For proof that Asia’s economies are booming, look to the skies. Bangkok’s new airport is already operating over capacity and traffic demand is set to increase by more than 7 percent annually until 2030.
Asia is quickly becoming one of the world’s largest aviation markets, and the growth of air traffic in the region is fueling a construction boom as many Asian countries scramble to expand their infrastructure in the face of an increasing number of passengers.
Last year alone Jakarta’s Soekarno-Hatta International Airport, Guangzhou’s Baiyun International Airport and Shanghai’s Pudong International Airport all landed on the Airports Council International (AIC) list of the world’s 20 busiest airports. Growth has been especially robust in China; in 2010 Baiyun International tallied a 10.6% increase in passenger traffic over the previous year and Pudong saw its own traffic rise by 26.4%.
All the new flyers are straining local air networks, and authorities in the region are increasingly worried about problems like chronic delays and poor customer service. Concerned that overburdened airports could take a bite out of economic growth, many countries in the region have been busy spending money building new facilities and expanding existing ones.
Tourist-dependent Thailand is a prime example. Last decade the kingdom invested more than $4 billion in Bangkok’s ultra-modern Suvarnabhumi Airport. Officially opened in 2008, Suvarnabhumi can process 45 million passengers annually. However, Thailand is far from the only Asian economy to significantly expand its airport capacity in recent years. Over the last ten years Hong Kong, Beijing, Tokyo and Shanghai have all either added new terminals or built entirely new airports. While these projects are often a source of local pride, the facilities themselves are often a major economic driver according to Sam Lee, Credit Suisse’s head of Asian transportation research in Hong Kong.
“It was estimated that in Hong Kong (for example), the value added from the aviation industry represents 8.2% of the city’s Gross Domestic Product, and the industry directly and indirectly employs more than 7% of the working population,” says Lee.
The building boom seems likely to continue across Asia. South Korea recently greenlit a $4 billion expansion of Seoul’s Incheon International Airport, a mere 10 years after the airport first opened for business. Today, Incheon is Asia’s eighth busiest hub, handling about 33 million passengers annually. Authorities estimate that the expanded airport will eventually process 62 million passengers and 5.8 million tons of cargo a year.
As airports expand, regional competition is heating up. Secondary gateways like Incheon or Beijing’s Capital International Airport are hoping to become hubs that can take away passengers and cargo from major players like Hong Kong and Singapore, which are currently the region’s dominant airports. “Of all these airports, we don’t know who’s going to win,” says Lee. “Right now they are adding capacity because they are dealing with growing passenger traffic, but they also see huge benefits in attracting more passengers and cargoes to use their facilities either as a final destination, or regional transportation hub.”
Like their more industrialized counterparts, Asia’s emerging economies are also dealing with a record influx of traffic. In the Philippines, more than 27 million passengers travelled through Manila’s Ninoy Aquino International Airport in 2010, up 13.3% from the year before. In Vietnam more than 9.5 million passengers used Hanoi’s Noi Bai International airport in 2010, up 21.5% year over year. To ease over crowding Vietnam broke ground on a $961 million terminal at Noi Bai earlier this year. The new terminal is slated to begin commercial operation in 2014.
Manila represents a cautionary tale for countries that hesitate to expand their infrastructure. Overcrowding has damaged Ninoy Aquino’s international reputation, with the influential travel website sleepinginairports.net calling the airport one of the world’s worst. While there are no plans to build a new terminal or airport in Manila, there has been talk of transferring some traffic to Clark Air Base, a former U.S. Air Force facility northwest of Manila.
The trade publication Orient Aviation calculates that Asia is poised to invest roughly $109 billion over the next decade to expand and modernize its airport infrastructure. China alone has committed $58 billion to modernize its airports, including the construction of a second facility in Beijing. The expansion of infrastructure represents both a formidable challenge for Asian economies and a potential opportunity for lenders. The region’s economies must expand their airports if they want to continue their impressive growth rates, but they will also be searching for ways to finance their ambitious expansion plans.