Air Asia Decides to Build Its Own Airport in Kuala Lumpur

Let’s say you’re running Air Asia, the premier low-cost carrier in Southeast Asia, and you’ve got a problem. You want to keep growing, but that airport at your primary hub in Kuala Lumpur can’t keep up. What do you do? Apparently, you build your own airport.

Air Asia says that it has already outgrown the low cost carrier terminal that was built at Kuala Lumpur International Airport (KLIA) in 2006, and it needs more room. KLIA has plans to make more room there, but Air Asia says that costs are too high there and it wouldn’t happen fast enough anyway. Instead, they’re going to build “KLIA East” which will be, uh, east of the existing KLIA in Labu which is apparently where there’s an enormous development project underway called Negeri Sembilan Vision City. Take a look at it on the map and you’ll see that for customers in Kuala Lumpur, it’s not much different than going to KLIA except that unlike the existing KLIA, it will be on a train line. Oh, and operating costs are expected to be 30% less.

I see something like that and I have to wonder if an airline in the US could do this. Technically? Maybe. Practically? No chance in hell. If a US airline wanted to take a stab at it, it would have to be completely privately funded with no federal money being used for operations. A US airline would also have to find a place where there’s a big population base and land is affordable. Bzzt. Try again. Even then I’m not sure if this would be allowed under anti-trust rules.

Back in the day, Boeing, United Air Lines, and Burbank Airport were all part of the same company. The government broke that one up, but I’m not sure whether that would still happen today. Anyone know the rules on this? Could an airline actually build their own airport in the US is they so choose?


23 Responses to Air Asia Decides to Build Its Own Airport in Kuala Lumpur

  1. David says:

    There is the separate question as to whether an airline really should be building its own airport. It’s easy to say ‘We can do a better job at running an airport’, but I’m not sure that the embedded knowledge in the staff of an airline is enough to build and run a new airport. Yes, they can do a joint venture with a construction company, and a property/facilities management company… but it will likely end up taking up a LOT of attention and resources from the people who are meant to be running and growing an airline instead of playing with bulldozers and diggers !

  2. How is Air Asia even doing well enough to buy into a new airport with all these free-ticket sales they have? Also, I thought KUL had the KLIA Express for getting into the city on the train, unless you were referring to the other airport being on a plain jane line.

  3. Airborne Express then DHL own the Wilmington, Ohio (ILN) and call it Airborne Airpark. It wasn’t a new build (they bought the Clinton County Air Force Base.) but it served them well for quite some time.

    Mind you they didn’t have all the issues of passenger airlines actually getting passengers to the airport…

    A related thread is airline owned terminals, which we have a pretty good track record of in the US and worldwide.

  4. The Traveling Optimist says:

    Theoretically, yes they could. The closest example to this is Alliance Field in Ft. Worth, purpose built for American’s new maintenance base. Alliance never became the hive of activity everyone hoped for but it’s the only one I can think of where an airport was built from scratch essentially for just one tenant.

    Remember the “wayport” idea of the 80s? A huge facility in the middle of nowhere purpose built for connections with no constraints on 24 hour operations or noise. Nice idea but it died quickly because there was no local traffic to draw from or even a local job market big enough to operate the thing.

    An airline could build an airport as a private venture the same as a private citizen could build one on his own land. The trouble would begin, however, for all the navigation aids needed AROUND the airport for starters. Then comes sewage, hazardous waste, fuel and glycol storage, roads, support facilities, cargo area, security, FIS, catering, the USPS, all the things an airport needs to function.

    Assuming an airline could find at least 10,000 acres of land for multiple runway operations, they’d have huge fights with local municipalities, private developers, environmentalists and the federal government to overcome. David is correct – those kinds of headaches are not the strengths of any one airline.

  5. David M says:

    Kapalua West Maui Airport (JHM/PHJH) was originally built by Hawaiian Airlines. In fact, the IATA code JHM for the airport comes from John H. Magoon, the president of the airline at the time the airport was built.

  6. CF says:

    David – Certainly a very good question. But in Malaysia where you can apparently just decide to build an airport and have it done quickly and cheaply, it might make sense, especially if you can save 30% in costs. Here in the US, well, I wouldn’t recommend it at all unless you could get an incredible competitive advantage. Let’s say an airline could build an airport right next to downtown Chicago and use it exclusively. Well that would definitely be worth it (though expensive). Other than that, yeah, not a great plan. I was just curious if it was legal.

    Alexander – I’m not sure of the details of the train lines, but I’m guessing that it’s a regular train line.

    Nicholas – Good point about ILN. I didn’t know they were the owners. Cargo may be treated differently, but then again, maybe not.

    Optimist – Alliance may have been built FOR American, but it isn’t owned by them and anyone can use it. (Remember Mesa’s ill-fated commercial flights from there?) As for the greenfield airports, yikes, that was bad. You can go find a nearly empty one at Mid America (way outside of St Louis) if you’d like. Even Allegiant pulled out of there, so you know there really isn’t ANY local traffic at all.

