Gateway to Singapore: Changi Airport

Background

Airports are “a vital part of a country’s transport infrastructure on which its economy, trade, and business depend.” Changi Airport Group operates and manages the highly recognized and world-renowned Singapore Changi Airport. Currently the world's sixth busiest international airport, Changi Airport has grown into a major air hub in Asia. The various flight routes connect Singapore with 270 cities in 60 countries with the support of more than 100 international airlines. Every 90 seconds, a flight departs from or lands at Changi Airport. Passenger traffic at the airport exceeds 53 million people annually, roughly 10 times the population of Singapore.

Changi Airport is not an ordinary airport and is known for its unconventional amenities. It has a comfortable and clean environment and boasts superior customer service. There are 350 retail stores and 120 restaurants inside the airport’s three terminals, which accounts for a total business area of roughly 750,000 square feet and 50% of the airport’s revenue (S$2 billion in 2013). To name a few unique amenities, there are free movie theatres, napping and lounge chairs, karaoke studios, showers, prayer rooms, playgrounds, events for families and children, and gardens housed within the airport, among many other things. It is viewed “not just as Singapore’s gateway to the world, but also the world’s gateway to Singapore.” This all makes Changi airport a travel destination rather than merely a transportation hub.

When the airport began operations in 1981, Terminal 1 was able to accommodate 12 million passengers on an annual basis. Constant advancements and improvements now permit Terminal 1 to support a maximum capacity of 21 million passengers a year. In 1990, Terminal 2 opened with a capacity to support 12 million passengers annually and was later expanded in 1996 to be able to support 23 million passengers a year. In 2000, construction on Terminal 3 began, which ended in 2008. This additional terminal allowed the airport to support yet another 20 million passengers annually. The sheer volume of passengers that Changi Airport can support at maximum capacity is truly phenomenal. Currently, there are a total of three passenger terminals at the airport and at maximum capacity can provide services to more than 67 million passengers on an annual basis. A fourth terminal is currently in development, slated to open in 2017, and a fifth terminal is scheduled to be completed in 2023. This will allow for even more passenger support at Changi Airport in the future.

Since 1981, operational efficiency and passenger experience have continuously been strong points that have earned the airport over 400 excellence awards. In 1988, the airport received its first “Best Airport in the World” accolade. In 1993, Changi Airport began to be utilized as a model for airports around the world. Consulting services are provided by Changi Airport Group, the company who owns the Singapore airport, to other airports globally. Changi Airport Group invests and is a stakeholder in airports around the world, which generates additional revenue and allows the successful guiding principles of the airport to be applied to other global locations. The airport is still one of the most highly regarded airports in the world, consistently wins awards and is often featured in publications.

Supply Chain Strategies

From a strategic perspective, Changi Airport offers many effective and unique solutions that contribute to its supply chain success. It is one of the most cost-efficient airports in the world.

Role as an Integrator * The Changi Airport Group (CAG) was formed to handle all business operations of the Singapore Changi Airport. This means that the airport has few of its own employees, and contracts its services and labor via CAG. * CAG acts as an integrator that coordinates and oversees the operations of many entities at the airport including, but not limited to: personnel, airport management, air hub support and development, commercial-generating revenue support, as well as corporate and finance functions. * From a supply chain perspective, CAG partners with global airline leaders, such as Singapore Airlines, to capture shared cost synergies, control quality and transfer knowledge between organizations. * CAG provides contract services to other airports which allows Changi Airport’s successful business model to be applied to other locations, leveraging larger economies of scale whenever possible, while also setting a new operating standard for airports around the world.

