To Asia-Pacific's growth-hungry airlines and the governments which regulate their every move, news that European Union member states have taken the first step towards establishing a collective position for bilateral talks with US hardly caused a ripple.
A basketful of transatlantic open skies accords with the prospect of bloc negotiations and a future single aviation market between the Old and New Worlds is a long way from the Orient. 'In Asia-Pacific liberalisation is nowhere,' says former Qantas managing director John Ward. 'It is not on anyone's agenda, apart perhaps for Singapore'.
Ward voices the thoughts of analysts across the region. In the main, the Asian nations are committed to maintaining rigid bilateral control of their airspace. Liberalisation is almost entirely confined to domestic skies and multilateralism, where it exists, remains within Asia-Pacific's alluring borders.
There are good reasons why open skies with extra-regional partners are not an early option, according to Shane Matthews, regional airline analyst at Singapore-based Kay Hian James Capel Research. The first is political: each country jealously protects its own preserve, distrustful of others' motives and unwilling to place faith in a communal approach. 'Do you believe Qantas or Cathay Pacific or Korean Airlines would allow its airline policy to be decided in Manila by the Orient Airlines Association? There is nobody in Asia-Pacific with the power the US government or Europe has to move towards this sort of liberalisation,' says Matthews. Intra-regional bilateral tiffs are also common (see next feature).
The other reason why liberalisation won't come soon revolves around infrastructural problems: half of the region's airports are bursting at the seams. 'We can deregulate to our hearts' content but if you can't land planes what is the point?' Matthews asks. Infrastructure deficiencies have given the region an ideal 'out' against accusations of tardiness in the global liberalisation stakes. In Asia it's called 'the Japan excuse': we would love to open our skies but we are just too full.
Congestion in the air is also a barrier. Air corridors into and within Asia-Pacific are congested, a problem which won't be solved until Future Air Navigation System is a widespread operational reality (see Fans feature).
There is plenty of talk about liberalisation in the region but a lack of real action. In the main, governments pay lip service to the ideal but draw the line at genuine concession.
Singapore is happy to offer virtual free skies because it is the region's major hub, feeding off through and stopover traffic. The more airlines that fly in the more profitable the aviation business for this entrepôt and its flag carrier, Singapore Airlines. New Zealand is pro-liberalisation but, isolated as it is, could only gain from freer access to Asia-Pacific markets, offering little in return. Thailand has forged a near open skies agreement with the US, after throwing out the bilateral and waiting for Washington to return to the table. But it remains a tough bilateral negotiator.
The Philippines too has a liberalised agreement with the US, although it was signed in the face of bitter protests from Philippine Airlines, which complained the government was removing its protection and handing over the farm to the Americans - a point of view supported by most analysts.
India, like several other countries, has opened up its domestic market to competition and has a new, relatively open, bilateral with the US. New Delhi's policy on foreign paticipation domestically is inconsistent, but internationally it is clear cut: the government fears real open skies will damage Air India irrevocably.
Japan's ongoing wrangle with the US has become one of the sagas of aviation history and its stance against open skies is backed by most neighbours. Asia-Pacific governments still regard their carriers, whether state-owned or privatised, as strategic assets critical to economic development, which must be protected.
Liberalisation front-runner Singapore Airlines constantly lobbies for the removal of aviation trade barriers. Mathew Samuel, SIA's director of corporate affairs, warns that booming air traffic growth hides the fact the region is lagging behind the rest of the world on liberalisation. 'The attitude of most Asia-Pacific governments appears to be that, since their carriers are performing relatively well on the back of strong regional traffic growth, all that needs to be done is to preserve the regulatory status quo and expand capacity in the traditional manner through bilateral negotiations.'
Adjusted to open markets Samuel argues that European and US majors have a head start because they have already adjusted to more open markets and freer competition. Asia-Pacific carriers, in contrast, suffer from a relative lack of access to third-country markets in Asia-Pacific, North America and Europe.
Both demand by outsiders for freer access to Asia and resistance to it from those within lies, of course, in the lure of numbers, and little wonder. A study by Booz Allen & Hamilton indicates that as GNP rises to US$5,000 per capita, the number of air trips rises dramatically. Many Asia-Pacific countries, including the largest such as China, India and Indonesia, are currently still below this threshold.
A report by Icao's Asia-Pacific Traffic Forecasting Group projects the top 40 city-pairs within the region could show traffic increases in aggregate terms at an average annual growth rate of 8.4 per cent between 1992 and 1999, resulting in passenger traffic increasing from 34.5 million to 60.7 million. Iata expects total air traffic to and from the region to reach 200 million passengers by 2000, or 41.2 per cent of total global international scheduled traffic.
