Asian low-cost carriers are itching to start flying - and it is time their governments helped by ditching outdated bilateral agreements
Investors' money is pouring into new low-cost Asian airlines. With the region's population rapidly growing wealthier and keener than ever to travel, hopes are for high and speedy returns. But such confidence might be misplaced, as many governments have been far too slow to offer new traffic rights, threatening to dampen growth in the sector. The time has come for governments to stop playing games and face reality: true liberalisation is inevitable, and the economic gains can be great.
In India alone there are at least four new passenger carriers aiming to launch this year and all are adopting some form of the low-cost business model that has proved successful in Europe and the USA, and which has created new markets for travel and tourism.
China has four to five low-cost carriers aiming to launch this year, while in South-East Asia there have been many start-ups over the past couple of years. In 2004 alone several started operations, including Thai AirAsia and Nok Air in Thailand; Adam Air and AirAsia's AWAIR in Indonesia; and Jetstar Asia, Valuair and Tiger Airways in Singapore.
These new low-cost carriers, following the lead of Malaysia's highly successful AirAsia, have proved to be a boon for aircraft suppliers - particularly Airbus, which has been winning orders for its A320 - and leasing companies. There also seems to be no shortage of investors from Europe, Asia and the USA willing to finance these ventures.
But low-cost airline bosses who attended a conference in Singapore last week, organised by the Centre for Asia Pacific Aviation, pointed out that Asia, unlike Europe and the USA, remains a highly regulated market and traffic rights are not readily available. The common message was that the outdated regime of bilateral agreements will remain in place for many years to come, and this is a problem as low-cost airlines have traditionally thrived in markets that are fully deregulated.
Some countries in Asia, such as Singapore and Thailand, have been proactive in pushing for liberalised air services agreements, but others, such as the Philippines and Japan, have been slow in opening up. Some governments see low-cost airlines as a potential threat to state-owned carriers. However, this is a misjudged reaction. Governments that fear their carriers will be unable to compete should not block the competition, but work to improve the state-owned carrier's management, systems and service delivery while at the same time liberalising the air services market.
This is what India is finally doing today and if New Dehli is at long last brave enough to expose Air India to greater market competition, there is no reason why other countries cannot do likewise. Clearly, competition can have a positive effect, but sadly it seems more still needs to be done to educate governments about the economic benefits that come from liberalisation. Liberalisation of air services needs to top the agenda in multilateral talks on economic integration. Multilateral agreements, as opposed to the old system of bilateral agreements, is a better way forward.
Asian countries, particularly those in the Association of Southeast Asian Nations (ASEAN), meet regularly to negotiate multilateral agreements in the interests of greater economic co-operation between member countries. It is sad that multilateral air services agreements have been slow in coming.
Passenger services between South-East Asian countries are in line with the economic goals of ASEAN, so it is good that countries like Singapore are using ASEAN as a platform for bringing about greater liberalisation of air services in the region. However, much more needs to be done.
If greater liberalisation in Asian air services is not forthcoming soon, there will be a real danger it could contribute to the demise of some airlines in the region.
Already a situation has emerged in South-East Asia, where the failure to liberalise markets has meant new low-cost carriers are barred from operating on certain routes, many of which are lucrative ones such as Singapore-Kuala Lumpur, where airfares have traditionally been unacceptably high. In instances where the market has been liberalised, such as the Singapore-Bangkok route, the low-cost carriers are crowding the market.
Without giving the new low-cost airlines in Asia a real chance to compete - rather than forcing them to serve routes where the most available rights are - the gains for the consumer may be short-lived. Real liberalisation is needed in Asia to ensure the long-term sustainability of low-cost airlines in the region.
Source: Flight International