    David M – Great piece of trivia, thanks David. I’ve flown out of there once, and it’s a great little place. I didn’t realize it was built by Hawaiian, but I know they don’t own it now.

  7. Aaron says:

    Yeah, I was going to mention the Airborne Express/DHL one. That one is probably the best example I can think of of ‘non public’ ownership that is not military or private. In the US I just don’t see where in the world you could put one except out in the middle of nowhere, which as they say, creates its own problems. Like anywhere around DC, SF, LA, Chicago, Dallas, NY, Miami, etc, there’s just no way. Well, actually Miami I take back, if they want to build into the everglades. Or Chicago, if they want to build one in Lake Michigan…

  8. A says:

    I didn’t look at the map too closely but how far apart are these two airports? I would think if an airport had fast and efficient commuter rail to a central business district in a major city an airport could effectively be over 50 miles from the city. All would depend on how much of a discount the airlines operating there would be offering over the closer in airport. Also, how easily could people get to this airport.

    Another thing to consider is that since so many offices today are in the suburbs sometimes a central airport location isn’t ideal. I’ve been stuck in Phoneix traffic after leaving their very centrally located airport trying to get to the fringes for a meeting. Flying into Houston I’ve actually switched a ticket to WN just to fly into Hobby for a meeting on the south side of town.

    Personally I’m a fan of European style high speed rail for trips up to at least 500+ miles. In that kind of environment all airports should be moved well outside of population centers for pollution and safety reasons and connect them to the population with ground based transit. A 50 mile trip on a French style TGV train is nothing in terms of time and flying a long enough distance jet travel would make up the time difference.

    I think we’ll eventually end up this way regardless, but probably not in the near future, and US based airlines sure ain’t going to cover any of the tab either.

  9. That “really big airport in the middle of nowhere” that does not have to worry about 24 hour operations was actually built. It is called “Denver International Airport”, and it is nowhere near Denver. Perhaps if it was never built, someone could have built a private commercial airport outside of town where the land is cheap.

    Perhaps some place in Florida could someday host it’s own private airport, or convert an existing field to private use.

  10. Million Miler says:

    As The Traveling Optimist points out, Alliance in Fort Worth is a very good example of a private airport. It was built by Hillwood Developers, the investment vehicle of the Perot family.

    Two minor clarifications, while American is indeed a large tenant, it was not purpose built for them. The original concept was a multi-modality terminal. It is bounded on one side by the major North-South interstate running from Mexico to Canada and on the other side by a major rail terminal. The vision was to bring international cargo in by air and provide quick transfer to domestic points via truck and rail.

    Also, while the airport is privately owned, federal law prohibits the FAA from staffing a control tower and providing other crucial services at a private facility. So the runways and associated infrastructure are technically owned by the City of Fort Worth in order to get the FAA on board.

    As to the success, that is open to interpretation. Fed Ex is also a major tenant, and the Perot’s have built and leased a fair amount of warehouse and distribution space. Several very large retailers have moved their southwest US distribution facilities to the property.

    But it also should be noted that the Perot’s have a longer term investment perspective than most, certainly a longer perspective than a publicly traded airline can ever imagine.

    And as luck would have it, turns out Alliance is sitting right on top of the Barnett Shale. For the past couple years there have been nearly as many active gas drilling rigs on the property as airplanes!

  11. Oliver says:

    Bangkok Airways owns and operates the airport of Koh Samui in Thailand:

    http://www.samuiairportonline.com/

  12. james says:

    quote

    Technically it’s inside the city limits. Somewhat askew limits to accommodate it anyway.

    While 10 years ago it was considered “out in the boonies” it’s now easily accessible by freeways from the north and south. in addition to the airport access freeway. Many business and residential developments have grown to the southwest and northwest of the airport.

    I have a friend who lives along Pena and works downtown, and doesn’t consider it a long commute at all (by larger city comparisons.)

  13. Coastalaviator says:

    One example that hasn’t been mentioned…at least that I saw…is the Branson airport being built in MO and is scheduled to open in May…I think. This airfield is completely private, although from what I’ve read, it had much help from the local county government. I guess time will tell if “they build it, they will come.”

    I think the Air Asia initiative is an interesting one…and having visited KL, if there is a direct high speed train involved from the City Center to KLIA East, they would be a step ahead of the current KLIA. The current train is not very efficient to KLIA from the City. Just my two cents…

  14. The Traveling Optimist says:

    Million Miler – Thanks for the added background on Alliance. I still remember the debates over building it in the first place and not simply re-designing Meacham to perform the same work.

    A – I love trains! The TGV and ICE networks are both fantastic. Only problem in the US are the lobby groups that have successfully killed every attempt at such a network anywhere other than the WAS-NYC-BOS corridor. Further, most major European airports are linked in to the national rail network. Not in the US.

