ASEAN gears up for open skies agreement-
Although full ratification of the open skies agreement among the members of Association of South East Asian Nations (ASEAN) is yet to be realised, the recent signing by the Philippines of the multilateral agreement on air services (MAAS) is a step in the right direction.
The ASEAN open skies agreement, also known as the ASEAN Single Aviation Market (ASEAN-SAM), is set out formally in two multilateral agreements. These are the MAAS and Multilateral Agreement for the Full Liberalisation of Passenger Air Services (MAFLPAS). While the MAAS covers two sets of rules that free up third/fourth and fifth freedom access respectively among the ASEAN capital cities, the MAFLPAS eliminates third/fourth and fifth freedom limitations among all other ASEAN cities. The third and fourth freedoms are already common practice in ASEAN, but now ASEAN-SAM would also grant fifth freedom rights in the region.
With the Philippines signing, all 10 member nations have now signed the MAAS; while eight countries, with the exception of Indonesia and Laos, have signed the MAFLPAS. Indonesia is still resisting opening access to its secondary cities, while Laos remains opposed to opening Luang Prabang and the national capital Vientiane, preventing the benefits of the policy from being fully realised.
The Philippines had earlier justified its decision of holding back on signing the MAAS because of the shortage of landing and take-off slots and overall runway congestion at central Manila’s Ninoy Aquino International Airport (NAIA). However, the country’s Department of Transport and Communications (DoTC) had been working on resolving the issue, and in August 2015, DoTC joined hands with British consultancy firm National Air Traffic Services Limited (NATS) to augment runway use at the NAIA by increasing the hourly air traffic movements from 40 to 60 within a year’s time. Further, to address the passenger congestion issue, the DoTC roped in the Japan International Cooperation Agency to conduct studies on the potential locations for the Philippines’ new international airport. In this regard, Sangley Point in the province of Cavite is being considered. Besides, to support Philippine air carriers, DoTC is also collaborating with the Civil Aeronautics Board to secure additional flight schedules with each of the nine other member states of ASEAN.
The need for an open skies policy and the current scenario
Connectivity among regions and countries implicitly leads to enhanced economic relations. Thus, it is clear that ASEAN-SAM has the potential to not only enhance regional and domestic connectivity and endorse tourism, but also to amalgamate production networks and promote regional trade and investment, propelling the member countries on to higher growth trajectories.
Additionally, according to Saponti Baroowa, Associate Director, Business Intelligence Dezan Shira & Associates, “Beyond the most obvious changes, the agreement will ultimately lead to higher standards of such critical operations of civil aviation such as safety and security. This is of paramount importance in a region where airline safety norms are not uniform.”
In regulatory terms, liberalisation of aviation markets under the ASEAN-SAM policy implies guaranteeing third, fourth, fifth and seventh freedoms of air.
Probable reasons for conflict
The ASEAN region’s incongruent geography, different levels of economic development, diverse political systems and sundry cultural practices act as hurdles in the effective implementation of the open skies policy. Increased competition arising from the integration of air transport could result in a loss of traffic and market share for non-competitive and less preferred destinations, airlines or airports. For instance, Indonesia states its rationale for staying out as protection of its airlines from aggressive low-cost competition from airline companies like AirAsia, Tiger and Jetstar.
Further, when it comes to the convergence of different regions on the same platform, which in this case is aviation, security concerns cannot be avoided. The absence of a harmonised level of security standards and checks across the entire region remains a cause for concern.
Another factor that may make the ASEAN-SAM policy less effective is lack of infrastructure support, which includes both airport facilities (the ground infrastructure) and air navigation services (airside infrastructure). The effective implementation of the policy is bound to increase air traffic, causing slot and capacity constraints at the airports. In the case of the Philippines, the runways, terminals and facilities at the NAIA were said to be overstressed in handling existing flights. Hence, it earlier operated under the Pocket Open Skies policy, which allowed for third and fourth freedom rights anywhere in the country except Manila. Unless the existing infrastructure complements growth in air traffic, it will not be possible to realise the actual benefits of this policy.
It is also true that the anticipated augmented flight frequency may not necessarily garner greater revenues. The airlines not only have to be prepared with their expansion plans but also simultaneously focus on capacity management, striking an appropriate balance between frequency and load factors. For instance, while airports in Singapore (Changi International Airport), Malaysia (Kuala Lumpur International Airport) and Thailand (Suvarnabhumi airport) are part of the world’s top 30 airports in terms of cargo traffic and have infrastructure to match, airports in Brunei, Laos and Myanmar lag far behind and hence need to be more cautious while treading the open skies path.
However, succinctly, keeping in mind the far-reaching benefits offered by the open skies policy, the challenges seem a minor road-block in the path of economic development and integration of the region.
Policy implications
On full ratification, Southeast Asia, backed by the open skies policy, is well placed to reap the economic benefits of such a strategic regional alliance.
Increased competition: Opening up the ASEAN skies is likely to encourage greater traffic movement between the bloc nations. This, in turn, would lead to heightened competition between existing and potential players, who would offer better services at lower prices.
Enhanced trade relations: With greater, quicker and easier connectivity, the ASEAN-SAM policy is poised to enhance the flow of goods and services between the ASEAN members. Moreover, it also suggests further improvements in the open trading system with the gradual ironing out of inter-nation differences with rapid growth opportunities in the future
Greater investment opportunities: Enhanced air connectivity is likely to aid in building synergies between the ASEAN members, giving a much-desired boost to investments in the region.
Promotion of tourism: The policy offers a plethora of opportunities that could go a long way in seamlessly augmenting the influx of tourists in the ASEAN region. According to industry estimates, the number of tourists arriving in the region is expected to be around 145 million by 2023.
The way forward
The benefits of an open skies policy have been demonstrated by the ground-breaking EU-US open skies agreement signed in 2007. The policy has been successful in overcoming the age-old barriers of sky being the limit by bringing noted commercial success to both the parties – more number of jobs created, higher personal incomes, higher business incomes, and greater collection of state and local taxes.
It is encouraging to note that the aviation industry has expressed a sense of optimism around the policy, which is expected to serve the interests of airlines and consumers. Furthermore, it cannot be refuted that air liberalisation is likely to benefit the ASEAN region and fuel aviation growth. The policy thus has the potential to influence the dynamics of the aviation sector, stimulate important structural changes in the sector and herald a revolution in the ASEAN region.
Despite these advantages, the non-inclusion of countries like Indonesia and Laos in the MAFLPAS is disheartening and can be detrimental to the entire region. Thus, as per Baroowa, “In order to be effective, the ASEAN Minus X formula may increasingly have to be resorted to. Also, contentious issues such as ownership and control of airlines can perhaps be better addressed by successfully launching a common ASEAN community airline.”
Besides, with only the third, fourth and fifth freedoms being the focus currently, the ASEAN-SAM liberalisation agenda remains relatively modest. There is a pressing need to work towards the future acceptance of seventh, eighth and ninth freedom relaxations to make it a truly open skies policy in all respect.
Hence, in the long run it is necessary to ensure the inclusion of certain amendments in the open skies policy to neutralise the looming negative implications, which act as impediments for full ratification.
