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    Southeast Asia
     Jul 6, 2007
Prying open ASEAN's skies
By Edward Russell

BANGKOK - A new agreement reached by the Association of Southeast Asian Nations (ASEAN) will allow regional air carriers to make unlimited flights among the grouping's 10 capital cities as early as December 2008.

The move promises to re-energize the stalled 2003 ASEAN open-skies framework, which includes phased plans for liberalizing intra-ASEAN freight and passenger air services by 2008 and 2015

respectively. The deal also promises to boost regional tourism, trade, and aviation-related investments, some industry analysts say.

Domestic protectionism and ASEAN's general impotence in actually implementing the various free-trade arrangements the 10-member grouping has agreed to have weighed against the open-skies agreement. Unlike its European Union counterpart, the ASEAN ministerial body lacks the power to enforce the grouping's joint decisions by imposing penalties for non-compliance.

Sydney-based aviation and tourism strategist John King acknowledges that hurdles remain to fully implementing the framework agreement. He notes in particular the yawning disparities among ASEAN members, including level of economic development, divergent levels of air-traffic capacity, and a general lack of institutional knowledge of the framework's measures.

Other analysts are more optimistic. Richard Pinkham, a Singapore-based consultant for the Center for Asia-Pacific Aviation, contends that the recent announcement is a positive first step, as "the countries that have been the biggest laggards in the areas of liberalization now see its benefits, a development that makes regionwide liberalization increasingly conceivable".

If so, Malaysia stands out as a case in point. After maintaining strict closed-skies aviation policies for many decades, more recently Malaysia has seen a boom in air-traffic growth due to greater domestic competition led by the region's largest and most successful low-cost carrier: Air Asia. According to the Pacific Asia Travel Association (PATA), Malaysia's domestic and international passenger growth has soared since Air Asia's market entry in 2004, with traffic to Thailand alone growing on average 37% annually.

Those clear economic benefits have prompted the Malaysian government to support a further restructuring of its domestic air services, including support for national carrier and former monopolist Malaysia Airlines' (MAS) decision last year to pass on certain domestic routes to Air Asia's new subsidiary, Fly Asian Express (FAX).

The budget carrier's success has launched a veritable explosion of new low-cost carriers across the region, including in Indonesia and Thailand, where national carriers had long maintained a monopoly hold over domestic routes. Now, several aviation experts contend that the next logical step for regional governments is to open their aviation industries to more foreign competition.

Upward bound growth
When Malaysia and Thailand agreed to allow Air Asia to commence international flights, each country experienced annual economic benefits of about US$114 million, comparing overall capacity before and after the new air service began.

Singapore currently has the most liberalized aviation sector in ASEAN. In recent years, air-travel-related services have contributed as much as 9.2% to the island state's gross domestic product, according to a National University of Singapore report. In 2004, Singapore inked ASEAN's only open-skies agreement, with Brunei and Thailand, which allowed for unlimited flights among the three countries. (A previous bilateral agreement with Cambodia allowed only for liberalized air-cargo services.)

Tiger Airways, a Singapore-based low-cost carrier, has been a major benefactor of that agreement, particularly through its expanding reach to popular Thai tourist destinations, including non-stop services to Bangkok, Chiang Mai, Krabi and Phuket, among others. The only other existing intra-regional free-skies agreement links Cambodia, Laos, Myanmar and Vietnam, which notably is restricted by a measure that does not allow airlines to fly routes that do not originate or terminate in their home country.

Overall, intra-ASEAN air services remain highly restricted by protectionist policies aimed at insulating domestic air carriers from foreign competition. For example, the Singapore-Kuala Lumpur route has for years been restricted to protect MAS's previous monopoly over the lucrative domestic market.

The same is true of the Jakarta-Singapore route, where Indonesian transport authorities still bar carriers they characterize as low-cost from entering routes to and from Singapore served by national flag carrier Garuda. Such protectionism keeps Jakarta's growing market closed and undermines Singapore's marketing claim to serve as Indonesia's "largest international gateway".

The new agreement has the potential to change all that and usher in a new era of cheap intra-regional air travel. Even if it is fully implemented and air service among ASEAN's 10 capital cities is liberalized late next year, it probably won't lead to a commensurate boom in regional airline fleet investments. "Most intra-ASEAN flights are under 2,000 miles and can be operated by single-aisle aircraft, such as the Boeing 737 or Airbus A320 series, which are popular with [low-cost carriers]," King explained.
At the same time, greater regional competition for ASEAN's opening aviation markets will no doubt create new winners and losers. Domestic carriers in ASEAN's poorer countries, including Myanmar, Cambodia, Laos and Vietnam, are expected to fare poorly when faced with greater regional competition.

That said, economic statistics show that air-service protectionism stunts economic growth, stymies the potential of national business and tourism sectors, and weighs against the aviation sector's development. In Europe, for instance, all national air carriers except British Airways and KLM opposed a single aviation market when the EU created it in 1993.

Since its full implementation in 1997, PATA reports that intra-Europe air travel as of 2006 had increased by 44 million passengers, 20.2% of whom were carried by new low-cost carriers. Over that same period, air travel and related industries generated $85 billion in economic growth, PATA reported.

Malaysia's, Singapore's and to a lesser degree Thailand's recent examples show that ASEAN could achieve similar high-flying growth, if only the region's ministers would honor the agreements they've made to let down their protectionist guard and open their skies to more competition.

Edward Russell is a Bangkok-based freelance journalist.

(Copyright 2007 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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