    What an incredible way to get out of this economic slump! Put people to work designing and building high-speed rail systems that also connect to the airports.

  15. Gennaro says:

    That’s an interesting development. I’m most interested to see how they deal with air traffic. Does the private, Air Asia, airport get equal treatment with the already existing KL airport? How does that influence flight quality?

  16. asad says:

    I remember KL airport being in the middle of nowhere, tons of empty space around but there was a train from there to the city. It was a big modern airport and I am surprised that they are running out of space, it’s not like KL Is HK.

  17. CF says:

    Coastalaviator – Private airports are definitely allowed, and the Branson airport is a perfect example. I’m more interested in whether or not an airline would be allowed to build its own airport. That seems slightly less clear to me and it would probably at least be subject to an anti-trust review.

    BTW, I visited the Branson airport in November, and I wrote about it in a couple places.

    http://industry.bnet.com/travel/1000346/branson-builds-the-first-commercial-airport-in-the-us-without-government-money/

    http://industry.bnet.com/travel/1000347/more-on-the-benefits-of-building-an-airport-without-government-money/

    http://industry.bnet.com/travel/1000435/branson-airport-gets-its-first-tenant-airtran/

  18. Robin Johnson says:

    Looking closely at the KLIA terminals – the Main Terminal on the North side of the airport, and the X-shaped Satellite building reached by tram from the main terminal, it does not seem to be very busy – I counted 4 wide-bodies and 3 737-size aircraft at the gates. There are two 737s parked at the Low-Cost terminal.
    Today’s operations between 7am and 8am on the airport’s schedules at http://flight.klia.com.my include 20 Air-Asia departures and two arrivals: during the same period a total of 10 departures and 23 arrivals are listed for all carriers, including code-shares listed more than once, some of which operate from the Low-cost terminal.
    Given that this terminal is 20km by road from the main terminal, is it possible that what Air-Asia wants to build is not a complete airport, but another terminal accessing existing KLIA runways? With the amount of air traffic, I would expect a significant degree of ATC problems with two
    separate airports so close together!

  19. CF says:

    Robin – No, they made it clear that this is a completely separate airport. KLIA wants to build additions on to the low cost terminal where Air Asia operates, but Air Asia says it’ll be too slow and it’ll cost too much. So they want to go it alone. The placement of my marker on the map is just where Labu is in general, so the airport could be further to the east to get out of the way. I’m sure they’ll figure it out somehow if they really want to.

  20. QRC says:

    Cranky, what would you say if Ford decided to buy the Golden Gate Bridge? Or better yet…build another Golden Gate Bridge next to the old one, just for Ford cars to use? That’s about how ridiculous I think this is.

    I think maybe to those in the airline industry too long the airport thing sounds like a good idea ;) . To those of us who would be asked to finance or invest in the thing, I think we’re all laughing with our pockets closed. I do not want Tony Fernandes running an airport. Period. The list of positives is just one: costs. And that’s not even proven, and easily could swing the other way and be a huge capex disaster. The list of negatives might could fill a book. It is not exactly an easy thing to do, the questions you’ll get from regulators and pressure from competitors, the limited ROE government will allow you to generate, the questions about monopolizing a state asset (right to run an airport), and then there are all the operational questions, staff on the payroll, infrastructure projects tying the airport to the city, figuring out how to optimize retail inside, the list goes on. It would be a nice thought to let professionals run it, but Tony Fernandes isn’t exactly a hands off guy, and even if he was this just smacks of an absolutely terrible idea. I don’t think I’m alone in thinking this…Airasia’s stock is down 22% since November 28, when local airlines, like Air China, China Eastern, Cathay Pacific, SQ etc. are all up since then.

  21. The Traveling Optimist says:

    “Could you launch an ICBM sideways?”
    “Yes, but why would you want to?”

    Could an airline build it’s own airport? Same answer.

    Beyond the regulatory, environmental and capital issues there’s the simple matter of practicality: no interline capabilities. Imagine AA, if they had the money and talent to do it, deciding to build its own airport in Chicago, one without slot controls. For the sake of the oneworld alliance they’d automatically have to get those airlines to buy in to the project as well, route those customers where possible over other shared gateways or lose that traffic all together.

    Then there’s the issue of separating all those traffic patterns from each other. NYC already has that problem with its three airports. Put a 4th one in there just for DL who’s hell bent on flying everywhere? Ugh.

    Exclusive terminals make sense (see JFK, ORD, LAX and DFW). Exclusive airports? Not so much.

  22. Malaysian says:

    Guys… what a lively discussion here… however… in Malaysia… this Air Asia airport is a totally different issue…. somewhat political. Embarassing but true.

    Read it here:

    http://www.thekualalumpurtraveler.com/lcct-labu-ada-udang-di-sebalik-mee/

  23. David says:

    The Malaysian Govt has declined to give permission to Air Asia for its own airport

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