Best Ownership Model For Singapore Changi Airport Terminal 5

Source: MOT Written Reply by Minister for Transport Khaw Boon Wan to Parliamentary Question on the Rationale for Alternative Ownership Model for Changi Airport Terminal 5

Reply by Minister for Transport Khaw Boon Wan:

1. The development of Terminal 5 is a major investment to ensure that Changi Airport continues to remain competitive and serve Singapore's growing economic and connectivity needs. At full capacity, Terminal 5 will be as large as Terminals 1, 2 and 3 combined. Given the scale of investment needed, the Government set up the Changi Airport Development Fund to help fund the building of Terminal 5.

2. For Terminals 1-4, Singapore's sole airport operator Changi Airport Group (CAG) is also the owner. However, there are other leading airports where operation and ownership are separate. MOT and MOF have therefore commissioned a study to determine the ownership model for Terminal 5 following its completion that can best support our objective of maintaining Changi Airport's position as a leading air hub for the long term. We are not, however, considering a public-private partnership model of co-development.

Your task is to propose and justify the best ownership model for Singapore Changi Airport Terminal 5.

To complete this assignment you need to carry out the following:

1. List and evaluate pro and con of the various airport ownership models.
2. Propose the best ownership model for Singapore Changi Airport Terminal 5 with strong justification

Advantages and Disadvantages of Government-Owned and Operated Ownership Model

This report will help in providing valuable insights regarding the various business models that are available in airports so that it can help in the function of the system. It will also states the pros and cons of the models so that the models can be understood properly. The business practices that are present with respect to the models will also be mentioned along with proper recommendations of the business model that the Changi Airport Terminal 5 can take up in Singapore.

Government owned

It is the type of business model that is operated and owned entirely by the government and is in practice is places like Africa, Latin America and Asia-Pacific. In this model, it can be seen that the operation of the airport is managed directly by the government under the Civil Aviation Authority (CAA). This type of model is where the administration plays an important role and the services that are offered are for the utility of the public and obligated towards the services of the public. Another major reason for the utility of this ownership model is that it can be used for national defence and for military purposes as well [1].

The advantages of this ownership model is that it helps in meeting the multiple objectives and the government department that is operating the airport may not always use it for commercial purposes. It may not only help in serving the political purposes but also the social and political objectives so that it can help in creation of employment, security and safety of the people [2]. Another advantage is that the airport will receive various subsidies so that it can help in meeting the objectives of the society. This is due to the fact that the airport will be offering various privileges to the customers such as exclusive rights regarding some of the services so that they can be exempted from the rules and regulations. It will also help the airport in gaining a dominant position in the market due to the monopoly power that they will enjoy in this regard [3].

The disadvantages of this model is that the position of the managers are not defined in a proper manner, which may lead to a situation of politics and changes in the various interest groups that are linked with the airport. There is an increase in the level of inefficiency among the incentives that are provided by the management due to the increase in the level of mismatch among the employees [4]. It will also result in increasing the level of investments, which may increase the burden among the taxpayers, as the local people have to bear the burden of paying a larger amount of tax to satisfy the incentive level of the employees. The service that is oriented towards the customers will be designed in a poor manner, which may lead to a reduced level of satisfaction among them [5].  

Advantages and Disadvantages of Public-Private Partnership Ownership Model

This model is defined as the venture that is based on cooperation between the private and the public sectors and the expertise of both the sectors can be used with respect to the resources that are allocated along with rewards and risks. Unlike the privatization manner, this type of ownership will allow taking the risks in a substantial manner regarding the capital that is provided for cost of operations such as building and designing the infrastructure along with the operations that needs to be managed [6]. The land under this model belongs to the public and the fixed assets are mostly owned by the state. In this model, the responsibility of funding and delivering the services are under the private sector and the responsibility of providing the services are under the hands of the government. The services that needs to be provided are under the supervision of the private sector and the service scope needs to resolute through two parties [7].

The advantages of this model is that it will be cost effective in nature, as most of the operations will be conducted in a competitive manner. It will be developed through the expertise of the government and the private sectors. It will also lead to a higher level of productivity, as the level of expertise of both the sectors will be put in to action, which will also result in providing better level of services [13]. The delivery of the services will be at a faster rate due to the higher amount of incentives that will be provided to the employees. Another major advantage will be the focus will be on the customers with respect to the delivery of the services, which may lead to a greater amount of satisfaction among the customers [8].

