ASEAN backs away from open skies

Is this the year Southeast Asia opens its skies? Maybe not. A senior Association of Southeast Asian Nations (ASEAN) official recently conceded full liberalization will not happen as planned.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

April 1st 2015

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A leading ASEAN official has told a high level gathering in Bangkok there is “over-expectation” and “misunderstanding” about achieving ASEAN open skies this year. Read More »

Director of finance, industry and infrastructure at the association’s secretariat, Tran Dong Phuong, told delegates at the European Union-organized ASEAN Single Aviation Market conference in March that ASEAN open skies will only be “partially opened”, at best.

“We are not there yet. It’s a long process. But we have created foundations,” he said. All agreements and protocols required for the effective operation of the ASEAN Open Skies policy had been completed and ratified by “almost all” member states, he said.

But he warned less developed member countries needed longer to meet commitments. “You know ASEAN’s way. It’s done on a voluntary basis and we keep convincing them,” he said.

Professor Alan Tan, aviation law specialist National University of Singapore: advocating the establishment of an “ASEAN community” airline

The admission confirmed the views of industry analysts, who have said full open skies are going to arrive later in the region than announced. The main reason for the policy procrastination is that less developed ASEAN members are worried their markets will be completely swamped by larger carriers if ASEAN skies are fully liberalized.

Royal Brunei Airlines (RB) has repeated its view that while open skies would ultimately benefit Brunei as a whole, the tiny airline needed to prepare for challenges from competing airlines, particularly budget carriers.

“One of our concerns is that if and when low-cost carriers (LCC) come to Brunei Darussalam, they will take a piece of the passenger pie, and in Brunei Darussalam it is very hard to grow the size of the pie,” said Karam Chand, Royal Brunei’s chief commercial and planning officer. “So, we could be seriously impacted if there are more flights here from low-cost carriers.”

“While this open skies policy undoubtedly provides new markets for Royal Brunei to serve as it expands its fleet, it also opens the door for larger regional airlines, as well as low-cost carriers, to access the domestic market,” he said.

Airlines in other small ASEAN nations such as Myanmar, Laos and Cambodia have similar concerns, fearing, in particular, that budget carriers will dump capacity into their markets with rock bottom pricing.

Another view is argued by Professor Alan Tan, a National University of Singapore academic who specializes in aviation law. He has discussed the concept of an “ASEAN community airline” that he believes would facilitate funding for a capital-intensive airline and would be a way to foster economic integration.

“The benefits are that you have a strong airline that has capital around the region and can fight the big guys from China, India and Europe. As a small region, we need to unite ourselves and our resources and pretend to be a country. There is economic logic behind it,” he said.

“Even if an airline was not majority-owned by investors in the country where it is established, that airline could still be considered an airline where it is registered.”

In his remarks to conference delegates, Dong Phuong said the road to ASEAN integration of the aviation sector would not end with open skies, but would ultimately allow member states to expand and deepen integration in all aspects of the sector, including air service liberalization, aviation safety and security and air traffic management.

Some liberalization has taken place within ASEAN, but even with open skies there will not be a total lifting of restrictions as happened in Europe. Airlines will be able to fly from their own country to another member country and then on to a third, but they will not be allowed to operate independent flights that do not include their own country.

For example, airlines from Singapore could fly from Singapore to Brunei, on to Indonesia and back to Singapore, but they could not operate return flights solely between Brunei and Indonesia unless they were linked with Singapore. Domestic markets also will continue to be ring fenced for local carriers.

The other major concern is the perennial problem of inadequate infrastructure in several ASEAN states. Some countries will not be able to handle the projected increases in traffic. At a joint Philippine-Japanese Air Transport Seminar in February, the Philippines Transportation Secretary, Joseph Emilio Abaya, said: “Policy-wise, we are already open, but essentially it is still subject to slots. If you don’t have slots in Manila, you can’t operate there.”

In Indonesia, ASEAN’s biggest airline market, carriers are concerned they are not ready for open skies. They said Indonesia’s tax regime, airport inefficiencies and high fuel costs make local airlines less competitive than their Southeast Asian counterparts, especially those from Singapore, Malaysia and Thailand.

Arif Wibowo, chairman of the Indonesia National Air Carriers Association (INACA) and the recently appointed president director of Garuda Indonesia, said open skies is a political goal of the government.

“We’ll face it head-on. We are used to free competition after all,” he said. Arif added some local airlines, including Garuda’s low-cost unit, Citilink, have been applying or preparing to apply for permits to operate more flights to other Southeast Asian countries. “They’re conducting procedures for that,” he said.

Arif said the local industry’s major concern about open skies was competitiveness issues. “Are local airlines competing on a level playing field with other airlines in the region?” he asked. As in the Philippines, Indonesia’s already heavily congested airports are also an issue.