Benefits of ‘open skies’ policy weighed

BY KATHLEEN A. MARTIN, Reporter
Business World
May 4, 2011

A FLIGHT from Kuala Lumpur to either Manila or Colombo covers roughly the same distance, but Malaysia Airlines -- which flies both routes -- charges 105% more to fly to the Philippine capital, according to its Web site.

While many factors cause this price gap, it is notable that Malaysian airlines enjoy a more open market in Sri Lanka via its expanded Air Services Agreement established in 2005.

The Aquino administration, which has pushed for opening up Philippine skies through Executive Orders (EOs) 28 and 29, has pointed out that the country needs similar liberalization, albeit via blanket policy, to attract more competing airlines and thus lower fares.

"The [pocket-open skies policy] was issued because of tourism...Tourism will have its effects on job creation and investments in the provinces...Airfares and freight cost may go down further too," Tourism Secretary Alberto A. Lim said in a telephone interview ahead of expected release of implementing rules of the two EOs this week.

The draft rules issued April 6 lay down the implementation guidelines for the EOs, including granting "fifth freedom" to foreign carriers.

This allows foreign carriers to make stopovers abroad before finally touching down on any Philippine airport, except Ninoy Aquino International Airport.

For instance, carriers seeking to transport passengers from Hong Kong to Cebu are now allowed to make a stop in Macau first, thus enabling them to gather more travelers.

The scheme is designed to make more routes, particularly those with limited passengers, become more economical to operate.

Tourists already increasing

Former president Gloria M. Arroyo, now congressional representative of the second district of Pampanga, had attempted to grant this fifth freedom to carriers traveling to and from the Diosdado Macapagal International Airport (DMIA) in Clark and the Subic Bay International Airport in 2006 under Executive Order 500.

But before the local aviation authority could implement this, Ms. Arroyo, in August of the same year, amended the order through EO 500-A to rescind this fifth freedom.

All that was granted was the third and fourth freedoms which allowed direct flights to and from Clark and Subic, without restrictions or limitations on capacity and type of aircraft.

Even with such limited liberalization, the areas served by the covered airports enjoyed increases in tourist arrivals, Mr. Lim said.

"It has certainly boosted tourism in Clark and in Subic. In Clark alone, tourist arrival at the DMIA [increased] from around 10,000 in 2003 to about 600,000 last year," Mr. Lim said.

"That’s not even counting how many jobs were made available due to businesses that opened as a result of that boost," he said.

The Aquino administration seeks to repeat this impact on a greater scale.

"We will be opening the country’s secondary gateways and boost economic activity in the provinces. That’s what we’re banking on with these EOs," Porvenir P. Porciuncula, Civil Aeronautics Board deputy director, said in a separate telephone interview.

Mr. Lim said "the Aquino government’s target is to double international arrivals by 2016 and we cannot do that with current frequencies."

The government aims to welcome as many as six million tourists in 2016, Mr. Lim said, from three million in 2009 and around 3.5 million in 2010.

In the meantime, the Philippines has lagged behind neighbors in the region in terms of attracting tourists.

According to the Association of South East Asian Nations Web site, the number of foreign visitors to member countries reached 65 million in 2009.

News reports said that, of this number, Malaysia had the most foreign visitors, followed by Thailand, Singapore, Indonesia, Vietnam, Philippines, Cambodia, Laos, Myanmar and Brunei.

"We also should note how this would be beneficial to our overseas Filipino workers. They will now have more choices going to and from the [Philippines] to where they work," Mr. Lim added.

Cautious

Local carriers, however, have cautioned that this thrust shouldn’t be pursued without asking other governments to grant similar access in exchange.

Otherwise, foreign carriers including AirAsia Philippines, Inc., will stand to benefit more from the measure, local airline operators said.

AirAsia Philippines, led by Mr. Aquino’s cousin Antonio "Tonyboy" Cojuangco, Jr., formally announced its expansion plans in the country nearly six months after the change in the country’s presidency.

The draft implementing rules even go as far as to remove local carriers from the panel in charge of negotiating air access rights with other countries.

The country’s official air carriers, which had been members of the two panels under EO 219 issued in 1995, will now merely "participate in the proceedings as observers" under the new EOs.

"Our stand remains the same. We support an open skies policy that adheres to the principle of reciprocity [in air rights]," Philippine Airlines (PAL) spokesperson Cielo C. Villaluna said in a telephone interview.

"PAL has always maintained that, in all negotiations, all stakeholders must be consulted to come up with what is in the best interest of all concerned," Ms. Villaluna said.

Candice A. Iyog, Cebu Air vice-president for marketing and distribution, echoed this view.

"The airline has been consistent in its support for the EO. All we want is to be given the chance to compete through reciprocity in air rights," Ms. Iyog said in a separate telephone interview.

Another local carrier, South East Asian Airlines, Inc. (Seair), voiced the same concern.

"We support the pocket-open skies policy. But, also in support of our colleagues in the industry, the government should consider adding a provision in the implementing rules and regulations: application of foreign carriers should be accompanied with an endorsement of their own governments that they are willing to grant the same rights to any Philippine carrier," Avelino L. Zapanta, Seair president and chief executive officer, said in a telephone interview.

Win-win arrangement?

The government, for its part, has argued that local carriers will also reap gains from the measure when tourist numbers rise as they will maintain their exclusive rights to shuttle passengers within the country.

This, as EO 29 expressly prohibits surrendering "cabotage rights" -- the authority to the transport of goods and passengers between two or more points within the Philippines -- to foreign carriers.

"We will never allow cabotage rights to be granted to foreign airlines. So, for example, tourists brought in Iloilo who want to travel to Manila will be taking a flight through local carriers," Mr. Porciuncula said.

The Joint Foreign Chambers, meanwhile, have said that work to attract more carriers and thus boost tourism should not stop short at just liberalizing the air space.

Taxes that discriminate against foreign carriers, should also be addressed, the group had said in earlier statements.

This issue, however, has been entrusted to legislators to address through amendments in tax laws.

In the meantime, foreign carriers will soon be allowed to apply for new landing entitlements soon after the implementing rules for EOs 28 and 29 are published.

"We are considering economic gains, further development of secondary gateways, tourism, and a lot more. We are trying to look at the long-term benefits of the country here," Mr. Porciuncula said.