AirAsia Seeks More Asean Building Work

2014429094328If a company could ever symbolise the development of the Asean bloc as it prepares for economic integration in 2015, AirAsia might stake a large claim.

Tony Fernandes’ low-cost Malaysia-based airline not only connects much of the region but has also been instrumental in lobbying governments for better coordination between states.

Perhaps more importantly, AirAsia, Asean’s biggest low-cost carrier, is on the frontline in a battle that has stymied the region for years: namely the parlous state of infrastructure.

“The problem is infrastructure,” Raman Narayanan, AirAsia group head, Asean affairs and government relations, told FinanceAsia. “Every airport in Asean is bursting at the seams. It is becoming a very big issue.”

Southeast Asia’s international air travel market grew by 20% from about 4.7 million weekly seats in April 2012 to 5.6 million weekly seats in October 2013, according to CAPA and Innovata data.

Airports under development in Asean are failing to keep pace with this growing number of air travellers. Indonesia and the Philippines in particular trail neighbouring countries in terms of the pace of development.

According to airline magazine New Airport Insider, Jakarta Soekarno-Hatta, the main airport in Indonesia, Southeast Asia’s biggest economy by GDP, handled 60.1 million passengers in 2013. The airport is designed to handle 22 million passengers.

Plans are under way to boost the capacity to 62 million but this won’t be complete until 2017 at the earliest, according to the magazine. And it’s a similar story at airports across the country and region.

The Philippines’ four major airports, meanwhile, could barely cope with 7.7 million tourists in 2014 but that number is expected to surpass 10 million by 2016. Plans have been lodged with the government for a new airport in Manila to help ease the strain but these are at a very early stage.

Upgrading existing national airports is expensive and takes years to complete. AirAsia argues it is therefore not the best solution for the Asean bloc.

“In almost all of Asean — and elsewhere too for that matter — airports are monopolies, either public monopolies or private ones,” Narayanan said. “We have recommended that governments allow competition among airports, much like liberalisation has boosted competition among airlines and lowered fares for consumers.”

AirAsia is lobbying governments to follow Malaysia and Thailand, which have airports that handle legacy carriers and also airports that cater solely to low-cost carriers.

In addition to being cheaper to build, low-cost carrier airports’ operating costs are less than legacy counterparts, according to AirAsia. This trickles down to the airlines and keeps fees, taxes and charges to the airlines down.

“We are constantly emphasising the need for low-cost airports to all governments in the region,” Narayanan said. “Clearly, Thailand and Malaysia have heeded our requests. Others are still mulling it over.”

“Both [prestige and low-cost airports] have very different business models. If you want to build a national airport for legacy purposes, that’s fine, go ahead. But first [governments] should focus on building low-cost carrier terminals for low-cost carriers that can support a lot of planes. The money comes in volume [of planes], not from more people flying,” he added.

The issue is important because some 60% of Southeast Asia air travel is on low-cost carriers, according to CAPA, the airline research group, a number that’s expected to grow.

“Low-cost airlines just need a simple airport. We don’t need marble floors, we don’t need bridges. We don’t need a Taj Mahal,” Narayanan said.

If governments build more low-cost carrier airports that boost competition among airport operators, this will lower costs for airlines and consumers, he argued.

This is important considering the traditionally punishing effects of fuel prices, which get passed on to passengers and which have – up to recently at least – been high.

It is also timely as the Asean bloc develops, and its population becomes more wealthy and has more disposable income to play with.

“The very nature of our business — making air travel affordable and accessible by serving the underserved — helps integrate the region,”  Narayanan said.

Formed nearly a half century ago, Asean is now an economic powerhouse, attracting investment from around the world, and would be the world’s seventh largest economy as a combined entity.

Asean has experienced average annual growth rates of 5.1% between 2000 and 2013, behind only China and India. More than 600 million people live in Asean; a population that is becoming increasingly wealthy.

AirAsia growth

AirAsia itself is testament to this growth.

The airline started in 2002 with one route – between Kuala Lumpur and Langkawi – two planes and a staff of 250. Now Asean’s largest low-cost carrier has more than 88 destinations and carries more than 220 million people annually. More than half of its destinations are in Southeast Asia.

AirAsia began with the premise that the no-frills, hassle-free, low-fare business model was the way forward. The business model proved prescient. Now over 50% of intra-Asean air travel is on low-cost carriers, a number that is forecast to increase.

“I went out there and built an Asean airline by putting airlines in four countries. I found ways of doing it. I didn’t wait for the Asean community,” AirAsia’s founder Tony Fernandes told consultants McKinsey recently.

