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Business: Malaysia's (Not So) International Airport
This is one white elephant that may not fly

October 27, 2000
Web posted at 11.00 a.m. Hong Kong time, 11.00 p.m. EDT

Build and they shall come. That was Malaysian Prime Minister Dr. Mahathir Mohamed's strategy in the pre-Crisis era. Tens of billions of dollars were spent on prestige projects, from highways to skyscrapers to gleaming shopping malls. Today, while Malaysia claims that its economy is fast recovering, its capital Kuala Lumpur has the highest vacancy rate for office towers, shopping malls and hotels among major Asian cities. True, Malaysians have built them all. But nobody's interested in filling them.

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While Malaysia's billion-dollar 88-storeyed landmark Petronas Tower (60% occupied at last count) doesn't quite look like a white elephant, even though it is nearly half empty and may never provide its owners a decent return on their investment, the US$2.6 billion Kuala Lumpur International Airport or KLIA is now decidedly starting to look like one, though. Built an hour and half drive away from the Malaysian capital in what was once a palm oil plantation near Sepang, KLIA has never taken off since it opened over two and half years ago. Two weeks ago, British Airways suspended all services to and from KLIA. BA's decision to pull out of the airport follows similar decisions by Australia's Qantas and Ansett Airlines and Germany's Lufthansa over the past two years. Other major global airlines like United, American, Swissair, Air France, and SAS have all avoided flying to Malaysia. KLIA is now reduced to receiving a handful of Asian airlines, as well as some second-tier international carriers. Bangkok airport, which caters to twice as many passengers each day, is used by three times as many foreign airlines as KLIA. The gap between them is widening in favor of the Thai capital, even though it has a tired, old and cramped airport.

Singapore's Senior Minister Lee Kuan Yew once said one of his top initial priorities was to make Singapore's airport the best there was in Asia, because an airport is often the first thing foreigners see when they land in a country. First impressions are almost always the most lasting ones, he reasoned. Malaysian leaders may have taken that advice too literally. When Mahathir first decided to move Malaysia's main international airport from Subang to Sepang some 12 years ago, his objective was to turn Kuala Lumpur into a regional hub. East Asia already has several airline hubs   Singapore, Hong Kong and Bangkok. Another hub so close to the existing three hubs seemed like a non-starter. But Mahathir's aim wasn't to displace Singapore or Hong Kong, just to take some business away from them. Still, airports aren't just about passengers. They are also about cargo. KLIA lags way behind in cargo, because Malaysian exporters tend to truck their goods to Singapore's Changi, from where they can reach global markets more cost effectively. Passengers to and from Malaysia are doing the same by taking the shuttle flight to Singapore to connect to other global destinations.

With the advent of super jumbos like the new Airbus A3XX or Boeing's 747-Stretch X, airports around the world will be further divided into hubs and spokes. Hubs will be airports where all the major regional and global airlines fly to and from, while local and regional airlines take passengers to nearby spokes. Singapore and Hong Kong have already carved their niches as Asia's premier hubs. Bangkok is actually bigger than Singapore and carried 28 million passengers over the past 12 months compared to Singapore's 27 million and Hong Kong's 30 million. KLIA, which is 63rd biggest airport in the world and 11th biggest in Asia carried just 15 million passengers during the past 12 months.

The success of Bangkok airport as a hub proves an important point. I believe you don't need to spend billions on infrastructure to get a lot of business. So what is Kuala Lumpur to do about its US$2.6 billion investment? Malaysian officials still seem to believe they can turn their little spoke into a huge hub. An annual Grand Prix fills the airport on the morning after, but it can't turn a spoke into a hub all year round. Malaysians are talking about offering lower landing fees and other enticements to lure foreign carriers to KLIA. But I believe they might want to try open sky policy. Let any airline land at KLIA and take passengers or cargo to anywhere it wants to at any time. Sure, it might force the already debt-ridden flag-carrier Malaysia Airlines into further financial disarray and even necessitate a state-sponsored Malaysian-style bailout. But it would dig KLIA from the hole it's stuck in. Malaysian capital might not become a hub it has always wanted to be. But it might just prevent KLIA from becoming world's most expensive "spoke" airport.

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