An Analysis of Transport Economics in Malaysia: Airport Perspective

This report provides an in-depth analysis of the transportation sector in Malaysia, with a specific focus on airport operations and their influence on the national economy. It begins with an introduction to the importance of transportation and its various modes, followed by a background on the air t...Read More

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1. INTRODUCTION
Transportation is the most important and vital to the movement of both freight and passengers
around the world. Without transportation system in every country the people can consider the
activities in their life is not efficient. It is also have a benefits and role to the other industries in a
national economy. The transportation network is not only important because it provides an
economic base and employment, but also because it is a service that is utilized to some extent by
most sectors in the economy
Transportation can be define as any device used to move an item or services from one
location to another. Commons forms of transportation include planes, trains, automobiles. But
the specific in this study is on Land Transport, Water Transport, Air Transport, Port and Airport
Operation Services, Highway, Bridge and Tunnel Operation Services and Communication also
considered in transportation sector.
Malaysia is a south-east Asian country and surrounding countries and water bodies of
Malaysia. It covers an area of 329,750 sq km and a population of approximately 28.86 million in
year 2011. Land and rail transport are responsible for providing domestic freight and passenger
services, while water and air transportation which makes it essential for global business and
tourism. It plays a vital role in facilitating economic growth, particularly in developing countries.
The two main aim to this assignment is to provide basic knowledge of transport economics
especially for domestic airport, and to identify the role and influence of the transportation sector
on the national economy of Malaysia.

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2. BACKGROUND OF STUDY
The main modes of transport n Peninsular Malaysia include buses, trains, cars and to an extent,
airplanes Malaysia has six international airports. The official airline of Malaysia is Malaysia
Airlines, providing international and domestic air service alongside two other carriers. Most of
the major cities are connected by air routes.
Therefore, the subject of my choice is air transportation involving domestic and
international airport. The three main aim I will highlight to this assignment is to provide basic
knowledge of transport economics especially for domestic airport, to identify the importance of
transportation of economic development, and to identify the impact of the transportation sector
on the national economy of Malaysia. Airport that I choose is located Tawau Airport Sabah.
3. MALAYSIA AIR TRANSPORTATION POLICY
3.1 Domestic Airport
A domestic airport is an airport that handles only domestic flights—flights within the
same country. Domestic airports do not have customs and immigration facilities and so cannot
handle flights to or from a foreign airport.
These airports often have short runways sufficient to handle short or medium
haul aircraft and regional air traffic. Security check and metal detectors are used in most
countries, but such checks were for domestic flights installed in many cases decades after checks
for international flights.
Currently, there are three domestic airlines operating on the domestic routes, namely the
Malaysia Airlines Berhad (MAS), Air Asia and Berjaya Air. These airlines operate on designated
routes approved by the government on regular schedule. Another airline, Transmile Air has also
been given the license to provide cargo services on domestic routes. The rates for domestic
airfares are subjected to the approval of the government. At the moment, domestic airfares are
amongst the lowest in the region even though the government has recently approved an increase
of 51.8% in domestic airfares for peninsular Malaysia.

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3.2 International Airport
The Governmental policy that lays the foundation for a civil air transport system need to
consider allowing liberal international access to the country and to allow competition among
international airlines to stimulate the tourist source markets and assure sufficient domestic air
services to permit tourists ready access to various parts of the country. The successful
development of international air services depends on the ability for airlines to fly commercially
between countries and the availability of adequate airports to support and services the flights.
Once these are in place, the operational and marketing aspects of air transportation can be
undertaken without undue complication.
The Malaysia Airline System (MAS), the national airline, provides international air
services to various international destinations based on the landing rights accorded under the
bilateral air services agreement. The Ministry of Transport (MOT) is responsible to obtain the
routes and landing rights through negotiations and agreements with the relevant foreign
governments. The bilateral air services agreement specify the routes and the frequency of air
services that can be allowed for airlines from both countries. With respect to fares for
international routings, these are generally approved pursuant to International Air Transport
Association (IATA) regulations and practices.
Malaysia has always adopted the liberal open sky policy in negotiations on air services
with foreign countries for the purpose of giving the freedom and flexibility for the foreign
airlines to operate their services. The aim is to give incentives for foreign airlines to operate at
the international airports in the country. Nevertheless, not all countries adopted the liberal open
sky policy. At the moment, Malaysia has the open sky agreements with the United States, New
Zealand, the Scandinavian countries, United Arab Emirates, Yemen, Austria and Taiwan.
Although currently Malaysia has 81 air services agreements with foreign countries only 41
foreign airlines use the right to operate in the country. The national carrier, MAS currently has
air services to 78 international destinations, 19 of which are on code-sharing basis.

