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27 May, 2002

Second Bangkok Airport Faces Further Delay

A conference on the future of Thai airports last week made little headway in clarifying some of the major issues related to the opening of Suvarnabhumi, the second Bangkok International airport. While the official position remains a prospective inauguration in 2005, virtually no-one believes it will be possible, with airline veterans in Thailand saying 2008 looks more likely.

While the work gets under way at full speed once the contracts are awarded, such as the piling work, which is 70% done and ahead of schedule, many more contracts are still coming up, further raising the spectre of political interference in dividing up the lucrative spoils of Thailand’s largest and longest-delayed infrastructure project.

At the same time, all eyes are on the IPO of 30 % of the Airports Authority of Thailand due later this year. The money raised from this is projected to be a major source of funding for completing Suvarnabhumi.

In order to ensure that the public listing is well-subscribed, efforts have already begun to ‘talk-up’ the future financial prospects of the airport based on Bangkok’s historic air-traffic growth, the resilience of the Thai tourism industry, the potential earnings from ‘captive’ passenger traffic as well as the experience of many other airports that are being privatised worldwide.

However, the success of the listing will depend on the availability of clear answers to many of the questions that investors will raise, chief among them is the opening date of Suvarnabhumi. This, because it will have a significant bearing on how congested – and hence how efficient — the airport will be on the day it opens.

At the Thai Airports 2002 conference, organised by Asia Business Forum, speakers representing the Ministry of Transport & Communications and the Airports Authority, noted that the original design of Suvarnabhumi was for 30 million annual passengers (MAP) when it was projected to open by 2000.

Now, as it is too late to make a wholesale change in design, the AAT is hoping that with more efficient use of space, better technology and faster customs and immigration procedures, the airport will be able to handle 38 MAPs by 2005. The problem is that at present rates of traffic growth, that is exactly the number of people who are projected to be using the airport by that year, meaning that it will already be saturated upon opening.

Mr Anthony Laven, regional director of the International Airport Transport Association, pointed out another potential pitfall, viz., the number of passengers who pass through the airport annually is less important than the number of passengers who will use it daily, especially at morning and evening peak hours when the airport is most congested with transfer passengers.

He said the airport needs to have a capacity of at least 42 to 45 MAPs upon opening in order to reduce peak-hour congestion and give the airport breathing room to grow for at least another 3-4 years during which more terminals and facilities can be handled to handle that growth. This problem will only worsen if the airport is delayed, further overtaking its planned design capacity.

As to the future of Don Muang after Suvarnabhumi opens, a closely-watched set of financial figures will be the results of a study being prepared by Merrill Lynch Phatra Securities about exactly this.

Under present plans, Suvarnabhumi is to be Bangkok’s sole airport for international and domestic traffic by all scheduled airlines. Don Muang is to be converted into an airfield for charters, cargo operations, courier services, training flights and private jets. There are also plans for setting up a convention and exhibition facility, and shopping units.

But the key question is whether all this will help pay the huge costs of operating and maintaining that piece of real estate after its main users, the scheduled airlines, are all gone, taking with them the millions of passengers and the income they generate in the form of duty-free shopping and airport taxes.

The commercial airlines will be watching whether the landing and other charges imposed on them will be indirectly subsidising the costs of keeping Don Muang open, even though they will be located at Suvarnabhumi. This will be especially important in the first few years when the requisite customer base to support Don Muang’s new role will not be present, and hence virtually no income.

Bill Matz, Managing Director of the S-A-P Group, a consultancy which is working with Merrill Lynch Phatra Securities on the study, sidestepped a question about whether the group would have the freedom to suggest that Don Muang should be closed in case the study shows that keeping it open would be financially unfeasible, if the costs of running it are included in the same balance sheet as that of the company that will run Suvarnabhumi.

He just said that the relevant figures would be included in the study, which is to be finished in the next few months. Prime Minister Thaksin Shinawatra has also given the AAT a few months to give a definitive position on when Suvarnabhumi will open, though AAT executives say privately the answer to that depends more on the attitude of ministers in his own cabinet.

Meanwhile, it is unlikely that the competition will shy away from giving Suvarnabhumi a run for the money. The conference was attended by three representatives of Malaysian Airports, the group which manages Kuala Lumpur International Airport (KLIA) and all the country’s provincial airports.

KLIA’s main occupation today is competing with Singapore’s Changi airport, which it is trying to do via a number of cost-cutting and marketing strategies. However, in future, Suvarnabhumi could pose significant competition, too, which means that KLIA has a window of opportunity of only a few years to attract more scheduled, cargo, courier and commercial airline traffic before Suvarnabhumi opens.

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