Leveraging Technology to Gain Efficiencies and Reduce Costs * Uses efficient customs processes along with business-friendly import and export procedures that provide companies with efficiencies in obtaining shipping clearance, documentation, and/or permits for their goods. This is primarily accomplished through the use of TradeNet, an EDI technology solution that enables electronic exchange of trade documents. The network includes over 12,000 traders, support companies and government agencies. * Multiple agencies have adopted an electronic system for air cargo documentation known as “e-freight@Singapore.” This software replaces a traditional, paper-based process and encourages shippers to electronically capture and transmit data through the interconnected supply chain. This provides downstream stakeholders with a more efficient, shared space for data exchange that reduces manual labor by 1.7 million hours a year. The e-freight@Singapore program will also provide savings in excess of S$18.6 million dollars annually.

Passenger Flow * Changi Airport uses a distributed security system, where each departure lounge possesses its own distinct security system. This model increases efficiency and allows for a greater focus on safety and passenger flow control. Most importantly, it saves passengers time with security and screening procedures as it is not a necessity for them to line up, which is the model utilized by almost all other airports in the world. * The airport is able to fully control passengers from each arrival hall to customs and immigration checkpoints. If the system predicts the number of passengers arriving at the airport will exceed the capacity which customs officers can process them, it will promptly give notice and deploy additional staff. This reduces the queueing of passengers, which provides a better customer experience.

Attracting Airline Business * Landing charges for a 747 aircraft at the airport are significantly reduced when compared with other airports. Changi Airport charges a fee of S$2,000 for a 747 to land. In comparison, Hong Kong charges $3500 and Narita Airport in Japan charges $7500. * With reduced landing fees, Changi Airport also strives to drive revenue by increasing the overall rate of aviation. * This appeals to more airlines around, and increased frequency of flights allows for more waypoints to be established through Singapore. * This is similar in concept to non-aviation businesses as it subsidizes the airline industry. * With increased waypoints and usage of the airport, the country’s economy is stimulated and a positive cash flow is achieved. This cash flow is increased by the larger volume of passengers, commercial vendors, and duty-free shops that pass through.

Customer Experience * Changi Airport aims to make the entire airport experience and environment favorable for consumers, and considers it a top priority for its supply chain to support this strategy. * Typically, other airports attempting to increase consumer amenities/services pass the cost on to consumers in the form of increased ticketing and facility fees, while Changi does not. By not passing the increased cost to consumers, Changi drives more traffic to the stores and airport amenities; thereby increasing sales and revenue, as well as, the royalty income paid to the airport’s owner, CAG. This revenue is applied to the overall cost model of the airport operations and can be used to lower costs, such as the reduced aircraft landing fee.

Supply Chain Challenges

Changi Airport has consistently maintained competitive advantage in the aviation industry; however, challenges still exist.

Maintaining Growth * The expanding market of budget air travel led to the construction of Terminal 3 at Changi Airport. This new terminal allowed for cheaper landing fees necessary to attract lower cost airlines to the airport. As a result, Terminal 3 was built without an airbridge and lacked unnecessary facilities. * Terminal 3 was demolished to make room for construction of a larger hybrid terminal after only six years of operation. Until the new Terminal 4 is completed, capacity constraints may compete with CAG’s ambitious growth model at the Changi Airport. * It is in CAG’s best interests to learn from this mistake and focus on consistency and keeping spaces and assets operational for longer periods of time. Various infrastructure investments will be necessary to maintain future growth. * As retail sales accounts for 50% of total revenue, CAG should focus on continuing to build this business. * This strategy should also include closely following retail market trends so that stores in the airport remain attractive to consumers. * CAG may also want to consider ways to attract and incentivize shoppers to get them to spend more at the airport by offering a variety of attractive services that are not offered by other airports. * CAG should continue marketing the airport not just as an airport, but as an experience. * The addition of “Project Jewel” is a new lifestyle attraction at Changi Airport that will attract more consumers, including families, which will grow interest from youth. * “Project Jewel” will also include the addition of a new 130 room hotel. Growth in the hotel business may attract more travelers and consumers if there is additional hotel room availability. * Improvements in travel time to and from the airport are now in development. * Investment in college/university programs related to aviation and hospitality industries to be able to hire and staff with professionals accredited/associated with this field.

