Malaysia's airport controversy

Malaysia's airport controversy

Terminal declined

Feb 5th 2009 | KUALA LUMPUR
From The Economist print edition

Less a setback for a budget airline than a blow to the government’s credibility

IT WAS billed as the people’s airport, a M$1.6 billion ($440m) international gateway to be owned and operated by AirAsia, Malaysia’s ambitious budget airline. Private land had been found, close to Kuala Lumpur International Airport (KLIA). Malaysia’s cabinet had given its approval. But a chorus of whines from politicians, pundits and the state company that owns KLIA (and knows a competitor when it sees one) have clipped AirAsia’s wings. The government now insists the carrier must stay at KLIA, which has promised to build it a new terminal. Sime Darby, the oil-palm company that owns the land, has been forced to drop its plans. As policy flip-flops go, this takes some beating.

What in effect killed AirAsia’s plans was the intervention on January 30th of Najib Razak, the deputy prime minister. The fiasco has exposed the wavering grip on power of Abdullah Badawi, the lame-duck prime minister, who is to be succeeded by Mr Najib in March. Mr Najib is a protégé of Mahathir Mohamad, prime minister for 22 years until 2003, who had been among the shrillest critics of the project.

AirAsia, however, may yet have the last laugh. So far, its trajectory has been relentlessly upward. It launched in 2002 with two leased planes. It currently has 76 aircraft, including the first batch of 25 Airbus A330s on order for AirAsia X, its long-haul subsidiary. Last year it carried 19m passengers within Asia and the Pacific. Of these, around 10m shuffled through KLIA’s satellite low-cost carrier terminal, a converted cargo facility opened in 2005. AirAsia forecast that by 2011 it would exceed the terminal’s capacity of 15m passengers. It is already short of parking bays for its aircraft, and was looking for an alternative.

Tony Fernandes, the bullish chief executive, says that his dream of a new airport was born out of frustration with Malaysia Airports, KLIA’s operator, which is controlled by Khazanah Nasional, the government’s investment fund, as is Malaysia Airlines, the national flag-carrier. Last year Mr Fernandes wrote on his company website that a new airport by 2011 was a matter of life or death for AirAsia. Opponents of the project argued that a rival airport could be the kiss of death for KLIA, which opened in 1998, caters for around 25m passengers a year and aspires to be a regional hub. A private airport would inevitably require public infrastructure spending. Moreover, Malaysia’s capital is already served by three airports. To build a fourth seems a mite extravagant.

Critics say that a stronger government would have made a decision one way or the other and stuck to it. As it is, taking the project away from a successful private firm, AirAsia, and giving it to a government-owned monopoly hardly seems reason for cheer. AirAsia has delivered huge benefits to Malaysia by bringing in foreign tourists, creating jobs and cutting the cost of air travel. It aims to carry 60m passengers by 2013. It is already Malaysia Airport’s biggest customer. Yet instead of rolling out the red carpet for it, the authorities seem to be trying to pull the rug out from under it.

AirAsia did, however, win concessions from Mr Najib. Officials say these include a say in the design, cost and operation of the planned new terminal. Mr Fernandes declined to comment. Like all budget carriers, AirAsia wants to pare costs, which is why it refuses to berth its planes at KLIA’s expensive glass-and-steel terminal. A properly equipped terminal with a low service charge would do nicely. Indeed, access to such a terminal may have been AirAsia’s intention all along. Its threat to build a private airport managed to put some pepper on the tail of policymakers, says Peter Harbison, of the Center for Asia Pacific Aviation in Sydney. A bit drastic, but effective. Last year Malaysia Airports reportedly told AirAsia it would take four years to build a terminal. The new deadline is 2011. Amazing what competition can do.