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Are Changi Airport’s new departure charges justifiable?

From July 1, Changi Airport is raising the airport tax for departing passengers from S$34.00 to S$47.30, increasing it by almost 40 per cent. The increase in fees and the new development levy, according to the Changi Airport Group (CAG), are necessary to help fund airport expansion and upgrading works. While pre-funding in the form of an improvement tax is not an uncommon industry practice, it is quite necessary where the investments are massive.

Changi Airport pictured on Feb 28, 2018. Photo: Jason Quah/TODAY

Changi Airport pictured on Feb 28, 2018. Photo: Jason Quah/TODAY

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From July 1, Changi Airport is raising the airport tax for departing passengers from S$34.00 to S$47.30, increasing it by almost 40 per cent. This includes a new Airport Development Levy of S$10.80.

The main component, known as the Passenger Service and Security Fee, will go up by S$2.50 every year until April 1, 2024 when the total airport tax will add up to S$62.30. Transit passengers, however, will pay a development levy of only S$3 in addition to the current tax of S$6 and be spared the planned annual increase.

The increase in fees and the new development levy, according to the Changi Airport Group (CAG), are necessary to help fund airport expansion and upgrading works, which include a third runway to be operational in the early 2020s and a fifth passenger terminal by 2030.

Reaction within and outside the industry has raised questions about fairness of the measure, its impact on air travellers and whether, as a consequence, Changi is pricing itself out of the competition with repercussions on Singapore’s tourism and related industries.

Among those not in favour of Changi’s decision to “pre-fund” new infrastructure projects is the International Air Transport Association (IATA).

Its regional vice president for Asia Pacific Conrad Clifford said: “It is unfair to expect passengers and airlines to pay in advance for a facility they may or may not use in the future when the facility is ready.”

However, it is not uncommon for airports to levy “airport improvement” fees, whether as part of the normal departure tax or separately.

As an example, Hong Kong International Airport (HKIA) introduced in 2016 an Airport Construction Fee of HK$70 (S$11.7) to HK$180, which is levied in addition to the existing HK$120 Air Passenger Departure Tax to fund the three-runway system.

According to the authorities, it will remain in effect “until all borrowings related to the project are fully repaid.” The third runway is expected to be completed in 2024.

To be expected, the cost of such improvement works which benefit travellers will ultimately be passed on to the users of the airport. Changi has argued that the earlier implementation will “help to avoid a steep escalation of fees at a later stage.”

IATA’s refutation is not particularly strong.

While pre-funding in the form of an improvement tax is not an uncommon industry practice, it is quite necessary where the investments are massive.

Besides, it should be viewed in the same way that today’s users are benefiting from past investments similarly funded by taxes levied on passengers who may not enjoy the facilities when completed.

It would be more pertinent to ask whether the specific improvement levy is temporary, however long the period may be, or if it will become a permanent feature of the airport tax.

CAG has said it will review the Passenger Service and Security Fee in the sixth year of its rate increase. Perhaps then it could also reassess its commitment on the timeline of the development levy.

Some people may question the need for such an ambitious project that runs into tens of billions of dollars in expenses. Clearly Changi is facing stiff competition to maintain its hub status and as an airport of choice.

CAG has predicted that passenger traffic is expected to grow at about 3 to 4 per cent annually over the next 20 years with the airport reaching its handling capacity of 85 million passengers before the fifth terminal is ready.

The greater concern is whether Changi is becoming too costly to be competitive, bearing in mind that besides raising taxes for travellers, it will increase aeronautical fees for all airlines by one per cent annually for six years.

Mr Clifford of IATA warned that the higher airport tax would hurt not only the airlines but also air travel and tourism.

Budget carrier Jetstar for one is expecting its fares to increase by 10 to 25 per cent, with its CEO Gareth Evans adding that the carrier will be compelled to “shift flights around” to cope with changes in demand, and this may impact Changi’s hub status.

He said: “Singapore is competing with Hong Kong, China and Middle Eastern hubs. People will change hubs to fly to Europe, for a few dollars.”

However, Mr Evans’ assumption is not always or necessarily the case. While the new charges will affect all passengers, it is likely that budget carriers more than legacy airlines will feel the impact of passing these on because of their low fares. It also narrows the gap between the costs borne by budget and legacy airlines.

Budget carriers may therefore face more aggressive competition, given that they will be relatively harder hit than legacy airlines by Changi’s one per cent increase in landing, parking and aerobridge fees over the next six years.

Will visitor numbers to Singapore fall because of the higher charges?

Again, comparing with Changi’s closest rival HKIA, departing passengers from Changi will pay S$47.30 come July 1 compared to HKIA’s HK$270 (S$45.32) – not much of a difference.

And so long as Singapore remains a mecca for tourists like Paris, London and New York, the increase is unlikely to turn visitors away. Changi, like any hub airport, understands the importance of the transit passenger, who is not subject to the same level of charges as a departing passenger.

Besides, there is more to the making of a hub airport than just the cost. In fact, it is Changi’s extensive network of connections and its array of facilities and amenities that have made the airport a darling of transit and transfer passengers.

Many of them have found Changi an attraction and a destination in itself, well worth passing through even if it is for a few dollars more.

It is not without basis that Changi has chosen instead to be more optimistic about the impact of the higher charges for travellers and airlines.

Over the years, the airport has managed to stay ahead of the competition, consistently being voted by travellers as the world’s best airport. The new charges are unlikely to cause any shift in the status quo.

 

ABOUT THE AUTHOR:

David Leo is an aviation veteran and published author.

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