ASEAN gears up for Single Aviation Market-

The year 2015 is a landmark year for the Association of Southeast Asian Nations (ASEAN) aviation sector, as it marks the beginning of the ASEAN Single Aviation Market (ASEAN-SAM), dubbed the open skies policy, which seeks to liberalise air services under a single and unified air transport market in ASEAN. The policy is scheduled to come into effect in 2015, despite three airline tragedies involving Southeast Asian airlines in 2014.

Why an open sky?

ASEAN-SAM is intended to increase regional and domestic connectivity, integrate production networks and enhance regional trade by allowing airlines from ASEAN member states to fly freely throughout the region. It will allow ASEAN to benefit from the growth in air travel around the world, and encourage tourism, trade, investment, and services flow between member states.

At present, the ASEAN aviation sector is limited by unilateral, bilateral, and multilateral air services agreements among the governments of the region, and airlines have to face a lot of red tape to operate between countries. The need for an open airline market is crucial for fully leveraging the region’s business and tourism potential, as the airline industry boosts the local economy. The number of aircraft in ASEAN is expected to increase to 3,490 by 2032 from 1,110 in 2012. Additionally, tourist arrivals in ASEAN are projected to reach 145 million by 2023, a more than 60 per cent increase from the 90.2 million visitor arrivals in 2013.

Freedom of the air

The freedoms of the air are a set of commercial aviation rights granting a country’s airlines the privilege to enter and land in another country’s airspace. The first through fifth freedoms are officially enumerated by international treaties, especially the Chicago Convention. Several other freedoms, though not officially recognised under broadly applicable international treaties, have been agreed to by a number of countries.

While the lower-numbered freedoms are relatively universal, the higher-numbered ones are rarer and more controversial. Open skies agreements often represent the least restrictive form of air services agreements and include many if not all freedoms. The single aviation markets in the European Union (EU) and between Australia and New Zealand are examples of liberal open skies agreements.

Single aviation market

ASEAN-SAM, however, is different from the EU’s concept of open skies, where air transport integration measures have automatic force of law. In ASEAN, market access liberalisation is pursued through agreements that the member states must voluntarily accept.

The ASEAN-SAM policy is set out formally in two multilateral agreements. The first is the Multilateral Agreement on Air Services (MAAS), which allows third/fourth and fifth freedom access respectively among the ASEAN capital cities. The second is the Multilateral Agreement for the Full Liberalization of Passenger Air Services (MAFLPAS), which follows up by abolishing  third/fourth and fifth freedom restrictions among all other ASEAN cities.

While third and fourth freedoms are already common practice in ASEAN, the fifth freedom rights will not be implemented fully in the region. Although open skies will exist for capital cities, there will also be a cap on slots given to airlines. In addition, there will be restrictions for certain host countries, which do not exist in other international open air agreements.

The policy is being put in place with a staged removal of restrictions on third/ fourth and fifth freedom access. The restrictions on third/fourth freedom access between capital cities of member states for air passenger services have been removed since December 1, 2008. However, since the member countries differ significantly in size, infrastructure, and market potential, some countries are still holding off on ratifying the agreements.

Over the past years, some of the member states have adopted limited agreements among themselves to relax market access restrictions. For instance, Brunei, Singapore, and Thailand concluded an agreement in December 2004 that freed access among their airports. Farther north, Cambodia, Lao PDR, Myanmar, and Vietnam also adopted a multilateral agreement in 2003. Several member states also liberalised on a bilateral basis. For instance, Malaysia and Singapore fully liberalised third and fourth freedom access between their respective points in December 2008.

Present scenario

Currently, nine ASEAN member countries, with the exception of the Philippines, have ratified the MAAS agreement. Indonesia was the last to accept the protocols in 2014, which was a significant step forward for the open skies vision, as the country accounts for almost half the entire population of the region and its decision to stay out would hamper the ASEAN-SAM project in a big way.

Indonesia’s rationale for staying out was to protect its airlines from aggressive low-cost competition from others such as AirAsia, Tiger, and Jetstar. However, although the country has agreed to the MAAS agreement in principle, the airlines know full well that that there is no available slot capacity at Jakarta’s congested Soekarno-Hatta airport. Thus, unlimited rights cannot translate into additional flights, until the Soekarno-Hatta airport is expanded or an alternative airport in Jakarta is opened for ASEAN flights.

The Philippines has justified its decision on the basis of the shortage of landing and take-off slots and overall runway congestion at Central Manila’s Ninoy Aquino International Airport. In this regard, the Philippine sgovernment’s preference is to liberalise access into the alternative airport at Clark (around 80 km from Manila).

Overall, eight ASEAN member countries, with the exception of Indonesia and Laos, have ratified the MAFLPAS agreement. Interestingly, the Philippines accepted the MAFLPAS to open up all its secondary cities, while keeping Manila restricted.

Conclusion

The ASEAN-SAM policy, if successfully implemented by end-2015, will not only benefit ASEAN’s economy and tourism, but will also benefit the region’s airlines by encouraging higher traffic growth, and customers since competition will ensure improved service quality, while lowering ticket prices.

However, after 2015, the region should strive towards allowing the higher degrees of freedom, which will define a single aviation market in a truer sense. Besides, unless higher degrees of freedom rights (sixth and seventh) are put in place with ASEAN member countries, the region will not be able to negotiate as a bloc with bigger markets, and that will hamper long-term growth.