Ultimately, though, Asean governments have to be negotiated with if growth is to be maintained, and Narayanan contends the airline is constantly negotiating, especially as the industry is heavily regulated.

“We need the nod from governments for much of what we do,” he said.

At the moment, flights are restricted by government-to-government deals. It is not possible for an airline to fly to a country without that government’s permission. All of this will go out the window under the impending Open Skies initiative. “Anybody can fly to any country,” he said. “The access to the routes will be fantastic.”

AirAsia is heavily involved in pushing Open Skies, which promises to enhance air connectivity among Asean, bring down trade barriers, improve labour and good flow and boost tourism. It formally comes into effect in 2015 but it’s not that simple.

“All indications are that it not will be fully implemented in 2015. It will happen in stages,” noted Narayanan. “It took Europe 30 years, so it’s going to take a while [in Asean].”

AirAsia plans to ramp up the frequency of existing routes and add new destinations to its already extensive network to connect Asean to North Asia and India in the next few years.

Ultimately though, increasing the routes is not the problem that airlines, governments and airport operators face. Once Asean’s economic integration is up and running, politics should be less of an excuse for any lack of further development.

All that will remain is the quality and quantity of the bricks and mortar.

Source: Suzy Waite, FinanceAsia

ASEAN Single Aviation Market: Manila, The Last Odd Man Out


PETALING JAYA: Indonesia has signed a deal to allow Asean airlines to make unlimited flights to Jakarta, The Straits Times has learnt – a move which could lead to cheaper fares and more flight options for travellers flying within the region.

The move follows a campaign which started about a decade ago to get the 10 Asean nations to remove all restrictions on flights from their countries and push to become one aviation market – similar to the European Union’s “single sky”.

Indonesia had been reluctant to sign up to the agreement but now that its capital is on board, aviation experts are confident that other Indonesian cities will follow suit.

The Philippines’ capital Manila is the only other Asean capital yet to join the agreement, although the country has already removed restrictions on flights to other cities.

Aviation law academic Alan Tan of the National University of Singapore told The Straits Times that Indonesia’s agreement is “very significant”.

He said: “It signals Indonesia’s desire to liberalise market access into its cities and to support the Asean single aviation market ambition.”

Asean transport ministers began the push for liberalisation in the air travel sector in an effort to boost trade and tourism, setting a deadline for unlimited flights within the region by the end of next year.

If the move goes ahead, it would mean, for example, that Singapore Airlines could fly to any part of the region as often as it wants – without any flight restrictions – as long as it believes there is demand and it can get landing slots from airports.

Typically, the number of flights a carrier can operate to a destination is determined by deals between the government of the country where the carrier is registered and the government of the country it is flying to.

Such negotiations can be complicated because not all airlines are equal and governments worry that their national carriers may not be able to compete effectively with airlines from the other country.

Although Indonesia and the Philippines have yet to fully sign up to the agreement, Singapore’s transport ministry is confident that next year’s deadline will be met.

A spokesman said: “Given that all Asean member states have reaffirmed commitment to work towards 2015 obligations, we can expect Indonesia and the Philippines to fulfil their outstanding obligations by end-2015.”

The spokesman added that transport plays a “vital role” in the economic development of the region, and liberalisation will benefit all carriers within the bloc by giving them growth opportunities and enhancing their competitiveness.

However, Prof Tan stressed that there are other milestones to be achieved if Asean is to truly exist as a single aviation market.

These include removing restrictions that prevent a carrier from setting up a wholly owned subsidiary in a different Asean country and allowing an airline from one country to operate domestic flights in another.

Tony Tyler, chief executive officer and director-general of the International Air Transport Association, said earlier this year that another big challenge for the region is to ensure “the availability of efficient infrastructure” such as adequate airport and runway capacity.

Source: The Straits Times/ANN

Philippines to Benefit from EU-ASEAN Open Skies


MANILA, Philippines – The proposed “open skies” agreement between the European Union (EU) and the Association of South East Asian Nations (ASEAN) is expected to result in higher standards of safety and regulation as well as more reasonable fares for airline passengers.

Transportation Secretary Joseph Emilio Abaya said the ASEAN would have to first achieve a single aviation market as part of the ASEAN integration in 2015 before entering into a comprehensive air agreement with the EU.

“It is still a long way. This is still in its infancy stages. Immediate goal is to first achieve an ASEAN single aviation market. This should be achieved as part of ASEAN 2015,” abaya said.