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4. MALAYSIA AIRPORT
There are currently 5 international airports operating in the country, namely the Kuala Lumpur
International Airport (KLIA), Penang, Kuching, Kota Kinabalu and Langkawi airports. All these
airports are able to accommodate the largest commercial aircrafts currently in use. In addition, there
are 17 domestic airports and 15 rural airstrips in the rural areas mainly in Sabah and Sarawak.
Although the airports in Malaysia has been privatized and operated by the Malaysia Airports
Holdings Berhad (MAHB), the government is still directly involved in the development and
financing of the airports.
There has been a gradual increase in number of passengers handled by all international
airports in Malaysia since the early nineties till around 1997. A slight drop in passengers were
observed in 1998 when the new Kuala Lumpur International Airport (KLIA) started operations
in June 1998 and the then Subang International Airport began to cease most of its international
flight operations. It may not have been very easy to maintain a smooth switch between Subang
and KLIA since the two locations is quite some distance apart. In the beginning, the KLIA was
meant to handle all international flights while the Subang airport still maintains the domestic
flights. This may have been a factor that affects the passenger demand since direct connections
are not available at either airport for those intending to change between international and
domestic flights.
Nevertheless, the total passengers handled by Malaysian airports began to rise in 1999
onwards especially when the KLIA began to receive greater patronage from foreign airlines.
Despite the slowdown in air travel after the September 11, 2001 terror attacks in the US and the
October 2002 bombing on the Indonesian resort island of Bali, there is a significant growth in
passenger traffic at the KLIA.

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Table 1 : Passenger Movement Malaysia Operations 2018

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5. TAWAU AIRPORT, SABAH
Tawau Airport is an airport located 15 nautical miles of Tawau, Sabah Malaysia. It is one of two
airports in Sabah with immigration counters for international flights, the other being Kota
Kinabalu International Airport. Tawau Airport serves the district of Tawau, Kunak, and
Semporna and is the nearest airport to the diving islands of Sipadan, Mabul and Kapalai, all of
which are located in the latter district.
The old Tawau Airport was located on Jalan Utara, about 3.2 km outside Tawau. It was
officially opened in 1968 by the then Transport Minister of Malaysia, Tan Sri Haji Sardon. It
could only cater to small aircraft such as the Fokker 27. By the early 80s, the airport received its
first Boeing 737 flight operated by Malaysia Airlines following the newly extended runway. In
the 90s, the airport also witnessed regional international destination to Tarakan, Balikpapan, an d
Makassar in Indonesia by Bourag International Airlines and Merpati Nusantara Airlines due to
the close socio-economic ties between Tawau and the main eastern Indonesia urban areas.
The new Tawau Airport was opened to the public in December 2001. In 2003, it was
officially opened by the then Transport Minister of Malaysia, Tun Dr. Ling Liong Sik. With a
capacity of over 1.4 million passengers per annum, it is the second largest airport in Sabah after
Kota Kinabalu International Airport. Air Asia added an international destination to Singapore in
2010 and to Kuching in the Malaysian state of Sarawak in 2018, although both were
discontinued due to low passenger yields. In 2018, 1,642,171 passengers passed through the
airport and there were 15,579 aircraft movements.
The airport is also slated for a further expansion after recording 1.64 million passengers
in 2018, overreaching its original capacity of 1.4 million users. With 19.4% growth in 2018, it is
the fourth in terms of passenger growth in the country after Kuala Lumpur, Kota Kinabalu and
Penang International Airport. The expansion is expected to commenced by the end of 2019 and
will include upgrading existing facilities together with a better shopping experience.

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5.1 Airlines and Destination
There are five airlines operating flights from Tawau airport to several destinations. Firstly, Air
Asia Airlines flies to their domestic destinations such as Johor Bahru, Kota Kinabalu, and Kuala
Lumpur International Airport. For Malaysia Airlines, they operated their domestic flies route to
Kota Kinabalu International Airport, and Kuala Lumpur International Airport. Meanwhile for
Malaysia Airlines operated by Maswing flies their route to Sandakan Airport and Tarakan.
Malindo Airlines also flies their domestic destination to Kota Kinabalu International Airport, and
Kuala Lumpur International Airport.
In addition, the airport also provides flights for cargo services by air such as Asia Cargo
Express operated their cargo services from Tawau Airport to Kuala Lumpur International
Airport.
The following table refers to statistics traffic of annual passenger numbers and aircrafts
statistic.
Table 2 : Annual passenger number and aircrafts statistics, Tawau Airport 2003 - 2018

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6. IMPORTANCE OF TRANSPORTATION IN ECONOMC TRANSPORTATION
There are few importance of transportation in economic development in Malaysia, firstly, Role
in Production. It enables the entrepreneur to assemble more easily the raw material and labor
input needed to make a specific product. The same transportation system moves intermediate
goods to other producers for subsequent use in their production process, and it moves finished
goods to the consumers. An efficient transport system enables Just in Time (JIT) production
techniques. Components are delivered when needed reducing a firms stock levels hence unit
costs.
Secondly, the Employment Opportunities. Transport also contributes to economic
development through job creation. This can either be direct or indirect. Direct employment will
be created in the industry itself , such as drivers , logistics managers and pilots. Indirectly, jobs
are created in for example the insurance and financing industry, related to the assets of transport
companies.
Besides, Geographical Specialization. The development of transportation system has
enabled regions to specialize in producing its most efficient output. Production and consumption
of products can take place in two different locations. The bulk of the electronic products we use
daily, such as television sets, is manufactured in the east and transported through ship to Africa.
Substantial economies of scale have been achieved and these have resulted in reduced per unit
production costs.
In terms of Trade. Transportation has enabled countries to trade with other countries
throughout the world. International transportation has led the way to more world trade, and it has
enabled nations or regions to specialize in producing whatever it can do best as comparative
advantage.
Lastly, is a Tourism. The airline industry has specifically contributed to the growth in the
tourism industry, due to airline being fast, safe and relatively cheap. The car rental industry,
likewise has also played a major role in tourism development. Currently tourism industry is the
fastest growing industry in Namibia.

