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Saturday, Oct 4, 2014

Asian Opinions

Sky should be no limit for Asean

The Straits Times | Saturday, Oct 4, 2014

A Malaysia Airlines Boeing 737 plane flying over the Sukarno-Hatta airport in Tangerang, Indonesia. Indonesia's ratification of a 2009 pact allowing Asean airlines unlimited flights to its capital Jakarta should be welcomed, notwithstanding the creeping nature of the advance towards an envisaged Asean single aviation market.

INDONESIA - Indonesia's ratification of a 2009 pact allowing ASEAN airlines unlimited flights to its capital Jakarta should be welcomed, notwithstanding the creeping nature of the advance towards an envisaged ASEAN single aviation market. The support of ASEAN's largest economy, which accounts for nearly half its population, is needed to realise the grouping's "open skies" ambition by the end of 2015. But there is still some way to go as the pact is just one of two multilateral agreements. Indonesia, Cambodia and Laos have yet to ratify the second agreement, while the Philippines has not done so for the first pact.

The reservations of these ASEAN states over a single aviation market are driven by the narrow need to protect their own carriers against competition from those of other states. However, as a study done for Indonesia has shown, the benefits to the nation as a whole can be immense and possibly outweigh those of staying out of the market. It projected that Indonesia's participation would add 6.3 trillion rupiah (S$662 million) to the country's GDP and 29,000 jobs by 2025.

Economic benefits to member states include higher efficiency and cheaper fares, better connectivity leading to ease of travel for business and leisure, and greater attractiveness to foreign investment. To enjoy these benefits, however, ASEAN states need to improve their infrastructure to cope with increased traffic. Many regional airports are bursting at the seams.

No thanks to nationalist politicians who refuse to see beyond their noses, ASEAN's "open skies" plan falls short of the European Union's "single sky" that allows an EU airline to fly between two international points outside of its home country and operate flights on domestic routes of another country.

The EU model would be a huge game-changer and make the region hum. But ASEAN nations are not allowing these freedoms, forcing airlines such as AirAsia to form foreign subsidiaries in which they are minority shareholders to expand their markets.

The irony of protectionism is that it creates strategic disadvantages for ASEAN. This is shown up when ASEAN signs air pacts with third parties. For example, a pact between ASEAN and China allows unlimited flights between the two sides. Because of intra-ASEAN restrictions, an ASEAN airline can fly only between its home state and all points within China. But Chinese airlines can fly between all points in China and all points in ASEAN.

The long-touted regional "open skies" will remain elusive until more are convinced that "competition breeds winners", as AirAsia's chief believes. The winners will ultimately be ASEAN economies and consumers as a whole.

This article was first published on October 2, 2014.
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