At the first Airline Business conference to be held in Asia, the hottest topic was how the regulatory environment in the Asia-Pacific region would adapt. Everyone recognised that growth and 'open skies' pressure from Europe and the US would bring about change. Geoffrey Lipman, president of the World Travel and Tourism Council, went so far as to predict: 'Many of today's bilateral discussions will be academic within 10 years because of larger forces towards globalisation and liberalisation.'
Those 'larger forces' apply at both national and international level. In India, for instance, domestic deregulation started as a byproduct of broader economic reforms. Nine private carriers have gained domestic authority and a swarm of air taxi operators are seeking approval for scheduled flights, but India's airline deregulation remains 'ad hoc and ambivalent,' according to Harish Malik, former commercial director of Air India. He predicts more change - a review of foreign ownership limits, relaxation on aircraft imports, and alliances and consolidation - as the government overcomes its 'anxiety to protect the national carriers.'
The effects of external liberalisation on India are even more evident. Following the adoption of more liberal bilaterals in 1993, annual international traffic growth shot up from an average of about 3.7 per cent to over 16 per cent, said Malik. Debate over whether to take similar steps is underway throughout the region.
In his keynote address, Singapore Airlines' director of corporate affairs Mathew Samuel predicted: 'As the global economy gathers momentum, Asian governments will face increasing pressure from various quarters to liberalise their aviation markets.'
Proof of that pressure came quickly. Edward Oppler, deputy director of the US Department of Transportation's Office of International Aviation, reminded delegates of the shift in emphasis by US airlines from the Atlantic to the Pacific, where traffic has tripled in ten years and US carriers now earn nearly half of their overseas revenue.
Praising Korea, Taiwan, Singapore, and Malaysia for liberal regimes with the US, Oppler stressed that US aviation policy in Asia 'directs negotiators to give priority to building aviation relationships' that will remove barriers. While expressing a willingness to enter transitional agreements, Oppler left no doubt about Washington's long-term view: 'Protection makes little sense.'
Not surprisingly, the view from Japan was different. Akihiko Kaji, managing director of Japan Air Charter, complained that US airlines exploit the growing gap in dollar and yen values by discounting their yen-based fares offered to Japanese passengers. In a forceful address entitled 'The America problem', Japan Airlines' vice-president corporate planning Koki Nagata claimed the best way to resolve the benefits imbalance enjoyed by US carriers was to scrap the present Japan-US bilateral and start over.
But Nagata also broadened the focus by stressing the need for Asians to forge a common aviation policy. 'We have regional ties through the Orient Airline Association, but there is no political body or bloc which can provide the framework for aviation policy development. Some say that to create such a bloc would be too complex in a region so vast and so diverse as Asia. But if no action is taken at the government level, opportunities will be lost.'
The lack of a regional consensus stems partly from a lack of clear local direction. For instance India has 'no defined aviation policy,' as Malik bemoaned. Carlos Chua, the OAA's new commercial director, complained that the organisation's hands are largely tied because 'Asians are too divided by parochial interests.'
The six-member Association of Southeast Asian Nations could prove him wrong. Mathew Samuel saw Asean as a catalyst for change. He predicted that liberalisation 'will not necessarily be under a multilateral arrangement. Instead, we should see aviation in Asean resembling the current setup in the European Union: substantially free skies within the bloc, with the possibility of individual liberal deals with outside nations.' Within ten years Samuel thought Australia, New Zealand, India, and China might join such a group, perhaps acceding to the same terms as the original members.
It was generally agreed that a fair competition policy must accompany liberalisation to prevent abuse. Even Geoffrey Lipman, a strong advocate of liberalisation, told delegates of the need for 'a new framework of international competition. . . linking antitrust laws around the world.' But Samuel's view of open Asean skies has not yet addressed this need. No central antitrust oversight now exists or is under discussion to ensure that a large airline does not use its dominance for anti-competitive purposes in an unregulated environment.
Even if Asians find some consensus on regional liberalisation, they must still decide how to deal with the west. They have long feared a strong European bloc, while clashes with the US have become a regular source of headlines.
At least Asians can take temporary comfort in assurances from Frederik Sorensen, director of air transport policy at the European Commission. After explaining the Commission's basis for intervening in proposed bilaterals between the US and nine smaller European nations, Sorensen said: 'I don't foresee any challenges to specific bilaterals between individual European and Asian nations.' Only as the time nears for EU negotiations as a bloc would the Commission look more closely at proposed bilaterals that were less advantageous than it would like.
Across the Pacific, the threshold question is whether the fifth freedom imbalance must be resolved, as JAL insists, before Asia can consider liberalisation. Mathew Samuel thought regional attitudes differed on this. Countries relying on inbound tourism were bound to allow even more fifth freedoms despite objection from their own airlines.
