAsia is already ferrying in and out 17 million passengers via the low cost carrier terminal (LCCT). The new KLIA2 would enable the international airport for Kuala Lumpur to cater upto 70 million passengers per annum. of which 45 million of those would fly through this new terminal where else the main terminal building (MTB) is designed for 25 million passengers, before an additional ‘Satellite D’ is needed.

68 piers and gates and aerobridges would make the boarding and disembarking of passengers and serve the needs of AirAsia’s ‘fast-turnaround’ operation, which is key element in their business model. More bay areas for off-pier parking is also available.

The increase in airport tax is timely as MAHB have yet been increasing its charges since 19 years ago. The current charges is one of the lowest in airports of the same class all over the world. Example, the landing charges for a typical fully loaded B737-800 or A320 would be RM 773.00 where else the aerobridge charges is at RM 85.00 for the first three hours or RM 30.00 for an hour. Parking charges is 50sen for every 10 square metres.

The current airport taxes for MTB international and domestic flights are RM 65.00 and RM 6.00 respectively for each passengers. For all LCCT flights, the taxes are RM 32.00 and RM 6.00 respectively. Compare that to Changi SGD 28.00 or Seletar SGD 18.00 or London Heathrow GBP 80.00. Let us see which traveller who was willing to pay eighty quids from London Heathrow consider new airport taxes as ‘mahal‘.

Comparatively, the aerobridge charge would only translate to slightly less than 25sen per passenger, which is only 0.167% of the typical AirAsia fare to Johor Bahru or Penang. If the KLIA covered parking charges for cars RM 2.98 per sq. metre per hour as a yardstick, then the tarmac parking charge would be six times cheaper.

It is very childish and low for Fernandes to rubbish the entity which provided the place of business for him, just like that. After all, low cost carrier which Fernandes build and expanded to what it is today grew because of the consideration extended by MAHB. For example. What Fernandes did not tell the consumers that when they first started, they were waived of the MAHB landing charges for the first three years. That allowed the then the ‘new-kid-on-the-block’ to have a better cash position and room to grow. Then, he asked for another two more years.

This ‘subsidy’ which AirAsia enjoyed lasted for a while. Then they are made to pay. However, Fernandes was not forthcoming to pay up. Upto a point late last year, AirAsia owed MAHB RM 106 million in all sorts of charges. It was said he was cash-strapped and deferring all the dues. Amongst the suppliers which include petrol companies, “AirAsia is a bad paymaster” is a common phrase to describe them.

It is very inappropriate for AirAsia CEO to make snide remarks about the cost of construction of KLIA2, especially the ‘third runaway’. His AirAsia people were part of the working committee where they participated very actively on the ‘third runaway’ plan. The new low cost carrier complex is designed for the comfort and efficiency of movement and management of passengers, which should be seen as ‘complementary’ to AirAsia’s business model.

Fernandes also raised about MAHB’s ‘monopoly’ in the airport operation business. That is an unfair remark because MAHB is a GLC and their charges is regulated by the Federal Government. Any proceeds or surplus made from operations are being ploughed back into the airport operation business. For example, MAHB raised the funding for this new RM3.9 billion complex on its own, without taking public funds.

The “Thirteen Million Plus Ringgit” question; Why only raise the matter in public now?

Fernandes had the while played the ‘under-dog card’, where he gets by criticising as part of his ‘offense is the best defense strategy’, with incessant barks. For years, he had been criticising Malaysia Airlines even though AirAsia benefitted immensely from Federal Government policies, especially during PM ‘Flip-Flop’ Tun Abdullah Ahmad Badawi’s ‘Level Four Boys’infested administration. A quick example was 2006 ‘Airline Rationalisation Plan’, which was originally initiated by Idris Jala but quickly bastardised by the ‘Level Four Boys’ for AirAsia’s advantage, where the nation saw the ‘rape and cannibalisation’ of the Rural Air Service and the explicit restriction for Malaysia Airlines to adhere to a minimal or floor ticket price.

At the peak of the series of ‘demonisation of Malaysia Airlines’, Fernandes managed to convince Khazanah Holdings Bhd for the ‘share swap deal’ inked in August this year. That won him part ownership and BOD seats (plus Exco) in the national carrier. Fernandes managed to strategically ‘sell the lemon’ that AirAsia was a better managed airline although Malaysia Airlines’ revenue is actually 350% more. It is common knowledge in the market that AirAsia is a ‘bad paymaster’.

So how could a company always short in cash is a ‘better of the two’?

Never the less, the perception game was in favor for the former record executive. As part of the ‘rationalisation’, Malaysia Airlines’ own low cost carrier FireFly jet services which is growing directly into competition against AirAsia and becoming very popular, was axed and Fernandes managed to ‘throw out’ the champion, Eddie Leong. Several MH’s routes have also been asked to stop operations even though the potential is immense.

In parallel, he is also trying to kill Firefly’s turboprop business in Subang.

This is not withstanding the fact that Fernandes ‘sucked’ Malaysia Airlines of RM 18 million for the sponsorship for the home games of this private venture Queen’s Park Rangers, a few short weeks after getting away with 20.5% holding of the national carrier. Soon, we would all probably see AirAsia X either tapping indirectly into Malaysia Airlines’ One World alliance network or AirAsia’s tickets being sold in Malaysia Airlines’ worldwide offices and portal.

It is no secret that Fernandes been wanting his own airport, as part of his airline business synergy. When his bid for a dedicated low cost airport in Labu via Sime Darby was shot down and the attempt on taking over Penang International Airport failed, he tried to use Perak State Government for a similar airport in Parit Buntar. Now, it is believed that he wanted to axe out MAHB CEO Tan Sri Bashir Ahmad Abdul Majid and in place,‘installing’ someone within his own camp.

This round’s ‘Smearing the landlord’ even though the KLIA2 would be AirAsia’s new home within eighteen months is strategic in nature. We are praying to God that Khazanah don’t fall into the same trap with Fernandes, twice. There is this saying; “When a man calls one a donkey, pay no attention to him. But when another calls you by the same, its probably the time for one to get saddle”.

It is very rude if not stupid for ‘One to shit where one eat’. Unless this is all a wayang, which is something many probably not eager to wait for climax. Then again, its the ‘show business‘.

- bigdogdotcom