The disadvantages of this model is that the economic aspect is only taken in to consideration rather than the environmental, social or other aspects. It may also lead to an impact on the financial matter in a negative manner if the plan of the project may be rejected. There is a possibility that the risks may get transferred from the private towards the public sector, which may lead to a case of bankruptcy. The level of experience among the partners may lead to level of inefficiency among the operations within the company [9].

This model results in transferring the right of ownership along with the controlling rights to the hands of the private sector so that it can help in maintaining the level of operations in a proper manner. It will also result in the smooth operations of the business so that the generation of revenue can be done accordingly [10].

Advantages and Disadvantages of Private Ownership Model

The advantage of this model is that it will help the airport in raising additional capital through the new revenue sources that are present in the market. This will help in increasing the level of efficiency in the market as well. The services that will be provided by the airport will result in focussing more on the customers so that the level of satisfaction can be increased among them. It will also provide a reduction in the level of cost for the passengers. Another major advantage is that the government will benefit through this model, as it will help in generating better level of taxes [11].

The disadvantages of this model is that since the air services will enjoy monopoly power, the passengers would want that the government plays an important part in supporting the infrastructure of the airport. This will result in feeling more protective and secured by the passengers when the government is involved in the project [12].

These airports are owned by the government where the first picture is that of Groningen airport and the second one is that of Rotterdam The Hague Airport, which also serves as a military base and is located in Netherlands. These airports cater to the needs to the public as well as serve the intention of the government.  

 

These examples are that of public partnership business model where the first picture is that of Daniel Oduber Quiros that is located in Costa Rica and the Skukuza airport that is located in South Africa. The land of these airports are owned by the government whereas the infrastructure of the airport is owned by the private companies.

 

These airports are owned by the private companies and are located in London and the United States of America respectively. The first picture is that of Farnborough airport where as the second one is that of Fort Lauderdale located in the Hollywood region.

The Changi Airport Terminal 5 in Singapore needs to follow the privatization business model, as it will help in attracting more number of customers. This model will result in responding to the demand of the market at a quicker manner along with managing the airports in a proper way as well. The airport will be deigned and planned in such a way that it will help in generating better level of income by providing services that are efficient to the customers.

The use of this model will also result in raising the financial capital so that it can expand its functions in a proper manner. The private companies can help in providing the additional capital that is required within the airport so that the services can be enhanced in a proper manner and the rate of profit can be increased as well. This will result in giving proper taxes to the government so that the economy of the country can be improved to a great extent. The use of this model will also result in increasing the level of competition in the market due to the increase in the level of efficiency that will be present with respect to the services that will be provided.  

The main objective by taking up this ownership model is that the employees of the airport will be given a designated posts so that they can work accordingly. This will help in managing the level of expertize within the system in a proper manner so that it can divide the work pressure mong the employees. This will ensure that the level of satisfaction for the customers can be met efficiently.

References

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[2] Jimenez, E., Claro, J. and de Sousa, J.P., 2014. The airport business in a competitive environment. Procedia-Social and Behavioral Sciences, 111, pp.947-954.

[3] Markides, C. and Sosa, L., 2013. Pioneering and first mover advantages: the importance of business models. Long Range Planning, 46(4-5), pp.325-334.

[4] Wells, P.E., 2013. Business models for sustainability. Edward Elgar Publishing.

[5] Vidovi?, A., Štimac, I. and Vince, D., 2013. Development of business models of low-cost airlines. ijtte-International Journal for Traffic and Transport Engineering, 3(1), pp.69-81.

[6] Burghouwt, G., 2016. Airline network development in Europe and its implications for airport planning. Routledge.

[7] Pearson, J., Pitfield, D. and Ryley, T., 2015. Intangible resources of competitive advantage: Analysis of 49 Asian airlines across three business models. Journal of Air Transport Management, 47, pp.179-189.

[8] Vanhaverbeke, W. and Chesbrough, H., 2014. A classification of open innovation and open business models. New Frontiers in Open Innovation, pp.50-68.

[9] Graham, A., 2013. Understanding the low cost carrier and airport relationship: A critical analysis of the salient issues. Tourism Management, 36, pp.66-76.

[10] DaSilva, C.M. and Trkman, P., 2014. Business model: What it is and what it is not. Long range planning, 47(6), pp.379-389.

[11] Parrella, B.C., 2013. Understanding Airline and Passenger Choice in Multi-Airport Regions (No. Project 03-26).

[12] Lohmann, G. and Koo, T.T., 2013. The airline business model spectrum. Journal of Air Transport Management, 31, pp.7-9.

[13] Fageda, X., Suau-Sanchez, P. and Mason, K.J., 2015. The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe. Journal of Air Transport Management, 42, pp.289-296.