News
AirAsia offers to build special terminal at BIA for budget carriers
View(s):AirAsia has offered to build a special terminal at Bandaranaike International Airport (BIA) for low-cost carriers under a five-year investment of US$ 70-100 million. The Malaysian carrier’s proposal to set up a budget carrier based out of BIA was put forward more than one year ago.
The Cabinet Committee on Economic Management (CCEM) has now approved the bid and Prime Minister Ranil Wickremesinghe and Tourism Minister John Amaratunga have submitted a joint Cabinet paper. It is scheduled to be taken up when the Cabinet next convenes after the Premier’s return from an official visit to India (November 21-24).
AirAsia’s plans were first discussed with Public Enterprise Development Minister Kabir Hashim who last week claimed he was bypassed. A visiting team met him in March and July 2017 and on one occasion made a presentation to a technical committee appointed by his Ministry. A similar summary was given to the CCEM on November 8.
The Prime Minister’s office was approached directly as the process was stagnating, reliable sources said. AirAsia is looking at a possible public-private partnership with up to US$ 100 million in foreign direct investment. In its presentation, the company maintained that a budget-carrier would catalyse the tourism industry. Sri Lanka with its eight UNESCO heritage sites received just 2.1 million tourist arrivals last year in comparison to 26 million visitors to Malaysia over the same period, though that country has only four UNESCO heritage sites.
The long process to obtain an air operator’s certificate will begin once the Sri Lankan Government grants in-principle approval for the project. AirAsia envisages the deployment of 24 aircraft — including in Jaffna and Hambantota — over a five-year period, officials who attended the presentation said. Operations would be based primarily out of Colombo in the first three years.
An increase in tourist arrivals during that period would make development of the Palaly airport in the North feasible, the presentation said. The company expressed confidence that the Sri Lankan diaspora will support that initiative because of their links to the Jaffna peninsula. Hambantota could be used to promote travel to tourist destinations in the East.
AirAsia did a detailed study before approaching the Sri Lankan Government, official sources in Colombo said. Its team pointed out that, according to industry research, aviation had a multiplier effect of 13 times. Therefore, their investment is expected to bring steep returns to the country in terms of airport charges, tourist spending and airport tax. And it is estimated that Sri Lanka’s anticipated tourist arrivals for 2022 will rise from 5.1 million to 9.6 million through the operation of a low-cost carrier.
The company will start looking for a local joint venture partner for the PPP after in-principle approval is granted. A dedicated terminal for budget carriers, meanwhile, has been projected as essential. Such terminals designed and built to keep costs low, reduce airport tax and charges and enable quick turnaround times. AirAsia has offered its in-house experts to design and build the facility. The airline has made it clear that it would be for the use of all budget carriers servicing Sri Lanka.
Concerns were raised at the presentation about the possible effect of AirAsia’s entry on SriLankan Airlines. The visiting team pointed out that statistical and anecdotal evidence showed that full-service carriers — which are typically owned by Governments or Government-mixed companies — in other destinations had benefited from the operation of budget airlines.
A low-cost airline, which served a different segment, was seen as an important infrastructure for the development of those economies as they had grown the market, not contracted it. AirAsia, the team maintained, will not “cannibalise the full-service carrier”. AirAsia is looking at using unutilised air rights negotiated by the Sri Lankan Government. The main focus will be countries in South Asia, South East Asia and West Asia.