Cab: Asean open skies coming soon
By Darwin G. Amojelar, Reporter Whatever the President decides on whether there should be open or closed skies, the open-skies policy will prevail in the end because under the Asean all the carriers of the countries of the association will be allowed unlimited rights.
Porvenir P. Porciuncula, Civil Aeronautics Board (CAB) deputy executive director and head of economic planning, told this to The Manila Times for this special report.
“In the Asean roadmap for integration, the agreement has been made ready for the members to sign. The agreement will allow flights between capital cities in Asean without limitations.”
The Philippines will have to sign the agreement. Then it has to ratify and carry it out.
He said the Department of Foreign Affairs told the CAB that ratification is entirely within the power of the Executive branch because it is only an executive agreement, not a treaty that requires Senate action.
Porciuncula said the agreement is part of the “Asean roadmap” that was presented to the leaders and the ministers of the Asean countries in the Asean Summit in Cebu.
“There was a timeline set. And it will take effect in December. This December 2008,” he said.
“This has been discussed in the previous working group and ministerial meetings. However, in the Asean tradition, sometimes the implementation will also depend on the readiness of the member countries. This is part of the flexibility that was agreed when the roadmap was crafted,” he said.
“This is because the member countries also recognize that there are differences between countries in terms of infrastructure, the airlines, etc. But we expect that our airlines, having acquired new aircrafts, especially starting to expand their flights to a lot of Asean countries, will not take long to agree with our government to ratify and go ahead and implement the open-skies agreement.”
“Of course the industry players will all be consulted,” he said in answer to The Times’ question. “There are some issues that worry various segments of the travel and tourism industry.”
One of the issues, he said, is that some Philippine airlines worry that other countries’ airlines are government-owned and heavily subsidized.
“Unlike in our case we have private-sector owners of our airlines. They feel they would not be playing on a level playing field. Then government airlines have a lot more capital,” he said.
“Of course, our airlines would then want to see that our government will give them all the support they need.”
There are other questions: the competition mechanism, for example.
“Unlike in Europe where they have a single aviation market. There is a general competition policy in Europe to balance everything, there is a competition framework. Here in Asean, we are integrating but we don’t have competition policy among Asean countries. But air travel is in the top priority for Asean integration. So we had to inject a lot of competition policy issues. But in future Asean will tackle a general competition framework, policies and laws that will form part of the Asean integration mechanics.”
Why PAL, Cebu Pacific don’t like the open skies policy
By Darwin G. Amojelar, Reporter We interviewed Rolando G. Estabillo, vice president of Philippine Airlines for Corporate Communications.
Are you in favor of open skies?
Reply: “We are in favor of a fair and meaningful open-skies arrangement within Asean that allows PAL and the Philippine aviation industry to grow in a healthy and sustainable way, and tap new opportunities in the Asean region.
“The Asean open-skies regime is a step forward in opening up some opportunities, but it suffers from the lack of a level playing field. Philippine carriers are private citizens that operate as business enterprises for profit, but the major airlines of the other Asean member countries are state-owned companies, many of which enjoy strong governmental backing and even financial assistance. That can distort competition, which does not help either our local airlines nor the airline customers.
“We would have preferred the Asean regime to incorporate stronger safeguards against market distortions and anti-competitive practices by dominant or subsidized airlines. If Asean is serious about aviation liberalization, then all Asean member countries should commit to privatize their flag carriers and allow truly fair competition to flourish—no bailing out of sick national airlines, no subsidies, no special favors, no coddling of anti-competitive predatory market practices. That would pave the way for legitimate liberalization, where everyone has a fighting chance, where success goes to the worthy competitor.
“We will stay on track with our current steady expansion program within Asean and offer attractive schedule choices on prime routes. In recent months we have added flights to the point that we are the only airline offering up to four flights per day from Manila to Singapore on some days of the week, one daily flight to Jakarta, a daily service to Vietnam [Ho Chi Minh City], and soon two daily flights to Bangkok.
“Overall, we now offer 50 [soon 53] flights weekly to Asean destinations, offering more flights and more seats [over 8,500 per week, to increase soon to 9,000] than any other airline between Asean and the Philippines.
“Since the Asean open-skies regime applies only to capital city airports, we see an opportunity in attracting more Asean citizens to venture beyond the capital to visit Boracay, Bohol, Cebu, Palawan and other tourist spots.