According to Abaya, the proposed “open skies” between EU and ASEAN would translate to higher safety standards for airlines as well as cheaper fares for airline passengers.

“This will allow competition, higher standards of safety and regulation and more access to flights and more reasonable fares for our people,” he said.

Civil Aeronautics Board executive director Carmelo Arcilla said the EU has been helping the Asean achieve a single aviation market through a project called the Asean Air Transport Integration Project (AATIP) that serves a venue for exchange of info on practices within ASEAN and the EU and capacity building for aviation authorities of ASEAN.


“The proposed EU-Asean comprehensive air transport agreement is a welcome development and is something to look forward to especially so, that the trend in aviation is connectivity and seamless travel. This is also a chance for our airlines to beef up their operations and compete in a bigger field,” Arcilla said.

Open Skies Policy, ASEAN’s Single Aviation Market


The Single Aviation Market (SAM) of the 10-member Association of Southeast Asian Nations (ASEAN) is not coming about as fast as some had hoped–the aim had been by 2015. This is despite the advantages they see through liberalization of air services under a single and unified air transport market.

Air travel is part of a larger discussion among member states, where they are aiming to increase economic integration through the conciliation of trade and investment policies. However, only third, fourth and fifth freedoms are currently being considered, while seventh- freedom relaxations and the right to cabotage have yet to be addressed. Accordingly, a true SAM is unlikely to come into fruition by 2015.

The third-, fourth- and fifth-freedom restrictions are addressed in two multilateral agreements: the multilateral agreement on air services (MAAS) and the multilateral agreement for the full liberalization of passenger air services (MAFLPAS). Both contain protocols that liberalize market restrictions among ASEAN capital cities, secondary cities and sub regions.

The MAAS and MAFLPAS have already come into effect with the acceptance of the minimum number of three member states. However, some carriers are reluctant to grant states greater access. Indonesia has yet to accept MAAS protocols 5 and 6, which provide for third, fourth and fifth freedoms between capital cities. Indonesia, Cambodia and Laos PDR remain opposed to MAFLPAS protocols 1 and 2, which offer fourth and fifth freedoms between secondary cities.

Some Opposition

Indonesia’s decision to refrain from joining a true SAM is due largely to it wanting to protect against competitors, primarily Singapore, Malaysia and Thailand. Indonesia has the ability to offer foreign carriers hundreds of unlimited access points, while many countries can offer only one point of access. This systematic imbalance for exchange of traffic rights has led Indonesian carriers, such as Garuda and Lion Air, to lobby their government to refrain from entering into ASEAN multilateral agreements. Only five airports are up for consideration: Jakarta, Surabaya, Medan, Makassar and Bali. As such, ASEAN carriers are restricted to bilateral agreements with Indonesia.

The Philippines is also opposed to MAAS protocols 5 and 6, which excludes Manila from the agreement. However, the country has agreed to open access to its secondary cities under MAFLPAS. The government cites runway congestion and a shortage of airport slots at Manila’s Ninoy Aquino International Airport, preferring to liberalize access to Clark, which is already open to ASEAN carriers.

The inability of ASEAN states to fully accept third-, fourth- and fifth-freedom relaxations has implications for future acceptance of seventh-, eighth- and ninth-freedom operations. In addition, a network imbalance exists under the 2010 ASEAN-China Air Transport Agreement that allows Chinese carriers to connect to any point in ASEAN from any point in China. Seventh-freedom relaxations would not only allow ASEAN carriers to expand greatly, but also increase connection to China outside their home country.

In an attempt to circumvent market restrictions, carriers are establishing overseas subsidiaries with local owners while settling for a minority stake. Regardless of whether a partial or true SAM is realized by 2015, ASEAN carriers will continue to push the boundaries in an attempt to expand and diversify.

Source: Jennifer Meszaros,

Everyone Together Now?


ASEAN states are scheduled to open their skies in 2015 – but major stumbling blocks remain, writes Simon Lewis.

A long time in the making, a move to open the skies of the economically dynamic region of South East Asia is set to be enacted in 2015 and the 10-nation Association of Southeast Asian Nations, or ASEAN, is outwardly confident its Open Skies policy is on track. However, there are suggestions that national interests are threatening to compromise a liberalisation that airlines hope would allow them to dramatically expand their route networks across the region.

First proposed as early as 1995, the regional deal for aviation, dubbed the ASEAN Open Skies policy, is part of a package of regional policies designed to create the so-called ASEAN Economic Community in 2015.


The bloc includes wealthy and open economies such as Singapore alongside developing states such as Myanmar, which is emerging from oppressive military rule.