Competitiveness in Other Markets * Among many things, CAG is recognized for its policymaking; however, these policies are not as easily adapted when another nation owns the airport. There have been cases where conflicts have occurred as the delineation between Singapore state ownership and Changi Airport Group management became blurry, causing tension with local governments. * Though CAG has been successful in contracts to manage operations at more than 10 other airports, it was only recently that CAG was able to strike a 15 year management contract with the new Kazi Nazrul Islam Airport in India, which is in the midst of becoming fully operational. * Singapore recognizes significant potential in investing in India, but some key challenges that they may face in this industry are tackling unreliable power grids and changes in land management that may impose higher compensation.
Keeping up with Demand * Airport demand and passenger levels continue to grow substantially every year. Investing in efficient interior and exterior design of terminals will reduce labor-intensive activities and improve passenger and flight turnaround rates. * Appropriate capacity design of Changi Airport Terminal 4 (slated for completion in 2017) and Terminal 5 (slated for completion in 2023) based on anticipating expansion of budget airlines in the future. * Though Changi Airport is constructing a third runway and two new terminals, altogether, about $115 billion has been committed to airport construction and development across the Asia-Pacific region. Neighboring competitors such as Kuala Lumpur, Seoul, Jakarta and Delhi are adding or rapidly expanding terminals and Beijing is developing an entirely new airport. This is all in anticipation of soaring demand. * Continued hub competition from other airports such as Kuala Lumpur, New Delhi, Dubai, Hong Kong and Taipei. To garner more market share, significant campaigning efforts are currently underway that offer substantial discounts. For example, all airlines operating at Changi Airport will pay 50% less on aircraft parking fees and 15% less on aerobridge charges until June 30, 2015.

Political Climate * Recent allegations claim that Changi Airport was recently sold significantly below value to Temasek with the help of a $3.2 billion SGD capital injection from the Singapore Ministry of Finance. The negative impacts of this merge, if true, is the substantial negative impact on Singapore taxpayers which could result in several billion dollars loss, mitigation of a competitive market, and loss of trust in the government.

Effective Use of Land * Due to the scarcity of land in Singapore, judicious planning is of critical importance to ensure that airport land is fully optimized and stakeholders’ interests are carefully safeguarded. This poses challenges for growth in aviation, as the only way to obtain additional space is to build up, which interferes with airspace. Additionally, CAG could opt to build out; however, this requires land built outward into the ocean.

Strategic Questions * Does a team of people exist that continually researches ways to innovate the attractions inside the airport to keep it relevant, yet unique and standalone? * What is the current plan to draw more people into the airport for the overall experience that may not be traveling? Is targeting families and children the current strategic initiative? * What is the average age of an airport employee? How does CAG recruit employees? Are specialized backgrounds or training necessary for employment? Does CAG target potential employees with backgrounds in aviation from alliances with colleges and universities around the world? Are there mentorship and internship opportunities? * What is being done to bridge any potential gaps or demographics to ensure there are adequate resources to support future employment needs as the aviation industry continues to flourish? * What is Changi’s strategic expansion plan for the next five years? 10 year plan? 20 year plan? What sources of data does CAG utilize to influence Changi’s future strategic initiatives and expansion plans? * Terminal 4 will increase overall airport capacity by an additional 20 million customers per year. Will this terminal provide adequate space and also allow for anticipated future growth? * By having previous issues with the short lifespan of Terminal 3, how does Changi plan to prevent the same mistake from happening with Terminal 4 and Terminal 5 (along with future industry growth)? * How does CAG intend on entering less-developed markets? * For example, entering India has been challenging due to the underdeveloped and unreliable power grid. Are there current initiatives in place to help acquire this growth opportunity? * If Changi could fix any supply chain risk that currently exists, what would it be? * How does Changi maintain a focus on the necessity for safety and security in aviation and airport operations, and what challenges does this pose to your supply chain?