“In our international and domestic markets, PAL is competitive. We are thriving in competition with mega-carriers, low-cost airlines, global alliances, you name it. Apart from Asean, we have a strong presence in the US market, in Canada, Japan, Korea, and in China, the market of the future. We opened up new Korea routes when there was still no Korean tourist market to speak of, seven or eight years ago. We ventured into Shanghai when prospects looked dim after 9/11. We gambled on Las Vegas after much bigger Asian airlines abandoned that route. And we are doing well on all these routes.
“The challenges are great, especially in this era of skyrocketing fuel prices and economic setbacks, and especially when we are competing with subsidized and sheltered Asean airlines. But we will face the challenges squarely. We will be dynamic and innovative. We must continually tap new markets and seek opportunities. No policy will help boost tourism if airlines are not prepared to do the actual day-to-day hard work of promoting the Philippines as a business and leisure destination. We assure you that PAL will do its part.
“We would like to see a reciprocal liberalization policy for Clark that gives Filipino airlines equal access and opportunity. We don’t believe that unilateral open-skies declarations are good for the country, whether it’s the current E.O. 500-A policy or the E.O. 500-B policy being considered.
“It won’t work to have virtual open skies for foreign airlines while the policy is ‘closed skies’ for Philippine carriers. Sure, foreign airlines are welcome to serve these developmental airports, but there should be a guarantee of equal access and equal opportunity for the Filipino airlines as well. As you’ll note, the Philippine carriers are embarking on huge investments to build up air service hubs at Clark airport.
“We won’t just fly in and out of Clark, we will be making it our second home. It would be terribly counterproductive for us to be shut out of international routes to and from Diosdado Macapagal International Airport. This is why we welcome the recent series of air services negotiations with countries like Macau, Hong Kong, Thailand and New Zealand, where the Philippines negotiated reciprocal air rights that both Filipino and foreign airlines may use to serve Clark.”
Cebu Pacific also has reservations
We also interviewed Cebu Pacific’s vice-president for Marketing and Products. Candice Iyog.
“Cebu Pacific advocates open skies as long as the rights are reciprocal to carriers of both countries. Unilateral grant of open skies often turns out to be ‘one-way skies’ because it undermines the Philippines’ negotiating position in terms of gaining equal or equivalent traffic rights to other countries for its carriers.
“Cebu Pacific supports Asean open skies because it is a multilaterally negotiated agreement that allows for reciprocity. Cebu Pacific already competes with foreign airlines on the international routes that it serves, and it will continue to operate in the same manner that it is operating now by offering year-round low fares and a fun on-board experience.
“We have a successful product as evidenced by our rapid growth in the past three years since we converted into a full LCC model. We believe that the open-skies policy will bring about more seat capacity in the Asean region. This will allow the Filipino traveler to have more choices and it will compel local airlines to be more competitive.
“Open skies, however, is only one of the factors that influence growth in the tourism industry. We must remember to improve on other factors as well [i.e. infrastructure, hotel rooms, perception of peace and order].
“Cebu Pacific favors bilaterally negotiated open skies, which means the Philippines grants another country the rights under an open-skies regime after having negotiated for the same rights for itself. The most important determinant of such negotiations is that the tradeoffs to be obtained by both parties are of equal or equivalent realizable value. In any negotiation, the main objective should be to achieve a level playing field.
“Our view is that E.O. 500-B as it is currently drafted is anti-Filipino and discriminatory because it allows foreign carriers to enjoy air rights that are not available to Philippine carriers.
“We believe that liberalization should not be achieved at the expense of Philippine carriers and other stakeholders in Philippine civil aviation industry. Ironically, E.O. 500-B, rather than encouraging liberalization and competition, is actually anti-competitive.
“Allow us to cite an example: Earlier in the year, Hong Kong Express, a Hong Kong-based carrier, was able to operate to Clark through E.O. 500-A. Cebu Pacific had wanted to fly the same route, yet we were unable to because the cap on flights between the Philippines and Hong Kong under the existing Air Service Agreement had already been reached. Thus, unilaterally allowing international airlines entry into Clark without their home governments granting Filipino carriers the same rights and had prevented Cebu Pacific from doing so.