The start of a unified economic community, which aims to open up the movement of goods and skilled labour between the countries, was originally envisioned at the start of 2015, but is now slated for the last day of that year.


Indonesia, the largest member, with about 40% of the region’s 600 million people, could also prove to be a stumbling block in the scheme, with the country believed to favour a protectionist approach to open skies.

Despite this, within the Jakarta-based ASEAN Secretariat there is confidence that the new dawn in regional aviation will arrive on time.

“We are ahead of the schedule,” insists Tran Dong Phuong, the ASEAN Economic Community Department’s head of the Infrastructure Division.

Tran Dong Phuong says the legal instruments to enact the Open Skies policy have been in place since 2010, and the key parts have been ratified by all nations, except Indonesia and the Philippines. Even if some countries balk, those states that are willing to can go ahead with the plan, he says.

“It doesn’t have to wait until all members states have ratified, but it will come into force for individual members states when that member state ratifies it,” he says.

Infrastructure worries


One stumbling block for the Philippines, and, crucially, Indonesia, is infrastructure, with concerns that both nations’ large networks of airports, many of which have not been recently upgraded, will be overwhelmed by liberalisation.

“If the agreements are implemented, the skies are open to every [ASEAN] airline to fly in. With the expected surge in aviation demand, the current infrastructure is not yet sufficient. So some governments would rather wait until they have developed infrastructure or increased capacity,” says Tran Dong Phuong.

“They are trying; they are investing in new airports or upgrading the current airports, so I think they will be able to implement in all countries by 2015,” he adds.

According to local media reports, the Philippines, which has 10 international airports, has plans to expand the capacity of Manila’s International Airport. This will be alongside a dramatic expansion of Clark Airport, which also serves the city, increasing the airport’s capacity from 2.5 million passengers per year to more than four million.

Indonesia has 29 international airports, but its Transport Ministry has said it only plans for five key airports – Jakarta, Surabaya, Medan, Denpasar and Makassar – to be opened up to airlines from other ASEAN states in 2015.

According to a report released this year by researchers Batari Saraswati and Hanaoka Shinya at the Tokyo Institute of Technology, Indonesia’s airports, which are all managed by state-owned companies, are already overstretched.

“The government has already fallen behind in providing adequate infrastructures. Sixteen of Indonesia’s 25 largest airports are currently operating above design capacity,” the report says, citing official data.

“Jakarta is the most congested, with existing terminals operating well above capacity and the airport’s two runways fully utilised during peak hours. The airport served more than 50 million passengers in 2012, more than twice its design capacity. A major upgrade project for [Jakarta’s] Soekarno-Hatta Airport finally commenced in 2013 and will increase the airport’s capacity to 62 million passengers,” it adds.

The researchers point out, however, that by the time that expansion is completed in 2015, the passenger traffic at Jakarta’s main airport will likely have exceeded the increased capacity.

Ready and willing

Outside Indonesia and the Philippines, there is more readiness.

In a statement, Malaysia Airports, a public company that operates most of the country’s airports, including Kuala Lumpur, said it was “fully supportive” of the efforts to open South East Asia’s skies.


“It augurs well with the company’s aspiration of bringing in more passengers through its airports, as liberalisation would provide a less restrictive operating environment for airlines,” the company says.

“In taking cognisance of KLIA’s position as the main gateway to Malaysia, it is imperative that the flow of traffic is not impeded by restrictive aviation policies, thus enabling airlines to fully capitalise on the market potential,” it adds.

Malaysia Airports says it has capacity to handle more airlines operating more routes and is broadly supportive of liberalisation.

“The industry has always been moving towards some form of liberalisation through alternative means such as codeshares and revenue sharing. The benefits have been obvious and ASEAN Open Skies is a more formal approach towards such liberalisation,” it says.

Protecting flag carriers


As well as the burden on infrastructure, some fear that opening up the region’s skies, which has been actively lobbied for by major airlines, may squeeze out smaller or state-owned competitors.

“There have been those concerns,” admits Tran Dong Phuong. “But at the end of the day, member states realise that the benefit brought along by more competition is overwhelming the challenges.”

With plenty of room for growth in South East Asian aviation, the risk of monopolies forming is minimal, he insists, pointing to the region’s unsaturated aviation market and strong economic growth.

Gross domestic product in ASEAN states is expected to continue its trend of healthy growth, with the International Monetary Fund predicting 5.6% GDP growth across the 10 members for 2013.