Geoffrey Lipman seemed to summarise the current aeropolitical environment accurately when he observed: 'Asia seems to generate plenty of disputes, but no obvious vision.'
Turning to airline strategy issues, KLM's vice-president Gerard de Wit said he expected Asian carriers to continue to focus on tactical, market-specific alliances rather than strategic ones. Factors working against strategic deals included the diversity of the Asian region and the need for carriers from outside the region to have more than one partner.
A swarm of 17 new Asian airlines launched within the past nine years raises some uncertainty about the future shape of the industry. Samuel predicted that the number of airlines will not change much more, but no one is quite sure what effect these startups will have.
Several of these new carriers, such as Eva Air and Asiana, have already joined the big league, but most are secondary carriers which thrive on point-to-point, short haul traffic.
Sempati Air has developed Jakarta as a hub for flights to 23 of Indonesia's 27 regional centres and from Jakarta to such secondary Asian cities as Johor Bahru, Malaysia and Kaohsiung, Taiwan, said the carrier's president Hasan Soedjono. Dragonair has developed 19 new short haul routes that Cathay Pacific never served. Secondary carriers are flourishing by complementing or circumventing the majors rather than by competing with them directly.
This is one reason why Mathew Samuel said he did not foresee one, two, or even three super-hubs. 'There will be a number of hubs in Asia, varying in size,' he predicted, with some declining 'as more and more point-to-point services develop.'
Opinions differed as to whether the downward pressure on yields would continue. The majority view was that it will, due to more competition both within and beyond Asia. But Samuel predicted Asia's carriers will do a better job of matching future capacity with demand so that yields will stay high. 'We are unlikely to see the kind of dizzying orders for aircraft that made headlines in the past,' he said.
Low cost upstarts also are not in his crystal ball. 'Another Chinese or Indonesian carrier may go international,' Samuel predicted, 'but I don't see a Southwest Airlines in Asia because of the regulatory environment and the way markets are carved up.'
A key conference issue was growth impediments, ranging from physical to fiscal, and how to overcome them. Every Asian airline confronts physical constraints. Congestion 'especially hurts regional airlines which require more flexibility and frequency,' noted Dragonair's chief operating officer Philip Chen. One solution is larger aircraft. Dragonair's acquisition of A330s is specifically to beat slot restrictions at Hong Kong's Kai Tak. Bertrand Grabowski from Indosuez Airfinance Asia showed an Airbus chart predicting that the average capacity of Asia-Pacific passenger jets will grow from 243 seats in 1994 to 356 seats by 2014.
As aircraft become larger and fuller, the pressure on already congested airports is likely to become acute. Geoffrey Lipman described a potential solution to one of the biggest airport congestion issues - border clearance. The WTTC-led Fast programme (Future Automated Screening for Travellers) speeds border clearance by giving each frequent flyer a smart card imprinted with his or her unique hand geometry.
Lipman said that a one-year trial with 60,000 passengers in the US had been a success. Icao is to add biometrics to its worldwide standards for machine readable travel documents, and the US Immigration Service has issued a call for private-sector construction of systems. 'This means Fast can be funded and operated as a commercial scheme . . . meaning investment can be undertaken without taxes, fees or lengthy procurement procedures.'
Many speakers identified capital shortage as an impediment, especially as demand grows and government support shrinks. Suggested solutions ranged from relaxing foreign ownership rules, as Australia has done, to public offerings, as envisaged by Sempati Air's Hasan Soedjono. Financing infrastructure growth will require even more of the enterprise demonstrated by overseas Indians who are forming a company to finance, build and operate a new Calcutta airport.
As their economies and airlines reach maturity, most Asian carriers face rising costs. Akihiko Kaji of Japan Air Charter explained how the carrier avoids Japan's high labour costs by employing mainly non-Japanese staff, with the flight crews based in Honolulu and the cabin attendants in Bangkok. JAZ now flies 45 weekly wet lease flights for JAL at a unit cost 8 per cent lower than the parent company's.
Canadian Airlines' vice-president international Ian Bootle described how his airline took normal outsourcing a step further by contracting out to AMR Corp such typically proprietary functions as accounting and management information. Bootle summarised Canadian's philosophy: 'If someone else can do it for you better and cheaper . . . let them.'
In analysing how to make domestic operations profitable, Henry Schlee from Mercer Management Consulting questioned whether the flag carrier concept is compatible with the low cost operations demanded by low yield routes. Schlee expanded on an earlier warning from the OAA's Carlos Chua that 'You can't just cut staff; you must improve productivity.' Schlee's point could well apply to Asia's entire aviation future. One cannot shrink to greatness, he warned. 'Profitable growth is the only way to meet shareholder expectations.'
Source: Airline Business