“Fortunately, the Philippine government, during bilateral talks with Hong Kong, amended the Air Service Agreement, allowing Philippine carriers to begin servicing the Clark-Hong Kong route. As earlier stated, operating in an open-skies regime will compel us to be more competitive. We will have to constantly improve our products and services as we compete with the global carriers from other Asean countries.”
Why seair is in favor of open skies policy
By Darwin G. Amojelar, Reporter We asked Avelino Zapanta, president of South East Asian Airlines (SEAIR), “Are you for the so-called open-skies policy?”
He replied, “Yes.”
“The open-skies regime envisioned provides for unlimited third and fourth freedom traffic rights with all other traffic rights subject to negotiation. This conforms with my own definition of open skies.
“The Asean one is still limited though in the sense that it covers only the capital cities of the member countries. I would go so far as covering any and all points any airline would like to serve. Why curtail the opportunity of other Philippine cities by preventing foreign airlines to fly there?
“We should all the more ask for it because we should like the tourist to fly from their true origins in their countries to the true destinations in the Philippines without having to go through the hassle of connecting flights in Manila or Cebu.
“I also believe that you open the door and people are liable to enter. It benefits the country. For every individual who enters is bound to generate some income for the country: transport, hotel, food, entertainment, etc., industries will benefit. Therefore let’s make it easy for them to enter by relaxing entry rules.
“We should also improve our infrastructure, our facilities, machineries, materials related to product and service offerings.
“Do proper and sufficient level of marketing. By this the airline must produce the products and services designed to satisfy the needs and wants of the target markets in sufficient volume and priced within the acceptable limits by the target markets and distributed to places closest and conveniently accessible to the target markets.
“Finally, there must be sufficient promotion to communicate that the product/service exists, at prices that suit the pocket of the customers and found/available at specific places.
“Today our airlines and our country are doing half-hearted marketing. The product and the service might be good, the prices right but there is insufficient distribution and hardly any promotion.
“Other countries have big budgets in promoting via global TV channels. For a brief shining moment WOW Philippines was in CNN and elsewhere. It could not be sustained because of the limited budget.
“Watch how Malaysia, Thailand and the others saturate advertising and promotion in all media particularly the global TV channels.
“Anybody who says open skies is not going to boost tourism is deceiving himself or wants to keep the market for only himself. And will do everything to monopolize the market.
“If foreign airlines are competing openly in a route the likelihood of airfares going down is positive. A monopoly on a route results in very high airfares, and why not? There is no competition. Where airfares are low traffic volume goes up. If the volume is up more players are encouraged to operate. And the country must not care whoever carries the traffic, local or foreign airlines. What counts is the number of tourist arrivals is up because that number multiplies many times and benefits many other sectors of the economy.
“Local vs. foreign for as long as it is open skies, the field of competition is fair. Anyone may field any amount of capacity and the customers will never complain.
“Surprisingly, the lack of fairness is in the local vs. local competition. For example: Airline designation is a form of collusion that favors the major carriers. There should be open, multiple airline designation in all air services agreements with all countries.
“Another example: No carrier must be allowed to rent out traffic rights of the country in the guise of codesharing. When an airline codeshares the traffic rights of the country and does not launch actual flight operation and allows only the foreign airlines to operate then the local airline is renting out traffic rights which belong to the Filipino people and which might be operated by other local carriers.”
Are you for the EO 500-B? We asked Mr. Zapanta.
“It is difficult to say because EO 500-B is reportedly being drastically amended. Until we get to know what would really come out we would never know if it is acceptable or not. If it would open up the skies of Clark even on third and fourth with negotiated fifth and other freedoms, plus multiple airline designation, plus no unilateral codesharing, that should be acceptable.”
He cited how an airline like Cebu Pacific has become a world player.
“Cebu Pacific is now boasting that it’s been recognized as the third fastest growing airline in the world and it is not even open skies yet. Remove the obstacles, the obstinacies of the major carriers in the issue of open skies and you will find Philippine carriers fighting it out in the open arena.”
“The world around us is suffering from aging population, depopulation and shrinking population of cities. They need migrants to augment the labor force, give care to the aged, support the economy through consumption. This is estimated to create traffic in the hundreds of millions in the decades to come. More startling is the subsequent wave of travelers which will be three or four times more than the migrants.
“This is what the industry is calling VFR traffic. These are family members and friends who visit their OFW family member wherever he is residing instead of the other way around. This is made possible by the LCC phenomenal pricing that contributes to create new and voluminous aviation traffic.
