This article first appeared in The Edge Malaysia Weekly on July 29, 2024 - August 4, 2024

THE plan to transform the Sultan Abdul Aziz Shah Airport (Subang Airport) in Subang, Selangor, into a premium city airport is finally taking shape 1½ years after it received clearance from the cabinet to resume scheduled jet services. Five airlines — AirAsia, Firefly, Batik Air Malaysia, Indonesia’s TransNusa and Singapore’s Scoot — are set to commence Airbus A320 and Boeing 737-800 flights next month.

The move is part of the Subang Airport Regeneration Plan (SARP), led by airport operator Malaysia Airports Holdings Bhd (MAHB) (KL:AIRPORT). It was first mooted in March 2021 by Subang Skypark Sdn Bhd — a 60%-subsidiary of construction and property firm WCT Holdings Bhd (KL:WCT) — that had submitted a concept paper to the government to redevelop Subang Airport, which included allowing the return of narrow-body aircraft on its runway.

From a consumer’s perspective, ticket prices from Subang Airport are unlikely to be cheaper than those from Kuala Lumpur International Airport (KLIA), despite most of the carriers being low-cost operators, due to a number of factors, analysts say. One is the airport’s close proximity to the Kuala Lumpur (KL) city centre, which will reduce travel times, making it an attractive option for business travellers. Another is the limited availability of flights due to slot constraints at Subang Airport.

However, a rerating in the aviation sector is unlikely.

According to Maybank Investment Bank (Maybank IB) aviation analyst Samuel Yin Shao Yang, while the jet operation could help boost the profits of airlines, he expects it to ignite more meaningful growth for those operating a smaller fleet.

“I think it would be more meaningful for smaller players like Batik Air Malaysia, which have about 35 planes. For AirAsia Malaysia that has about 100 planes, getting five slots at Subang Airport is not going to be a big deal,” he tells The Edge.

Batik Air Malaysia operates a fleet of four A330-300s and 38 Boeing Next-Generation 737-800s.

Likewise, earnings contribution from the jet operation is not likely to be meaningful for MAHB, he adds. “It will help a bit, but not in a big way. In pre-Covid 2019, the airport operator handled 105.26 million passengers at the country’s 39 airports. It is looking to raise Subang Airport’s capacity to eight million a year [by 2030], which works out to less than 10% of 2019 volumes. Nevertheless, the jet operation [in Subang] will help alleviate traffic congestion issues at Terminal 1 (T1) and Terminal 2 (T2) of KLIA.”

Under SARP, Subang Airport will be upgraded to handle three million passengers by the end of this year, from 1.5 million passengers currently. The capacity will increase to five million passengers annually in four to five years, and up to eight million by 2030.

Yin also expects MAHB to be able to collect overall higher revenue through higher passenger service charges (PSC), aircraft landing and parking charges at Subang Airport compared with KLIA T1 and T2.

“Under the new operating agreements [between MAHB and the government], MAHB is allowed to charge different rates for different airports, depending on how much they reinvest in the airport. So the SARP will have its own capital expenditure.”

The airport tariffs in Malaysia were recently revised. From June 1, all international departures from KLIA T1 will incur a PSC of RM73, and RM50 for KLIA T2 and other local airports. A new transfer PSC will also be introduced, at RM42 for international passengers transferring through KLIA T1 and RM29 through KLIA T2 and other Malaysian airports.

Industry analysts see competition in the domestic airline industry heating up as airlines mount flights connecting Subang with destinations such as Jakarta, Singapore, Penang, Kuching and Kota Kinabalu.

Brendan Sobie, founder of Singapore-based aviation consulting and analysis firm Sobie Aviation, is of the view that the jet operation out of Subang Airport will impact traffic at KLIA.

“KL is one market, and one that is typically very price sensitive with relatively limited premium demand. Passengers who use any of the new Subang jet flights would generally be a passenger who would now be using KLIA. Of course, Subang will be more convenient for many of these passengers, but that doesn’t mean Subang will attract a passenger that isn’t flying now at all.