IHS Global Insight predicted in May that the size of the 10 ASEAN states’ economies combined will more than double from $2 trillion to $4.7 trillion by 2020. That growth goes alongside growth in tourism and foreign investment in almost all ASEAN countries.

“With increasing business activity and regional growth, the opportunities are there for everyone, whether they are big or small airlines,” says Tran Dong Phuong.

“You can see that the number of low-cost airlines in ASEAN countries is growing. Every year there are new low-cost airlines opening in the region,” he adds.

Low-cost boom

According to CAPA – Center for Aviation’s yearbook for the South East Asia region, low-cost carriers are more dominant in some regional countries than anywhere else in the world.


“The four largest domestic markets in South East Asia – Indonesia, Philippines, Malaysia and Thailand – all now have LCC penetration rates exceeding 50%,” it says, predicting that penetration in the Philippines would reach 85% this year.

CAPA adds that, while some of the low-cost carriers were approaching saturation on current routes, “market conditions overall remain favourable and can support rapid growth, driven by the strength of the region’s economy and the continued rapid rise of the middle class.

“The increase in discretionary incomes feeds into the hands of LCCs as a larger portion of the population can afford to fly but generally only on budget airlines,” it adds.

“South East Asian flag carriers are also growing, particularly their budget and regional full-service subsidiaries, albeit at slower rates.”


Not an EU carbon copy 

It is hoped the Open Skies policy will be a boost for regional carriers, but it is not planned to be a complete single aviation market like Europe’s unified skies.

All states, except the Philippines and Indonesia, have signed up to giving third, fourth and fifth freedoms to other member states. However, Indonesia, Laos and Cambodia have not yet agreed to extend the rights beyond their capital cities. And without full agreement on the current modest Open Skies proposal, seventh right freedoms, which allow flying between two other countries without a link back home, and the right to fly routes between airports inside a foreign country, are not yet even being considered.


“The ASEAN Open Skies just opens the skies to give the right to an airline from the ASEAN member state to carry passengers from their own country to another ASEAN country, and then from there to a third ASEAN country,” says Tran Dong Phuong.

He explains the ASEAN model was never intended to be a carbon copy of the European Union’s aviation market. This means that ownership rules and other aviation freedoms, like the right for airlines to fly routes between two other countries without originating in its home country, are still off the table.

“The EU is a single airspace, a single aviation market, so they are operating like within one country in the whole EU. Whereas, in ASEAN, we are not up to that stage yet.”

Alan Khee-Jin Tan, professor of aviation law at the National University of Singapore, has also stressed that the most important contrarian nation is Indonesia.

“There is no guarantee that Indonesia will accept the agreements by 2015,” Professor Tan says.

“If it, and the other member states, do accept by 2015, there will be effectively open skies for the region, but this stops at third, fourth and fifth freedom relaxations. So, it is true that there is a chance the project might come into effect by 2015, in this limited way.


“Although there are obviously still benefits to this, Indonesia’s staying out will hamper the project significantly since it is the region’s largest economy and has nearly half the entire population of ASEAN,” Tan says.

“So, there will still be a positive overall impact, just that if Indonesia stays out, the impact will be much reduced in significance.”

Scope for expansion

Tan says in the long-term it is critical for the region to look at seventh freedom rights.

Such liberalisation would certainly be even more of a sticking point for protectionist-minded policy-makers, and would force airlines to compete with carriers from other countries on every transnational route.

But, Tan says, a failure to open up the seventh freedom – what he calls “the true hallmark of a real ‘single’ aviation market” – would hurt regional airlines when it comes to connecting the region to the rest of the world.

“The effect of not having seventh freedom rights can be detrimental to ASEAN airlines,” he says.

“This is because, apart from the intra-ASEAN agreements, ASEAN has adopted an agreement with China that provides unlimited third and fourth freedom access for airlines from both sides. The effect is that Chinese carriers will be able to connect any point in China – since China is a unified market – with any point in ASEAN member states that accepts this agreement.”

But Tan says that, without the seventh freedom rights, a Thai carrier would not be able to connect Singapore and Shanghai, and therefore regional airlines would miss out on opportunities to expand.

The ASEAN bloc has had some success in fostering economic ties in the region, preventing conflict and creating some sense of peoples united, despite the many differences that divide states. As Tan points out, regional co-operation is based on consensus in ASEAN, and the group’s secretariat has little power to strong-arm members into anything.

“[The] problem is that we are not like the EU where there is the European Commission which can force member states to adhere to community law,” he says.

With economic integration on its way, this region could become a powerful force in aviation, if it sticks together, that is.

Source: Routes News 2013 Issue 6.