“A big part of this will come from the Philippines. And this is perhaps an argument for non-imposition of birth control if we suffer the same fate as Singapore and China who have junked their controlled family size due to the developing concern of shortage of people to churn the economy.”
Closed skies policy wins
Philippine Travel Agencies Association, SEAIR lose fight to PAL
By Rene Q. Bas, Editor in Chief THE debate is over: The “closed skies” policy has won over “open skies.”
Executive Secretary Eduardo Ermita told The Times: “There is no such thing as EO500-B. There was a draft. But the President did not sign it.” (See related story “‘No such thing as EO 500-B. President never signed it’” by Angelo S. Samonte.)
For more than a year now, until today’s revelation by the Executive Secretary, there has been a fight between those segments of the aviation and the entire tourism industry over which policy should prevail.
The Philippine Airlines, Cebu Pacific and the National Association of Independent Travel Agencies (NAITAS) have been waging a war against open skies.
Ranged against them are the Philippine Travel Agencies Association (PTAA), most of the members of the Hotel and Restaurants Association, SEAIR and even the Civil Aeronautics Board (CAB). The last-named has the duty of making the country ready for the Asean opens skies policy as part of Asean economic integration.
Open skies is supported by the experience of every country that has succeeded in getting scores of millions of tourists. It is purely an arithmetical formula. The more seats there are in incoming flights, the more tourists arrive.
But of course local airlines may end having less of those seats.
The philosophical arguments for the policy of restricting open skies only to countries that give similar rights to Philippine carriers are articulated best by lead convenor of the Fair Trade Alliance, former Senator Wigberto Tañada in a speech he gave last year at the Philippine Chamber of Commerce and Industry (PCCI) forum on “Save our Skies or Open Skies: A View from Both Sides.”
Tañada and the Fair Trade Alliance sided with the local aviation industry not because they are “against economic liberalization per se” but because they are “for an economic liberalization that is calibrated, measured, progressive and synchronized with our own development priorities and the capacities of our industrial and agricultural producers…”
He explained that FTA’s policy of “calibrated protection” is exactly what “our neighbors – Japan, South Korea and now China and Vietnam – have done and are continuing to do. The problem is that our economic technocrats, from the time of Marcos to the present, have a very limited concept of attaining economic growth – that is, opening up of the economy in an accelerated, one-sided and even lazy and reckless manner.”
He cited how in the “l980s and 1990s, we opened up our manufacturing in a wholesale manner in accordance with a World Bank timetable, making us one of the ten most open economies by l997, this according to the Bank of International Settlements of Switzerland. The result? Many of our industries producing textiles, tires, tiles, plastics, chemicals, auto parts and so on have been decimated by the unilateral trade liberalization, aggravated by a culture of smuggling in the country and the anti-Filipino attitudes of our own technocrats. We did the same in agriculture, from the mid-1990s to the present. The result? From a net agricultural exporter, the Philippines is now a net agricultural importer of almost everything — from rice and corn to onion and garlic, from fruits and vegetables to meat and milk. Thus, if a food crisis will break out in Australia, Thailand and Vietnam simultaneously, this country will go hungry, as many of our displaced Filipino farmers have already been experiencing.”
“And now, from unilateral industrial liberalization and unilateral agricultural liberalization, we want to open up unilaterally our skies, our aviation market, without any equal reciprocity. My God, what is happening to this country?
“This brings me to the second fundamental belief of the Fair Trade Alliance – there should be a level playing field for Filipinos and foreigners alike. Why in heaven’s name should foreigners be treated like kings and Filipinos like beggars in their own country by their own government? Under Article 2, Section 19 of our Constitution, it is expressly provided that the State should provide a self-reliant and independent national economy effectively controlled by Filipinos. Does this have no meaning at all? Even one of our native songs call for kaunting pagtingin for Filipinos from their own government. But unfortunately all this has been rendered meaningless by the continuing colonial mentality of some of our policymakers.”
“Thus, in the Clark’s open skies issue, we are shocked to hear outright proposals for the Philippines to unilaterally open up our skies and abandon the globally-accepted norm of aviation trade negotiation, which is bargaining bilaterally for equal or reciprocal flying rights. Moreover, some arrogant foreign carriers want to have more rights than the Filipino air carriers such as the privilege of operating even without any permit from the Civil Aviation Board (CAB) and the privilege of using Clark as a hub to fly to other destinations.