“Some people may be enticed to fly more often, given the convenience of Subang, particularly if the fares are low, but generally the airlines will be competing fiercely with each other across both airports as the catchment areas overlap. I’ve said from the beginning that this policy could impact KLIA and lead to overcapacity and irrational competition in the overall Kuala Lumpur market,” he says.

“When you think about Subang, you cannot just think about it as a standalone airport. We need to consider that there is another airport in the KL metro area, which is KLIA,” says Alan Lim, director of Alton Aviation Consultancy, a global aviation consulting firm.

“One thing that we see with the resumption of jet operation at Subang is that you are going to have more seat capacity in the KL metro area. So for a KL resident who needs to fly somewhere, he now has an option either to go through KLIA or Subang Airport. You actually get more competition in the KL metro area market, which is likely to put downward yield pressure for the airlines. All the players that are currently operating within the KL metro area such as Malaysia Airlines, Firefly, AirAsia and Batik Air Malaysia will have their work cut out for them,” he says.

Lim also sees some traffic from KLIA being diverted to Subang as passengers now have more choice in selecting an airport to fly out of. “But by and large, they serve different customers. KLIA is your international connecting hub. If you want to get from Kota Kinabalu to London, for example, you fly from Kota Kinabalu to KLIA and then onwards to London.

“Subang Airport is a city airport. Subang’s value proposition is being a premium city centre airport, which will only operate point-to-point destinations. In fact, MAHB has come out to say that there will not be any transfer facilities at Subang Airport.”

Lim adds that Subang Airport’s value proposition is its time saving, travelling from Subang to KL compared with from KLIA to KL. “Thus, it needs to be able to maintain this advantage. What it means is that the infrastructure itself within the airport must be very efficient and smooth for travellers to get from drop-off, through immigration and into the aircraft. The journey from their office to the airport will also contribute to the time saving. So, if you expand the airport, but the surroundings, transport and infrastructure such as the roads become more congested and the passengers end up taking more time to get to the airport, then Subang’s value proposition will diminish.”

Shukor Yusof, founder of aviation consultancy Endau Analytics, says Malaysia Aviation Group Bhd (MAG), the parent company of Malaysia Airlines and Firefly, and Singapore Airlines Ltd (SIA), which wholly owns Scoot, will likely anticipate a “bloodbath” at Subang Airport due to the low-cost or hybrid carriers that will fly there such as AirAsia, Batik Air Malaysia and TransNusa. “That’s why they have positioned [their low-cost arms] Firefly and Scoot in order to compete more effectively.”

Shukor is taking a contrarian view that Subang will attract more business travellers with its scheduled jet flights. “Subang is a city airport, but it doesn’t follow that it appeals to corporate travellers because KL is not a financial or trade centre, so it’s not attractive to business travellers, and it doesn’t connect to other major cities apart from Singapore and Jakarta.

“Despite its proximity to downtown KL, there’s little advantage flying into Subang in terms of time saved. In fact, it can be longer compared with flying into KLIA and then hopping onto the express rail link (ERL) trains. Also, unless Subang Airport is completely overhauled and public transport to KL is improved, few will want to use it,” he points out.

Analysts have mixed views on whether the jet operation will be profitable, given the limited availability of landing and take-off slots at Subang Airport.

Sobie believes the subscale size of the initial Subang jet operation is a major issue. “With three to four daily departures each, the Malaysian carriers (AirAsia, Firefly and Batik Air Malaysia) will not be able to operate efficiently. The Malaysian carriers can’t base jets in Subang in the initial phase, which makes it particularly challenging. The foreign airlines (Scoot and TransNusa) have somewhat of an advantage as they can fly in from their bases.

