The Edge Billion Ringgit Club - Malaysia Airports Holdings Bhd

Listed since 1999, Malaysia Airports Holdings Bhd (MAHB) focuses on the operation, management, maintenance and development of airports. Today, it is one of the world’s largest private sector airport operators, and the sole operator of 39 airports in Malaysia.

The company’s business is divided into two main segments — airport operations and non-airport operations. Airport operations comprise airport services and duty free goods. The non-airport operations comprise palm oil cultivation, hotel operations (the Pan Pacific KLIA) as well as project and repair maintenance services.

In this email interview, managing director Tan Sri Bashir Ahmad Abdul Majid shares his thoughts and strategies with The Edge Financial Daily.

TEFD: What are the company’s competitive strengths and advantages?
Bashir: We have several key strengths, one of which is a strong market positioning. We are the home base to two strong national airlines and we have favourable “gateway” airport locations. MAHB offers the best value in the region with competitive aeronautical charges, while still profitable and growing in financial strength.

KLIA consistently ranks among the top 10 airports in the world. We are a reputable world-class airport operator with an experienced management
team.

We are centrally located with many routes within four to five hours. We also have favourable “gateway” airport locations — MAHB’s five international airports are located within a high population catchment area which includes four of the strongest global growth markets — China, India, Thailand and Indonesia.

In terms of policy, MAHB enjoys a good public-private partnership with the government. There is also clear business direction through the launch of “Runway to Success”, which clearly defines the path and strategies to be undertaken to achieve our financial, growth and commercial objectives.

MAHB is very cautious of the environment with the commitment to the Green Globe. We also have a skilled labour force and management expertise, with wide experience in managing very small and very large airports. Finally, we are committed to corporate social responsibility projects, where we focus on community-related projects, such as Beyond Borders — with a focus on schools located near our airports.

TEFD: What have been the company’s major achievements in the past few years?
One of the major key policy decisions was the launch of MAHB’s five-year business direction (Runway to Success) in April 2010. This sets the direction for the group going forward.

In terms of our expansion, the MAHB-GMR consortium was awarded the concession for Male International Airport, Maldives, in June 2010. In December 2010, we had the ground breaking ceremony to upgrade the Penang International Airport.

We have also embarked on the development of a new terminal to replace current LCCT — KLIA 2, which will mark another significant development in the aviation history of Malaysia. Meanwhile, we are pleased that KLIA, in 2010, was ranked fifth worldwide in Airport Service Quality (ASQ) in the 25 million to 40 million passengers per annum (mppa) category.

What are the major challenges your company faced over the years and how did it overcome them? Is there anything you would have done differently?
Our main challenge is in trying to achieve our target growth despite economic uncertainties and natural disasters. We have to address, cope and manage externalities as they arise. The prime example was the volcanic eruption in Iceland that resulted in passengers bound for Europe being stranded at KLIA.
Bashir: We are the home base to two strong national airlines and we have favourable 'gateway' airport locations.


Other challenges include maintaining top quality service levels, meeting capacity constraints in the old LCCT, and managing demands made by airlines, especially the low-cost carriers.

Optimising cost (continuous management of cost efficiency) in the short run is challenging as the nature of an airport business is one where the ratio of variable costs to fixed costs is low. The focus on cost optimisation is primarily based on realised cost (short term-driving operational efficiency), inherent cost (medium term-changing policies, procedures and supporting infrastructure) and structural costs (long term-changing operational approach).

We would like to sustain our position in the top five best airports in the world in our ASQ ranking, in line with our headline KPI.

We also need to ensure there is always adequate capacity at our airports. We want to ensure robustness in planning and design as well as project management of both the Penang Airport Upgrading and KLIA 2 projects, so that completion is within the stipulated time frame, cost and quality.

Financially, our challenge is to improve commercial revenues — increasing spending per passenger and buying rates among passengers. Other challenges include securing funding for development, overcoming the lack of land to meet increasing demands and competition from major regional airports.

How is the company positioning itself within your industry? What are your strategies to grow or gain market share?
We strive to increase airport and non-airport revenues, and keep costs low.

We constantly work toward being in the top five airports in the world, and work toward providing more routes and frequencies. We maintain our positive public-private partnership with the government. For the environment, we retain the Green Globe Certification and are moving toward a carbon neutral environment.

For our shareholders, we deliver consistent profit, increase shareholder value and enhance our profile to be attractive to investors. For our staff, we provide continuous skill enhancement and opportunities, and undertake succession planning.

What are your company’s plans for the future, short term and long term?
What are your plans to compete in the increasingly globalised environment?
The three phases of growth for MAHB’s development have been outlined in the Runway to Success document.

Phase 1 (in one to two years) comprises commercial and retail optimisation and expansion — with KLIA 2 being the “step up” to generate greater commercial value. Phase 2 (in two to five years) involves terminal-linked property development and KLIA land development. Phase 3 (over five years) will focus on overseas business-airport management and operations, and airport investments.

In the next five years, MAHB will be creating and adding value of airport land through real estate development and activities which will provide sustainable recurring commercial revenue. At the same time, we will build a firm and scalable business model to expand our business beyond Malaysia.

We are already seeing results from the sustainability drive — in terms of carbon neutral growth for KLIA, sustainable practices in everyday work in the office, having sustainability as part of the decision making process as well as the procurement process.

We will expand the scope of activities through investment in airport management and business activities overseas, while investigating opportunities around the world and planning for future acquisition.

Where will the company be in the longer term?
MAHB would have achieved its vision of being a world-class airport business, as guided and measured by global levels and measurements of the time.

This is highly dependent on two factors. One is MAHB’s ability to step up its competitiveness, strengths, capabilities, investments to maintain and enhance its presence globally. The second is the potential climate of the regulatory environment and the operating licence of MAHB within national boundaries.

Infrastructure planning wise, the National Airports Master Plan (NAMP) provides the strategic framework for the development of airport capacity over the next 50 years.

In preparing the NAMP, MAHB took a view of the long-term demand for air travel and airport capacity, and the best long-term strategy to respond to that demand.

We have set out a strategic and sustainable approach to balance the economic, social and environmental benefits, ensuring that airport development is properly linked to Malaysia’s wider transport strategy and to other modes of transport network. Through the NAMP, MAHB has provided greater certainty, wherever possible, to those living close to airports while allowing airport operators to plan ahead for capacity expansion.