Asean single aviation market Talking regional but acting national

June 25, 2015 at 18:07

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By Lorenz S. Marasigan

DEVELOPING an aviation sector bearing the Association of Southeast Asian Nations (Asean) brand is fraught with challenges and opportunities.

And with the constraints on infrastructure and policy development still hounding the country, the Philippines is one of the least-enthusiastic participants in this endeavor. Experts and industry players all agreed that the integration of the aviation sectors in the Asean will be both a boon and a bane to each country. Some economies will enjoy faster growth, while others will be lagging behind.

This will be inevitable, but progress will still depend on how a government and its private partners will respond to each arising need.

The idea of developing an Asean Single Aviation Market (Asam) was first introduced more than a decade-and-a-half ago, when Southeast Asian nations agreed to be integrated into one economic bloc.

According to documents from the Asean Secretariat, the development of a single-aviation market will enable the economic bloc to leverage on its location at the crossroads of Northeast Asia, South Asia and Oceania.

The development of Asam—which will include necessary actions and measures essential in improving the overall performance of the Asean air-transport sector with respect to the independence,
sovereignty, equality, territorial integrity and national identity of all Asean member-states—is a key pillar to support the establishment of the Asean Economic Community (AEC).  The single-aviation market will help facilitate free, efficient, safe and secure movement of people and goods within, and potentially beyond, Southeast Asia.

Asam will also contribute toward “a more competitive and resilient Asean, as it will bring people closer together and facilitate the efficient, safe and secure movement of goods, services and capital closer together.”

In order to achieve this, economic and technical requirements must first be met. The two include policies on market access, airline ownership and control, tariffs, competition law and state assistance, consumer protection, dispute resolutions, aviation safety and security, and air-traffic management.

Hence, Asean member-states (AMS) came up with an implementation framework that contains a road map that provides specific time-bound measures that they must pursue to achieve Asam.

The liberalization measures cover the movement or carriage of both passengers and cargo or freight by air transport.

The roadmap is a multiyear action plan that goes beyond 2015. But as of today, a number of AMS are still adamant to implement the measure.

One of them is the Philippines.


Cloudy skies

National University of Singapore Prof. Alan Tan, who is also an expert in aviation law, said the Philippines stands to largely benefit from the integration of the aviation markets in Southeast Asia.

But, with its current stance on issues on policy and the holes in infrastructure development, the Pearl of the Orient might not reap the potentially large harvest of the Asam.

“The benefits of the Asam are that there will be more competition and choice for consumers in the form of airlines that they can pick for travel. The Asean liberalization we are talking about does not extend to Philippine domestic flights, but only to international flights,” he said.

Hence, a Philippine carrier will gain unlimited capacity to fly from Philippine points to other Asean points, while a Singaporean carrier will gain unlimited capacity to fly from Singapore points to Philippine points.

“However, the Philippines has accepted this liberalization for all its points except for its capital, Manila. Hence, other Asean carriers’ flights from their capitals to Manila would still be restricted. By the same token, Philippine carriers’ flights from Manila to the Asean capitals would also be restricted,” Tan explained.

In fact, all the Southeast Asian states have opened up their capitals, except for the Philippines.

Filipino government officials have repeatedly said the refusal comes from the slot-constrained Ninoy Aquino International Airport (Naia).

“But this does not prevent the Philippines from acceding to the Asean agreement that opens up the rights into Manila. This is because slots are different from rights,” he said.

Currently, local and foreign carriers are battling for slots at the capital’s terminals. The Naia, built more than three decades ago, has reached its limits both in runway capacity and terminal volumes.

This even led to low-cost carrier Cebu Pacific’s acquisition of Tigerair Philippines—now operating as Cebgo—in 2014 to secure more slots, market watchers said.

The Japan International Cooperation Agency even predicted that this year would mark the start of the main gateway’s dark days. The airport is expected to handle some 37.78 million passengers by yearend, way beyond its 30-million annual passenger capacity and a few notches up from its maximum capacity of 35 million passengers per year.

