From Singapore to South Korea, airport ambitions face headwinds

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From Singapore to South Korea, airport ambitions face headwinds

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https://asia.nikkei.com/Business/Transp ... &seq_num=2

From Singapore to South Korea, airport ambitions face headwinds
Asia home to most expansion projects yet lags in traffic recovery after COVID-19

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Singapore's Changi Airport is pushing ahead with a fifth passenger terminal, after the pandemic delayed its expansion plans. © Reuters
DYLAN LOH, Nikkei staff writerAugust 11, 2022 13:35 JST

SINGAPORE -- Asia is home to the largest concentration of airport development projects by number and value, yet lags behind the rest of the world in reviving travel in the wake of COVID-19, recent reports highlight.

These conflicting crosswinds could mean a bumpy ride for the Asian sector in the coming years, with inflation, supply disruptions and skilled labor lost to the pandemic adding further complications.

A look around the region reveals a flurry of airport construction plans.

Singapore is moving ahead with a fifth passenger terminal at its main Changi Airport to the tune of $10 billion, after the pandemic delayed plans for expanding capacity.

In terms of value, South Korea has the biggest airport infrastructure push lined up, worth as much as $46 billion, according to estimates compiled by Fitch Solutions Country Risk and Industry Research earlier this year. One major project on the horizon is the Gadeok Island Airport in Busan, expected to be built offshore on a floating structure in about a decade.

In Vietnam, the state Airports Corporation of Vietnam, which manages civilian terminals, has plans through 2025 to upgrade and expand 23 facilities, designed to accommodate a total of 173 million passengers per year.

In the same time frame, India plans to increase its airports from more than 130 at present to around 220, while the Philippines is counting on its upcoming Sangley Point International Airport project, located south of Manila, to handle over 100 million passengers annually once completed.

Fitch said in May that Asia has over 200 airport projects overall, involving a combined $231 billion in investment -- both the most of any region.

At the same time, however, Fitch noted that the future is foggy due to the "residual impacts" of COVID-19, including reduced revenues in previous years as well as uncertain future airport demand. It said this is likely to weigh "on project activity in the airport segment particularly over the short term."

Last week, the World Tourism Organization highlighted that the Asia-Pacific region continues to lag behind when it comes to international arrivals.

The industry body said Asia-Pacific arrivals were still 90% below pre-pandemic 2019 levels in the first five months of this year, making it the world's weakest region. Europe's figure was just 36% below 2019, with the Americas at 40%.

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There are some glimmers of a recovery. Asia-Pacific international passenger demand for March reached 17% of pre-COVID levels, after having hovered under 10% for most of the last two years, according to the International Air Transport Association. But it was still far below the global trend, with other markets seeing figures around 60% of pre-crisis levels.

China and Japan are two major stragglers, due to their ongoing border restrictions.

"So long as the Chinese government continues to maintain their zero-COVID approach, it is hard to see the country's borders reopening," Willie Walsh, the IATA's director general, said in May. "This will hold back the region's full recovery."

Japan has opened up to a greater degree but is still only allowing leisure travelers in on group tours and continues to insist on COVID-19 testing, while many other countries have dropped such requirements.

"While Japan has taken steps to allow travel, there is no clear plan for the reopening of Japan for all inbound visitors or tourists," Walsh said in May. Little has changed since, with Japan's tourism restart off to a disappointing start and record cases dimming hopes for a further easing at the borders.

Then there are the threats of soaring inflation and supply chain interruptions to consider, as both could drive up construction costs.


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South Korea's Incheon International Airport in March: The country has the biggest airport infrastructure push lined up, according to Fitch. © Reuters

Linesight, a construction consultancy headquartered in Ireland, noted in an April report that the impact of Russia's invasion of Ukraine may lead to increased competition for Asia-Pacific steel exports.

"There has been somewhat of a resurgence in volatility on core construction commodities, including steel, copper and diesel," Michael Murphy, director at Linesight Singapore, told Nikkei Asia. "The impact to the construction industry can be seen at numerous junctures, but overall the result is cost and program uncertainty."

"Other factors that contribute to supply chain disruption of construction projects also include logistics and transport disruption, and increased costs and delays in long-lead equipment due to material shortages, delays and price hikes," Murphy added.

Gavin Steele, director of infrastructure in Asia for U.K.-based property consultancy Turner & Townsend, said the sector's challenges run even deeper.

"Reduced staff levels have resulted in the loss of knowledge and remobilization of staff, and recruiting a new workforce has been a significant challenge for the industry," he told Nikkei. "Global paradigm shifts in the supply chain and local labor shortages felt in parts of Asia are likely to persist for the foreseeable future, causing tender-price volatility and threatening the pace of growth."

That many countries are sticking to airport expansion plans suggests they are counting on passenger traffic in Asia eventually rebounding higher than ever before.

On the Changi expansion, Singapore's Transport Minister S. Iswaran said in May that "given the current and projected recovery in air travel demand, we have a renewed impetus to secure our infrastructural capacity for growth."

Nevertheless, considering how far Asia still has to go to recover, as well as the other pressures buffeting airport projects, it appears that the region's transportation hubs may be in for more turbulent times.
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