Hungry mega-carriers
It is these forecasts that have made Asia-Pacific nations bent on protection, fearing hungry mega-carriers from North America and Europe will swamp their airlines. There is some disagreement on whether they are justified. One Bangkok-based analyst believes Asia-Pacific carriers may not have as much to fear from outside competition as they think. 'Arguments about mega-carriers flooding the region, price wars and being swamped by the US majors are a red herring. Price wars are unsustainable in the new aviation world and really, the brand and service of carriers in this region is excellent - I would suggest far superior to those from the US and Europe. I think the locals are very capable of handling the competition.'
Brian Harris, an airline analyst at Lehman Brothers in New York, isn't quite so sure, suggesting US airlines have had 18 years of deregulation to hone their skills, giving them a 'hyper ferocious' capability to compete. 'They are really primed in terms of unit costs and overall sophistication . . . They are generally superior to those of non-US carriers . . . given the opportunity the US carriers will really dominate the international market and you are seeing that in Latin America right now.'
Harris believes the best scenario from an Asia-Pacific point of view would be a gradual transformation to liberalisation, similar to the US-Canada accord, which restricts US carriers operations in key markets - Toronto, Montreal and Vancouver - with a two year phase-in period to give Canada's airlines time to adjust to the new regime.
But Harris stresses Asia-Pacific is a big area for US operators and as Washington concludes liberalisation arrangements elsewhere it is certain to put even more heat on Asia to follow suit quickly. If there is a way to break down Asia-Pacific's barriers, most proponents of liberalisation believe will come collectively, rather than through head-butting by individual nations.
Australia's Ward says liberalisation is inevitable. 'I think international forces will cause it to change and I think Asia-Pacific countries can probably do themselves a lot of good by looking at the sort of changes they would like to engender and getting a single market within Asia like Europe and North America have done. They must put themselves in this sort of position or they will be overrun.' Once North America and Europe forge a wider liberalisation pact they are likely to turn their attention to the Asia-Pacific nations, which will need to present a common front.
Creating such a front could be just as big a problem as breaking down the region's protective barriers (see next feature). SIA's Samuel suggests the Association of South East Asian Nations (Asean) could become a vehicle for regional liberalisation because some of its members, such as Indonesia, Malaysia and Thailand, already have limited open-skies agreements.
In the US, where Asia-Pacific intransigence continues to ruffle feathers, United Airlines believes that including aviation issues in the multilateral Asia-Pacific Economic Cooperation (Apec) forum will help achieve liberalisation and that a multilateral agreement on codesharing could be a first step to more freedoms. Apec, of which the US is a member, has already included air transport in its trade liberalisation agenda, though that doesn't mean the Asian members will accept early change.
There is already plenty of liberalisation within the region but mistrust casts a constant shadow on attempts to mould wider regional cooperation on external air service negotiation. In February, Japan's powerful Ministry of Transport convinced 70 senior aviation officials from 12 of its regional neighbours to gather in Kyoto to discuss joint efforts. US officials, who were not invited, became suspicious, believing the meeting was an attempt to shore up defences against outside intrusion.
Regional divisions
In the end delegates vowed to promote regional alliances, codesharing agreements and technical cooperation but stopped short of formal support of liberalisation - the word was initially included in a joint statement, then removed. Here the regional divisions emerged. Singapore, New Zealand and South Korea pressed for 'gradual and orderly liberalisation' but others, like Japan and China, expressed reluctance to open markets multilaterally, arguing Asia's carriers are at varying stages of development, and the arrival of strong foreign airlines could seriously affect progress.
A survey of chief financial officers from 24 international carriers released this year showed most feared liberalisation. They believed open skies would exist on US-Europe routes by 2000 but the transition elsewhere would be slow.
Overall, analysts believe regional cooperation and global attempts to foster free trade will gradually ease the shackles. They say international alliance trends, with the cross-border benefits they bring to members, will eventually make bilaterals superfluous.
But the consensus is unanimous, even among those in favour of open skies. Liberalisation in Asia-Pacific will take a long time, with real progress unlikely until well into the first decade of the next century.
New group on the bloc
IMP-EAGA may seem a laborious acronym but don't underestimate its potential. On offer within the Brunei-Indonesia-Malaysia-Philippines-East Asia Growth Area are a potential 250 million air travellers and billions of dollars in annual revenue from tourism, trade and commerce.
It is also a perfect example of how Asia is inclining towards intra-regional blocs. Progress on wider liberalisation of air services between Asia and the rest of the world may well depend on how fast these blocs mature.
BIMP-EAGA, born in 1994, is not alone, though it may soon become the first Asian group to forge a joint airline system. Growth areas have become important features in southeast Asian economic development and to ensure further access airlines are going to have to learn to deal with them.