“The unfairness is most evident when Macau denied the application of Asian Spirit to fly from Clark to Macau and back, whereas Tiger Air of Singapore has been allowed to fly freely from Clark to Macau and Singapore. As the CEO of Cebu Pacific himself was quoted, ‘we might as well as register as foreign air carriers’. A unilateral aviation liberalization policy clearly contradicts the Constitutional mandate that ‘the State shall protect Filipino enterprises against unfair foreign competition and trade practices’ (Sec. 1, Article XII).
“Thirdly, we believe, if this country has to progress and soar, we must get our act together as a nation. But what some of the Clark open skies proponents have done are to divide us and confuse society because of some of the issues being raised are highly exaggerated if not false. For example, those questioning the proposal have been labeled as rent-seekers, protectionist and supporters of a failed Filipino-First policy. And yet, as clear as the blue sky, our unilateral economic liberalization of the last three and a half decades is what has failed this country.
“They have also conveniently ignored the inconvenient fact – most of the big air carriers in Asia are supported by their respective governments and are even owned wholly or partly by these governments, for example, Singapore Air is majority-owned by Temasek, a government investment corporation, while Thai Air is 70 per cent owned by the Thai government. In the Philippines, the industry players are now all private and do not get any assistance from the government.
“So who is rent-seeking? Who is protectionist? And yes, who is the anti-Filipino? Have you heard about what happened in the recent RP-Korea air talks in Davao? How about the expanded air agreement with Canada which has been pending for almost two years.
Another argument being raised by the proponents is that the entry of the foreign carriers in Clark has been a boon to tourism. Yes, it has been a boon to Macau tourism, a boon to Singapore tourism, a boon to Kuala Lumpur tourism and a boon to other tourist destinations outside the Philippines. Please take a look at the list of those taking the foreign air carriers, many of them are middle-class Filipinos herded at the pick-up point at Mega Mall in Metro Manila. Of course, we are not against Filipinos traveling and taking advantage of cheaper plane rates. But please, let us not exaggerate too much by saying that the Clark arrangement is a big boon to Philippine tourism when the fact is many of the tourists are flying outward, not toward our fabled 7,100 isles.”
Well, the “calibrated open skies policy” has won at last.
‘No such thing as EO 500-B; President never signed it’
By Angelo S. Samonte, Reporter President Gloria Arroyo has never supported a proposal calling for the “open-skies policy” liberalizing the local aviation industry because she was persuaded that it could have adverse effects on the operations of local carriers.
“There is no such thing as EO 500-B,” Executive Secretary Eduardo Ermita told The Manila Times. “There was a draft but the President never issued the executive order. She made the decision after getting several feedbacks from the aviation industry. The President came to believe that it’s not wise to issue such an order.”
Ermita said that the only existing order is EO 500-A, which is an amendment to EO 500. He added, as far “he knows there is no EO 500-B.”
Companies operating at the Clark Economic Zone urged President Arroyo early this year to sign the executive order that allows unlimited freedom rights to foreign air carriers.
Locators in the Clark economic zone said the implementation of EO 500-B would help not only Clark but the entire Central Luzon in developing the economy since the opening of the Diosdado Macapagal International Airport (DMIA) will bring in more foreign tourists and investments.
But local airlines, especially PAL, opposed the move citing unfair competition, as EO 500-B will not automatically give them the same unrestricted flying rights in different countries.
Hotel and restaurant operators in Central Luzon on the other hand supported the implementation of EO 500-B, saying it is important to allow the entry of investment and foreign carriers into the DMIA (pronounced “Damia” and meaning “Diosdado Macapagal International Airport”) and into Subic Bay International Airport because it will bring in more tourists from Asia but also from other parts of the world.
Clark locators even signed a manifesto in May calling for the immediate passage of EO 500-B, the scheduling and successful conclusion of air talks with major and new partners in tourism, trade and overseas employment and the acceptance of proposals by other countries for liberal air access including “pocket open skies in Clark and in Subic.”
They stressed that opening Clark to foreign carriers will also solve the problem of the delays in the deployment of overseas Filipino workers (OFWs) due to lack of airline seats especially for those bound for the Middle East.