Public/Private

Kuwait's Airport Mall, which was one of the first public private partnership in the region, has led to a number of improvements at the airport, as well as delivering benefits to the country.

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By  Neil Denslow Published  May 2, 2004

|~|united_m.jpg|~|Dr. Hussain Jaafar Al Sayegh, deputy chairman & managing director, United Projects Company|~|With competition between airports in the region heating up and impacting on landing fees, non-aeronautical revenue streams are becoming an increasingly important source of income. Traditionally, this has meant Duty Free shopping, but Kuwait has taken this approach even further with the development of the Airport Mall. This shopping centre, which is run by a private company, has become a significant source of revenue for the Kuwait’s Department of General Civil Aviation (DGCA) and it has also helped fund extensive renovations at the airport. The Kuwait Airport Mall is a significant project, as it is one of the few airport developments in the Middle East run under a build operate transfer (BOT) contract. Outside of the Middle East, such deals are a common model for developing airports and other large-scale infrastructure projects. In the region, however, most governments build and operate airports themselves in line with their policy of wide-scale state intervention in the economy. Under a BOT model, by contrast, the airport is built by a private company, which then operates it for a set number of years. At the end of this period, the building is transferred to the government, which holds a bond from the company to ensure that the facility is not in a rundown state when it is handed over. Once the building is handed over, the government can either sell it off or take over the running of the facility having acquired know-how from the operator. This was the model followed by the Kuwaiti government when it issued a tender for the construction and operation of the Airport Mall in 1998. United Projects Company, a subsidiary of Kipco, won the deal, against 12 competitors, and it began work on developing the site in 2000. The benefit to the government of such a model is that it no longer needs to pay the construction costs. Furthermore, the government also receives a set annual fee for the duration of the lease from the operator, which takes on the risk of running the facility. In return, the operator gets to keep the profits generated, which gives them an incentive to run the service as efficiently and as innovatively as possible. “Civil servants get their money regardless of whether they perform or don’t perform; they are part of the administration and they have to get their salaries,” comments Dr. Hussain Jaafar Al Sayegh, deputy chairman & managing director, United Projects Company. “A private operator will take better care of [an airport]… as they need to find the optimum solution in order to make money from it.” United Projects was initially awarded the tender to build and run the 30 000 m2 mall as well as redeveloping the 100 000 m2 parking area. Since 2000, the company has undertaken extensive work on these sites to make them both more efficient and more profitable. The key development has been the construction of the Airport Mall alongside the existing terminal building. The shopping centre, which is directly attached to the arrivals and departures areas, is a modern-looking building, which is designed to have a light and airy atmosphere. It houses a good mix of different shops, cafes and financial services outlets — including such big names as Starbucks, Debenhams and KFC — and it has been designed to allow both departing and arriving passengers to have easy access to the shops on both floors. The Airport Mall has been a successful business for United Properties Company and its tenants, as the airport’s four million annual passengers ensure there is a constant flow of potential customers. “In most mall projects, you have to create a crowd, but in our airport project, the people are already there… Building the mall came from following the crowd,” explains Al Sayegh. “The phenomenon of the Airport Mall is not new [globally]… but in Kuwait and the Middle East it was a first. People said I was mad to do it, but today I don’t a have single square meter to rent out,” he adds.||**|||~||~||~|Beyond just airport passengers, the mall has also become a popular shopping destination in its own right; a recent survey found that 35% of mall visitors were there as just shoppers rather than as passengers or well-wishers. This has therefore further boosted the revenue derived from the site, and also fulfilled a clear need for the city. “People from the area like to come and shop at the Airport Mall as it is safe and clean,” comments Al Sayegh. United Projects has also introduced a number of innovations to improve the service levels in the Airport Mall, including the deployment of five wireless hotspots from Cisco Systems that allow users to access the internet using their laptop computers. Customers for the system, which gives a dataflow rate of 8 M/bits/s, need to buy a pre-paid card to use the internet, which also provides a further source of revenue. “We are always keen to offer passengers using Kuwait International Airport the latest technologies the market has to offer,” comments Al Sayegh. The use of new technologies extends into the car parks, which have also been extensively redeveloped since United Projects took over the site. Capacity, first of all, has been greatly increased with an additional 700 short term spaces, as well as 200 more long term slots. The car parks now have a total of 2500 parking spaces, all of which are covered, and they account 15-17% of the revenue generated at the airport. The payment system has been enhanced through the implementation of a solution from Designa. Passengers can now pay for their parking using machines in the terminal or mall before going to their car, and the system also captures the registration numbers of all the vehicles using the car park to ensure that everyone has paid. United Projects is now looking to develop the facilities at the airport further, although the lack of space means that it is not possible to build new shops inside the mall. However, the company is looking at building an airport hotel and even a cinema. “There are so many things I am thinking about,” says Al Sayegh. Following the success of the mall, United Projects is also beginning to move into airside operations at the airport as well. Under the terms of the original tender, it installed a Vanderlande baggage system within the terminal, which is capable of handling 5000 bags per hour. It has also now installed 72 check-in gates on the first floor of the Airport Mall building, which are in addition to the existing 36 gates in the airport terminal itself. The gates in the mall are divided into two even-sized groups, one of which is operated exclusively for Kuwait Airways by Kuwait Airport Handling Company (KAHC). The other set of 36, which handle passengers flying on other airlines, is divided between KAHC and National Aviation Services (NAS), the ground handling agent set up to provide competition at the airport. United Projects is also looking to further develop the airside facilities, including increasing the number of gates and preparing the airport for the possible arrival of the Airbus A380 superjumbo. “We have not got this contract… but we have suggested increasing the number of gates at the existing terminal and to make two of the gates [A380-ready],” notes Al-Sayegh. However, the company has secured the contract to develop the general aviation and VIP facilities — excluding the Emiri Flight — at the airport, again under the BOT model. The $25 million project will see the construction and renovation of general aviation terminals, lounges and hangars in a 135 000m2 part of the airport. The navigational aids will also be upgraded to category 7, while Jet Aviation Group will provide maintenance and ground handling services. More long term, the Department of General Civil Aviation is also planning to construct a $129 million second terminal at the airport for Kuwait Airways. United Projects is already positioning itself to build and operate the terminal, which is expected to open in 2015. The company is also looking to take over the operation of other airports, and it has had talks with a number of authorities in Europe. The company is also hoping to persuade other DCAs in the region that they should follow Kuwait and adopt the BOT model. “I do believe that most of the governments should hand [airports] over to the private sector, as private companies need to keep innovating to make money and to enhance the project… If they don’t enhance it, they will never make money,” says Al Sayegh. “That is the phenomenon behind the private sector: innovation is the word we always have to talk about.”||**||

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