“In reality, little will change on the ground because of the slot constraints. Because of limited slots, other Asean airlines will not be able to fly unlimited into Manila in any event; so the Philippines has nothing to lose by accepting the Asean agreement that provides for unlimited rights,” the law professor explained.

Think regional

But for Wolfgang Sander-Fischer, an aviation expert at the European Aviation Safety Agency, opening up Asean capitals is one thing and liberalizing air-traffic rights even in secondary airports is another.

He called on governments to fully subscribe to the nine freedom rights established by the International Civil Aviation Organization’s, thereby allowing each nation to tap into a large route network in the Asean. “To achieve Asam, the Asean community needs liberalization, but liberalization will not create Asam. Achieving it is far more ambitious than liberalization,” the aviation expert said.

Sander-Fischer explained that the subscription to all rights will allow a Filipino carrier to fly, say, to Hanoi, then directly serve passengers to Ho Chi Minh.

Simply put, when the Asean region subscribes to all nine, airlines could operate not only international services, but also tap into the domestic routes of their sister nations.

But to achieve this very ambitious prospect, the Asean bloc must first link themselves through mutual air-services agreements.

“We must not forget that it is open sky out there on third-, fourth- and fifth-freedom traffic among international airports within the region.  We have it in around 10 of them and soon more.  Imagine Laotians, Cambodians, Burmese, flying straight to Boracay, Bohol, Bacolod and many new other international airports in the countryside. Our domestic tourism has come of age. They would be happy to know it just expanded. It would be much easier, cheaper, to see the temples of Yangon, Angkor Wat of Cambodia, and the Cu Chi tunnels of Vietnam. The bucket list of the Filipino tourist would grow much longer,” Avelino L. Zapanta, a former president at Philippine Airlines, added.

Fifth-freedom traffic rights refer to an airline’s right to carry traffic between two foreign countries on a flight that originates and terminates in one’s own country.

Manila remains to be the only Asean nation that has yet to subscribe to the said right.

“Member-states have to accept the concept of regional community. The national spirits still prevail. There is no Asean community spirit yet. They all want it, but to do something for it is another step,” Sander-Fischer added.

AirAsia Philippines Chairman Marianne M. Hontiveros agreed, saying AMS must first have a change in mindset to implement the improvements needed for the deployment of Asam. She lamented over several problems that each Southeast Asian nation must face in order to achieve a single aviation market. These problems must be addressed in order to facilitate further growth.

“Current aviation problems impede Asam. There are protectionist policies in place—a resistance to regional standards, which can be good for efficiency and to reduce redundancy in, for instance, permit applications. There is also a lack of transparency, for instance, in the granting of slots and limited staff mobility due to existing regulatory restrictions, which we can get rid of if we have Asam,” she said.

Thus, she called on each stakeholder to “rethink how we look at aviation.” “Aviation has to be seen holistically. It is not only about operating flights; it is not a stand-alone industry. Aviation is very closely linked to tourism, but also to security, political stability, economic empowerment, good infrastructure, the health of the people. To usher in Asam, we need mind-set change,” she said.

Hotiveros said governments need “to be more transparent, act quicker, remove red tape, and be in tune to the needs of aviation today.”

The private sector, on the other hand, needs to go beyond thinking only of what benefits it but also consider what benefits the public.

“Governments need to change their protectionist policies. Gone is the era of single national carriers,” she said. “The region needs to be committed to Asam. We need this to grow tourism—a key economic generator—in the region and to offer real Asean connectivity, which is a necessity for the success of One Asean Community.”

The Philippines aims to generate $4.6 billion in tourism revenues by attracting 6 million tourists through 2016. This will allow the sector to contribute 6.35 percent to the country’s gross domestic product.

“Right now, there is a tendency for many of us to talk regional but act national. We need to transcend national and think regional. The Philippines has a population of around 100 million. Big. But by going Asean, we expand our market more than six times to 625 million. That’s roughly half the population of China and of India,” Hontiveros said. 