Apart from the seven-member Association of South East Asian Nations (Asean), there is also the Indonesia-Malaysia-Thailand Growth Triangle and the Indonesia-Malaysia-Singapore Growth Triangle. Added to this is the embryonic Mekong Basin growth region, covering a market of 600 million people, whose members - Thailand, Myanmar, Vietnam, Cambodia, Laos and the Chinese province of Yunnan - are already discussing cooperation in aviation. Australia and New Zealand are the most advanced in aviation terms and have agreed to establish a single trans-Tasman market for their airlines by November this year at the second time of trying.
Most of these groupings are in the south and west of the region: the powerhouse nations of Japan, Taiwan and South Korea tend to take a far more independent approach. Whether the opposite ends of Asia can ever be brought together into a single trading bloc is another matter altogether. Even within existing groupings, integration has not been entirely successful.
As long ago as the 1970s, Malaysia and Singapore launched a joint airline which eventually fell apart to spawn Malaysia Airlines and Singapore Airlines. More recently, both Asean and BIMP-EAGA have tried unsuccessfully to create a joint carrier. The latter group is trying again, following a private meeting in Tokyo earlier this year between Philippine president Fidel Ramos and Malaysian prime minister Mahathir Mohammad. They envisaged a single regional airline company, with ownership split between the EAGA countries and private investors.
Saeaga left out
It now appears the outcome will be closer cooperation between the four countries' airlines rather than a single airline. A meeting of officials from the four countries recently discussed commercial airline cooperation, including codesharing and combined marketing, and designated the carriers that would be involved: Royal Brunei Airlines, Indonesia's Merpati and Bouraq, Malaysia Airlines and Sabah Air, and Philippine Airlines and Corporate Air (a new carrier which is to be renamed Mindanao Express). The surprising exclusion is Malaysian startup Saeaga Airlines, which appeared to conform exactly to the Ramos-Mahathir vision.
At present these groupings are working to foster internal growth but by the time they turn to external relations they are likely to have considerable economic clout, individually or collectively. In the two years since EAGA was launched, intra-regional traffic has grown up to 40 per cent and the ultimate aim is to integrate the grouping into Asean and the Asia-Pacific Economic Cooperation (Apec) forum.
Countries in the region are also working on ways to make travel easier for citizens whose disposable income is rising rapidly. In July, Thailand became the first country to introduce special 'Asean-only' immigration lanes at Bangkok airport. Apec is also looking at visa-free business travel among its members, which includes the US and Canada.
But there are still major stumbling blocks to multilateralism within the region, epitomised by the existence of six major blocs in the region, most with overlapping membership. Canberra and Wellington may have agreed on a single air market, but the show of unity stops at their communal borders. The subject of more fifth freedom rights for Air New Zealand has been separated from the deal after strong opposition from Qantas, which fears losing market share.
That hardly bodes well for the prospects of freer skies in a wider sense and in reality there are just as many bilateral battles within the region as there are with the rest of the world. Thailand recently walked out of talks with South Korea because Seoul refused to increase Thai International's fifth freedom rights to the US west coast. Hong Kong has had several air service disagreements with trading partners, including Australia and the Philippines, while Japan is currently refusing to discuss additional capacity rights with Australia.
China's membership of regional blocs has still to be clarified, as has the eventual position of Taiwan. If the two ever start direct airlinks (Hong Kong's return to Beijing's control from April 1997 will effectively achieve that), the move would create an immense market, which neither is likely to want opened to free competition.
Asia's economic growth potential makes it hardly surprising that the region's governments, individually and collectively, continue to raise barriers to access for airlines from outside the region. Last year trade between members of Asean and the rest of the world grew 19.4 per cent to $651 billion, while intra-Asean trade lifted 14.5 per cent to $132.5 billion. Protecting the local carriers' share of the cake from outsiders is the main driving force in resisting a more liberal aviation regime.
Size 20 galoshes
Complicating matters is the number of regional battles that still have to be resolved - for instance, the fight between South Korea, Japan and China to establish which of them will house the major hub for northern Asia. 'Airlines, airport and aviation authorities in the region have many of their own problems to solve before they worry about Americans coming in with their size 20 galoshes,' says Shane Matthews, analyst at Kay Hian James Capel Research.
Paradoxically, as these regional blocs develop their existence could make it far more difficult for the rest of the world to piece together a workable policy to break down resistance to open skies. Individual Asian nations will have to consider the impact of their actions on others in their bloc in bilateral negotiations with third countries, creating a potential minefield.
In the multi-ethnic mosaic of Asia, where each nation closely guards its independence and strategic aviation assets, consensus is still far off, even within the region's emerging growth areas.
Source: Airline Business