“I believe it was a mistake to try to do both domestic and international in the first phase, given the limited number of slots (15 slot pairs). It would have made more sense to focus entirely on domestic, given the initial small scale of the operation. International also opens up a can of worms as it is hard for Malaysian carriers to secure slots at Changi and Jakarta, resulting in an unlevel playing field,” he says.

Asked whether MAG and SIA are on the right track using budget subsidiaries to serve Subang, Sobie says: “I think the question here is really whether MAHB and the Ministry of Transport’s strategy, which is supposedly to focus on premium and business as announced initially, is appropriate. I’ve always maintained that is not the appropriate strategy and I think the fact all the initial flights are not from premium airlines highlights this.”

“Four of the airlines are all-economy operators and the fifth, Batik Air Malaysia, is also a low-fare competitor, although it has business class on some [but not all] of its 737s. Some of these airlines are more hybrid than low-cost carriers, but it’s safe to say none have a premium or business-focused model. So, we have a contradiction here given what was stated initially. Subang is not and will never be like London City Airport despite some of the initial statements.”

Maybank IB’s Yin believes the airlines can still make money, given that the routes they are mounting are high-frequency, high-demand routes such as to Kota Kinabalu, Singapore and Kuching.

“I don’t think it is a question of how many slots they get, but more of how many passengers they can get. You can make money with only a daily service if the demand is strong. Right now, travel demand to and from Malaysia is very strong. So there is a scope for another airport operation for international flights in Malaysia,” Association of Asia Pacific Airlines director-general Subhas Menon says.

However, for an airline to serve only Subang may not be financially viable, given the limited number of slots allocated to each airline, he says. “You can’t be a one-trick pony. You need a network.”

With the introduction of jet flights, will there be a role for turboprop operation at Subang Airport? Sobie points out that Batik Air Malaysia has already phased out its turboprop operation in Subang, while Firefly has downsized its turboprop services.

“Subang Airport currently has about one-third the number of turboprop flights compared with just before the pandemic. Firefly is now looking at phasing out its turboprops entirely as it can be difficult for turboprops to compete against jets as passengers in Malaysia generally prefer jets.

“While this may all sound great for passengers, it is bad from an airline economics and environmental perspective. Turboprops on very short hops like you see within Peninsular Malaysia are generally more economical and better for the environment than jets. With the increased focus on sustainability, this is a major contradiction and something policymakers unfortunately did not take into account,” Sobie says.

Currently, Firefly and Berjaya Air are the only ATR operators from Subang. Firefly operates nine ATR72 turboprops, while Berjaya Air operates an ATR 42-500 and the bigger ATR 72-500.

Alton Aviation’s Lim notes that there would typically be a premium to be gained from operating to downtown airports and serving the business traveller segment, regardless of cabin.

“Due to the business-heavy, short-haul segments that operate out of Subang Airport, demand is likely to be highly inelastic. Operating a denser aircraft with the additional revenue outweighs any additional yield premium airlines might gain from operating a premium cabin or full-service carrier brand, particularly on a short sector like Subang-Singapore.

“In addition, given the scarcity of slots at Subang Airport, airlines will need to maximise their slot usage to maximise their seat share at the airport — which necessitates deploying denser configured aircraft in their fleet,” he says.

Mavis Toh, aircraft sales director at Franco-Italian turboprop maker ATR, maintains that the turboprop plane has a role to play offering connectivity within Peninsular Malaysia, with its fuel efficient and lowest-emission aircraft for the short segments out of Subang. She cites Firefly’s offering of six daily ATR72 flights to Seletar airport in Singapore, which also takes advantage of the efficiency of the two airports where passengers can go from kerbside to gate in less than 15 minutes.

“Another key advantage of the ATR is that, even on routes where it faces competition from jets, airlines can use the ATR to provide more frequency,” she tells The Edge.

Firefly will offer daily 737-800 flights from Subang to Penang from Aug 29, for example, in addition to the existing nine times daily services served by the ATR72, bringing the total number of flights on the route to 10 times daily. 

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