The current state of the country’s infrastructure—currently seeing snail-pace development due to government underspending and the setbacks being faced by private groups—will drag the Philippines’s growth potential when the Asean Single Aviation Market (Asam) starts by end-2015.

This is on top of the policy constraints with regard to the opening up of Manila to unlimited traffic rights with its peers in the region, as policy-makers opt to talk regional but act national.

While airlines have been gearing up for the upcoming integration, which brings about stiffer competition and cheaper airfares, the government has yet to develop much of the needed infrastructure in the capital.

For starters, the Ninoy Aquino International Airport (Naia) has been bursting at the seams since last year, resulting in numerous flight cancellations and delays during peak hours.

It has reached its maximum capacity of 35 million passengers a year. The Japan International Cooperation Agency (Jica) has predicted that it will reach the 37.78-million passenger mark this year.

The aviation hub’s runways can only handle up to 44 takeoffs and landings per hour. Its runways’ design—contrary to the parallel layout of other popular commercial airports—is intersecting, hence it is limited to one takeoff or landing at a time.

Demand, according to several reports and analyses, will continue to rise in the coming years, with Asia Pacific continuing to dominate the world traffic in terms of revenues per kilometer. In the Philippines alone, forecasts show that an average of 45 million passengers will flock to Manila in the next couple of years.

But the country might as well bid good-bye to this growth forecast if no increase in airport capacity will be done in the short run.

Philippine Airlines (PAL) President Jaime J. Bautista said that, while his company is ready for the upcoming intergration, the limitation now lies on the need for adequate infrastructure.

“There’s a need for more infrastructure here in the Philppines,” he said.

National University of Singapore Prof. Alan Tan agreed, noting that airport capacity is a long-term issue that needs to be addressed with utmost vigilance and care.

“Infrastructure is crucial. Manila’s Naia is so slot-constrained that new flights—not just by foreign airlines but Philippine carriers themselves—cannot be mounted,” he said in an e-mail.

Beyond runways and terminals

Civil Aeronautics Board Director Porvenir P. Porciuncula noted that there are still slots available at Manila’s prime aviation hub, but these are the nonpeak-hour periods—meaning from 10 p.m. to 5 a.m.

“The limit in infrastructure—there is truth to it. But there are free slots outside the peak season. The issue on infrastructure in terms of airline operations is the slots. But the issue on infrastructure goes outside the perimeters of the airport complex,” he said.

Indeed, it is not only the airports that need to be improved and modernized, but roads also need to be properly paved for faster connectivity and better land transfers.

“I don’t want to limit myself to just the problems in the runway and the terminal. There is a gamut of air transport-related infrastructure that needs to be addressed. It relates to the whole experience of an air traveler,” the statesman said.

Commuters would attest that a commute via public transportation coming from Naia Terminal 3 to Makati Shangri-La Hotel will take at least two bus transfers of about an hour and a half and another 15 minutes of walking.  According to traffic-management applications, a private vehicle coming from Naia Terminal 3 will have to travel roughly an hour just to arrive at Makati City’s central business district.

“In pertaining to infrastructure, you may have to think of a whole framework. If you are selling the Philippines as a prime tourism destination or a trade hub for business people, two hours of going to Makati’s central business district would be an issue,” he said.

Clark International Airport, Porciuncula said, could have been a better option.

“It can still accommodate a lot of flight,” he said.  But airlines continue to refuse to increase their presence in the central part of Luzon, as the airport, he said while citing qualms from airline executives, is still not that accessible to the capital.

“Railway is very critical to marketing Clark. The majority of the traffic will remain in Manila because of Clark’s lack of connectivity to Metro Manila, where most of the businesses are,” he added.

Currently, only a few airlines operate at the airport of the north. Its terminal is set to be expanded despite its limited operations.

Regional airports also need attention

Another area that needs to be addressed, the aviation executive said, is the development of airport infrastructure in the provinces.

“Unfortunately, we also have a problem with our regional airports. They badly need infrastructure. It’s a good thing that Davao and Iloilo have been recently improved. But we need to look into our other air hubs in the regions, as they are big tourism destinations,” Porciuncula added.

