News Backgrounder
PAL disappointed with UAE air services deal
The big Gulf airlines didn’t succeed in securing all their demands at recent air talks with the Philippines government, but they walked away with far more than local carriers wanted.
October 1st 2015
Philippine Airlines (PAL) president, Jaime Bautista, was far from happy last month after his government concluded two days of air rights discussions with the United Arab Emirates (UAE) that will allow Gulf airlines to increase their weekly flights to the Philippines by 25%. Read More »
“Frankly, we are disappointed by the results of the UAE aviation negotiations with our government,” he told Orient Aviation. “There was no market justification for expanding capacity rights.”
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| Gulf carriers win approval for more Philippines-UAE flights |
The new agreement, which was concluded without local airlines’ full participation, will allow each country 35 flights a week, an outcome that had been opposed by the country’s international carriers, PAL and Cebu Pacific, as well as several domestic airlines.
Before the talks began, the two airlines issued a joint statement that opposed increases in flights between the two countries. “We hope our own government will promote fair competition and support our airlines who have invested much in re-establishing air links to the Middle East and Europe,” said Bautista. “We call on the Philippines panel to the UAE air talks to refrain from giving Mid-East carriers undue advantage by granting more capacity and frequency beyond the requirements of the market.”
A spokesman for Cebu Pacific made a similar plea. He pointed out the existing entitlements were still not being fully utilized by Philippines carriers. Their appeals for no increases in entitlements for the Gulf carriers fell on deaf ears.
From the outset of negotiations, the Philippines carriers were at a disadvantage. When the discussions opened in Manila in late August, the UAE team included representatives from Emirates Airline and Etihad Airways, who sat to the left and right the UAE’s chief negotiator, Omar bin Ghaleb. They participated directly in the talks.
In contrast, PAL, Cebu Pacific and other local carriers had no place on their country’s negotiating team and were classified as observers.
Earlier, a non-governmental organization, Save Our Skies (SOS), which promotes fair and open skies, had urged the government to re-instate Philippines carriers as full members of air negotiating panels (normal practice in most countries) and pointed out their role as observers “makes no sense and is absurd”.
SOS president, Robert Lim Joseph, said local carriers should be given equal opportunity to defend their positions and fight for reciprocity and fairness. “Where in the world can you see airlines being relegated to mere observers in critical negotiations concerning their business and future?” SOS asked.
According to insiders, the Gulf team opened the talks with a complaint about the public joint statement from local operators, which the UAE said was a threat and an affront they threatened to report to Abu Dhabi.
The UAE also alluded to Philippino foreign workers – more than a million - employed by Gulf airlines and by other businesses in the UAE. Some of the Philippines negotiating team believed it was a veiled threat to stop or slow down hiring from the Philippines if the Gulf airlines’ air rights demands were rejected.
The new agreement is far below the 30 or more new flights the UAE reportedly sought. The Philippines also wanted Gulf carriers to operate direct flights to other destinations, particularly Clark and Cebu, in return for new slots into Manila.
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| 'Frankly, we are disappointed by the results of the United Arab Emirates (UAE) aviation negotiations with our government. There was no market justification for expanding capacity rights' |
| Jaime Bautista President Philippine Airlines |
The UAE’s reluctance to service more domestic cities led to a watered down agreement. The Philippines Civil Aeronautics Board (CAB) executive director, Carmerlo Arcilla, announced the granting of extra flights to Manila was subject to UAE carriers operating to Clark or Cebu “within a year” from the signing of the MoU.
This condition is “in line with our open skies policy in our developmental gateways outside Manila, and forces UAE airlines to invest in our developmental gateways”, he said.
Arcilla said that while this development may be “disadvantageous” to local carriers operating flights between Manila and Dubai or Abu Dhabi, the Philippines government succeeded in negotiating additional fifth freedom traffic rights to the United Kingdom, the U.S. and Saudi Arabia for its airlines.
“Our carriers can fly from Manila to UAE and onward to any country, including the UK, the U.S., and Saudi Arabia. This will improve Philippines connectivity and the commercial viability of our routes to the UAE,” he said.
Arcilla said the parties have agreed to “co-terminalization”, which allows an airline from one country to fly to a city in the other country and onward to another city in that country without picking up passengers on the domestic leg.
“Overall, the talks were a success for Philippines connectivity and network development. The Philippines government panel and our airlines view the exchange as more or less fair,” he said.
“The increase in traffic rights for both sides, which our airlines opposed, is minimal. We also achieved unilateral concessions for the increase, in terms of subjecting the operation of the additional traffic rights by the UAE carriers for services to Clark or Cebu.”
In August, before the talks began, Bautista cautioned the Philippines negotiating team “to learn from the bitter experience” of major U.S. airlines in dealing with airlines from the Arabian Gulf, including Emirates and Etihad.
The U.S. government is looking into allegations of unfair practices by Emirates, Etihad and Qatar Airways after claims by the “big three” U.S. airlines that the Gulf carriers have received government subsidies of up to $42 billion. The allegations have been strongly denied by the Gulf operators.
Being a realist, Bautista told Orient Aviation after the agreement was concluded: “while we can’t expect a fair fight, PAL will fight back where it counts; in the market, day by day.”
Analysts tend to agree. They think the results of the talks could have been a lot worse.