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7. TRANSPORTATION AS AN ECONOMIC
Transportation provides market accessibility by linking producers and consumers so that transactions can
take place. Transportation is an economic factor of production of goods and services, implying
that it is fundamental in their generation, even if it accounts for a small share of input costs. This
implies that irrespective of the cost, an activity cannot take place without the transportation
factor. Thus, relatively small changes in transport cost, capacity and performance can have
substantial impacts on dependent economic activities. An efficient transport system with
modern infrastructures favors many economic changes, most of them
positive.
The major impacts of transport on economic factors can becategorized by Geographic
specialization. Improvements in transportation and communication favor a process of geographical
specialization that increases productivity and spatial interactions. An economic entity tends
to produce goods and services with the most appropriate combination of capital, labor, and raw
materials. A region will thus tend to specialize in the production of goods and services for
which it has the greatest advantages or the least disadvantages compared to other regions as long as
appropriate transport is available for trade. Through geographic specialization supported by
efficient transportation, economic productivity is promoted. This process is known in economic theory as
comparative advantages.
Secondly is the large scale production. An efficient transport system offering cost,
time and reliability advantages enables goods to be transported over longer distances. This
facilitates mass production through economies of scale because larger markets can be accessed.
The concept of “just-in-time” in supply chain management has further expanded the productivity
of production and distribution with benefits such as lower inventory levels and better responses to
shifting market conditions. Thus, the more efficient transportation becomes, the larger the markets that can
be serviced and the larger the scale of production. This results in lower unit costs.
Besides, the impact is in increased competition. When transport is efficient, the potential
market for a given product or service increases, and so does competition. A wider array of goods and
services becomes available to consumers through competition which tends to reduce costs and
promote quality and innovation. Globalization has clearly been associated with a competitive

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environment that spans the world and enables consumers to have access to a wider range of goods and
services.
Transport also contributes to economic development through job creation and its
derived economic activities. Accordingly, a large number of direct such as freighters, managers,
shippers and indirect such as insurance, finance, packaging, handling, travel agencies, transit operators
employment are associated with transport. Producers and consumers take economic decisions on products,
markets, costs, location, prices which are themselves based on transport services, their availability, costs
and capacity.

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8. CONCLUSION
As a conclusion, airlines industry especially in Malaysia, the KLIA airport in Kuala Lumpur has
been experiencing very encouraging growth in these early years since it began operations and it
has the capacity to accommodate the expected future growth in air traffic quite easily.
Meanwhile, for domestic airport such as Tawau Airport has shown rapid progress in opening
flight routes to several countries such as Indonesia. It is found that Tawau Airport also has the
potential to become an International Airport such as KKIA and KLIA based on the increasing
number of passengers using Tawau routes for flights.
The growth in the tourism industry within the region needs to be tapped through a series
of strategies including the adequate provision of air transport services linking the main gateways.
The removal of impediments to the free movement between countries in the region would be
advantageous not only to the travelers but also to the growth of the air transport sector in each
country. definitely be seen as a positive step towards encouraging freer movement within the
region. Such a situation may be capitalized for the common good by having well coordinated
policies and strategies for establishing more direct linkages for airlines to provide services
between the major airports in the region as well as between the regional airports in different
countries. There are various types of cooperative agreements and options available to airlines
which could be ventured into for mutual benefit ranging from maintenance and equipment pools
to capacity sharing and joint operations

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9. REFERENCE
Airport, M. (2018). Malaysia Airport Statistics 2018.
Halpern, E. (2007). Evaluating the Economic Impact of Improvement in Freight Infrastructure.
An Input-Output Approach .
Karim, M. R. (2003). Airport Development in Southest Asia - Case Study of Malaysia and
Thailand. Journal of the Eastern Asia Society for Transportation Studies .
Levinson, D., & Gillen, D. (2009). Transport Economic.
Massani, H. S., & Slaughter, K. (2001). Domestic and International Best Practices Case Studies .
Meyer, J. R. (n.d.). Introduction to "Transportation Economics".
Nashivela, I. (2010). Introduction to Transport Economics.
Sauian, M. S., & Norbaizura, K. (2010). The Importance of Transportation and Financial Sectors
in the Malaysian Services. An Input-Output Analysis .
Tawau Airport. (n.d.). Retrieved from https://en.wikipedia.org/wiki/Tawau_Airport
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Application. Ashgate Publishing Limited.