Tourist spots such as Panglao in Bohol, Puerto Princesa in Palawan, and Laguindingan in Misamis Oriental are in dire need of improvements in terms of facilities.

The main gateway to Palawan, for one, needs to have a better terminal with functioning air-conditioning units. This is also the case with the airport in Bohol, currently found in Tagbilaran, about 22.6 kilometers away from a prime resort in the province.

“Infrastructure still needs to be really completed or even started in some areas. It is one of our major problems in terms of infrastructure development in the aviation sector,” Porciuncula said.

No need for grand airports

For AirAsia Philippines Chairman Marianne M. Hontiveros, the government does not need to be all that grand in developing aviation hubs.

“What we need are infrastructure that meet the needs of today’s travelers,” she said. “We do not need grand airports.”

Hontiveros added that this could be addressed by better communication among all the stakeholders of each Asean member-state —from the government to private sector to the general public.

“We need better communication between sectors, such as between transportation and infrastructure industries,” she added.


The government has been devising ways to address these problems—both in Metro Manila and in the provinces.

The national government and the pack of Transportation Secretary Joseph Emilio A. Abaya are currently working toward addressing these pressing needs by tapping the private sector for its infrastructure-development plans.

To address the need for domestic connectivity, the government auctioned off a P108.2-billion project that aims to privatize five key airports around the country. The deal is divided into two packages.

The first package consists of the Bacolod-Silay Airport (P20.26 billion) and Iloilo Airport (P30.40 billion), while the second bundle is composed of the New Bohol or Panglao Airport (P2.34 billion); Laguindingan Airport (P14.62 billion) and Davao Airport (P40.57 billion).

For Manila, the government has laid out several plans to develop the Naia. One is for the government to construct a new terminal somewhere near C-5 Road, which is the fifth beltway in Manila.

Another plan is to auction off the operations and maintenance of the Naia to tap the expertise of foreign airport operators to improve the services at the aging aviation hub. The deal will also involve the redevelopment of the four terminals of the decades-old airport.

But the ultimate solution, according to Abaya, is for the government to build a new airport somewhere outside the current Naia Complex in Pasay City.

Jica had proposed that the new international gateway be constructed in Sangely Point in Cavite to meet the parameters set by the transportation agency. The future airport will boast of four runways, which can handle 700,000 aircraft movements per year. It will have a rated capacity of 130 million passengers annually.

The deal is expected to be implemented under the government’s key infrastructure program, mixed with funding from official development assistance.

But the multibillion-dollar contract to construct the said airport will not see itself in the auction block during this administration’s reign, as this critical deal has yet to be approved by key committees under the National Economic and Development Authority (Neda).

Abaya admitted that his office now lacks the needed time to bid out the airport-construction project within the term of President Aquino, but his hopes are still high that this administration could still aid the next in resolving the problems of the decades-old Naia.

The least that he could do, the transport chief said, is to get the $11-billion project approved by the several bodies under Neda.

“What we could do for whoever will replace us is to get a Neda Board approval and make clear the direction of the government,” he said.

‘Waiting for too long’

But it will take the government at least 10 years to construct all these, Porciuncula said.

“It takes about 10 years to have an airport in place. Imagine how many slots are remaining in the nonpeak hours at the Naia. Clark needs a lot of improvement in terms of connectivity via railway to entice airlines to add or transfer more flights to Clark. The railway also takes five years to develop,” he said.

He admitted that there is a pressing need for greater investments in infrastructure to keep pace with the growth that will come with the Asam.  “The problem is our infrastructure is waiting for a lot of improvements,” he said. “The government has to really move a lot.”


The creation of a single-aviation market within Southeast Asia will generate a huge growth potential for each Asean member-state (AMS), with the region relying heavily on travel and tourism as massive revenue generators.

This is backed up by the latest report of the World Travel and Tourism Council, which showed that the aviation markets of the AMS will continue their upward trend. And AirAsia Philippines Chairman Marianne M. Hontiveros agreed, citing a five-year period of exponential growth within the sector.

“Travel and tourism are huge industries and contributors to economic activity. The number of air travelers worldwide—including in Asean—has been growing, and is projected to grow from 3 billion in 2012 to 3.9 billion in 2017,” she said.

Hontiveros added: “Tourist numbers have been growing, too. Worldwide, there was a 266 million increase in tourist numbers in year 2010, compared to year 2000, or a 39-percent change; and tourists are estimated to have numbered 1.1 billion last year.”

In Asean the increase in the number of tourists in 2010 compared to 2000 was bigger, at 95 percent. In 2013, there were around 90.2 million tourists in the region.

Asean is expecting 96.32 million international tourist arrivals this year. It is expected to rise sharply to 163.22 million by 2025.

Travel and tourism’s direct contribution to the Asean’s gross domestic product (GDP) was at $117.9 billion, according to the World Travel and Tourism Council. The figure, which represents 4.8 percent of Asean GDP, is expected to rise by 5 percent this year.

By 2025 the figure is expected to balloon to $209.4 billion.

“Indeed, travel and tourism are growing exponentially,” Hontiveros said. “Travel and tourism are huge revenue generators. They contribute greatly to the GDP of Asean and therefore, uplift the material quality of life of the people of Asean.”

Its total contribution—direct and indirect—to the region’s GDP was pegged at $291.8 billion in 2014, and is forecast to increase by 5.4 percent in 2015.

Budget carriers to dominate Asean market

Hontiveros said the growth will be fueled largely by Asean budget carriers such as AirAsia, Lion Air and homegrown Cebu Pacific.

“Low-cost carriers have been fueling the growth of aviation in Asean,” she said. “Low-cost carriers are proving to be so popular among travelers in the region.”

This means low-cost carriers will be dominating the overall aviation market in the Asean.

“The region has emerged over the past decade as one of the world’s fastest-growing emerging markets, capturing the attention of global suppliers. The rapid growth has primarily been driven by fast expansion of low-cost carriers—both independent groups and subsidiaries of full-service groups,” a report of think tank Centre for Asia-Pacific Aviation (Capa) showed.

As of end-2014, Southeast’s Asia overall budget carrier fleet stood at about 540 aircraft—including turboprops, narrowbodies and widebodies.

This represents growth of about 60 aircraft, or 12 percent, compared to the beginning of 2014.

“While still double digits, there was a significant slowdown compared to 2013, when the fleet grew by about 20 percent,” the Capa report read. “The slowdown in the growth rate over the last year can be viewed as a temporary hiccup. Market conditions were not favorable in 2014 and should improve in 2015.”

Hence, Hontiveros said, airlines in the region will be needing the full implementation of the Asean Single Aviation Market (Asam) to expand and reach its aspirations of serving more people.

“Asam would help meet the projected demand for 48,100 pilots and 50,300 aircraft technicians by 2032,” she said.

National University of Singapore Prof. Alan Tan said once the Asam comes into play, Cebu Pacific will be the clear winner in the Asean air-transport liberalization.

“In other words, the more routes are opened up in Asean, the better for low-cost carriers such as Cebu Pacific.

The same goes for AirAsia Philippines. Philippine Airlines (PAL), because of its higher cost structure, will struggle a bit, but its main concern should be the longer-haul routes,” Tan said.

Prepared, but still improving

Avelino Zapanta, an aviation expert, added that Asam will provide a larger market to address. Hontiveros called this market a “largely underserved market.”

“It means much bigger market for the air operators but it also means stiff competition. Being open sky in nature, it will be a test where the best among them would make it,” Zapanta said.

Hence, Philippine carriers are gearing up to face this challenge of a more competitive market.    In fact, they have been preparing their plans for quite a long time now, with legacy carrier PAL gearing up for the whole integration itself.

“We are ready for the Asean integration. We have airplanes, we have qualified people,” Jaime J. Bautista, the flag carrier president, said in an interview.

He said aviation companies have five considerations if they want to compete aggressively. “You have to have the right assets, aircraft, people, systems and the support of the government,” Bautista said.

Dominant budget carrier Cebu Pacific is, likewise, ready to compete in an even larger market. “Our objective has always been to be globally competitive as an airline. We operate the youngest fleets in the whole world. Our people are very well trained and dedicated. The brand is quite strong. We are already the largest Philippine carrier to the Asean. So I would say we’re quite prepared,” Cebu Pacific President Lance Y. Gokongwei said.

The low-cost carrier has been the Filipinos’ airline of choice for quite some time now. It also operates Cebgo, formerly known as Tigerair Philippines.

“Integration will have more commonality of processes and have a much larger market to address. Of course, it also introduces more challenges in terms of more competition. But overall it should be very positive to the country and the customers,” Gokongwei added.

Just recently, Cebu Pacific ordered 16 turboprop planes from European aircraft maker ATR. The contract is pegged at P30.41 billion.

“We have been operating ATR aircraft since 2008, and they have enabled us to bring safe, reliable and affordable air transport to smaller cities and islands throughout the Philippines. This order is an affirmation of our commitment to extend the convenience of affordable air travel to even more communities. We are very pleased to be the launch customer of this new configuration of the ATR 72-600, as this will allow us to offer our customers more seats at even lower fares.” Gokongwei explained.

AirAsia Philippines, on the other hand, banked on its parent’s route network and capacity to brave the single aviation market.

Together with parent AirAsia, the low-cost carrier currently controlled by businessman Alfredo M. Yao launched the Asean Pass and the Asean Pass+ in February.

Holders of the AirAsia Asean Pass and the AirAsia Asean Pass+ can enjoy flights at a fixed rate to over 148 routes across all 10 Asean countries. Acting like a single currency, it diminishes the hassle of different foreign-exchange rates as flights are valued according to credits, allowing guests to be creative in planning their ideal trip through Asean.

The products are specifically designed to further liberalize and encourage travel among the Asean community.

“There are a lot of tourism destinations across the Asean that are well known. But in the Philippines, there’s a lot more to discover. This opens the Philippines to have more tourist arrivals,” AirAsia Philippines President and CEO Joy D. Cañeba said.

Too bad

The Philippines, being so dependent on tourism, will certainly stand to benefit from the greater inflow of foreign tourists to savor its beaches and other attractions.

However, harnessing the full-growth potential of an integrated Southeast Asian aviation market might prove to be belated in the case of the Philippines due to the constraints in policy and infrastructure.

Currently, the ratification of Protocols 5 and 6 of the Multilateral Agreement on Air Services are still with President Aquino. It was seemingly left to gather dust, as it has been years since the documents were signed by the air-services regulator.

Protocol 5 refers to unlimited Third and Fourth Freedom Traffic Rights between Asean capital cities, while Protocol 6 pertains to unlimited Fifth Freedom Traffic Rights between Asean capital cities.

Fifth Freedom of the Air refers to an airline’s right to carry traffic between two foreign countries on a flight that originates and terminates in one’s own country.

“Beyond Fifth Freedom Traffic Rights, there needs to be a change of policy. It means that Congress or the Senate needs to approve this change in policy because it is quite radical,” Civil Aeronautics Board Director Porvenir P. Porciuncula said.

The Sixth to Ninth Freedoms generally refer to cabotage, which is still a touchy issue for Philippine legislators.

What the regulator is doing now is to push the implementation of a region-wide Air Passenger Bill of Rights to protect consumers from problems arising from air-travel related issues.

“We have no common air-passenger rights. We are pushing for the creation of such. Right now, we just want to make sure that we have a very strong Air Passenger Bill of Rights before we propose ours as blueprint,” Porciuncula added.

But even if these problems with policy development have been addressed before the actual integration, the Philippines still stands to lose due to its inadequate infrastructure. “We are not going to reap the full benefits from what can be operated or utilized by our airlines,” Porciuncula said. “Even if we increase our flights but the infrastructure is inadequate, then we cannot really grow that much.”



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