An On-going Process:Overview of the ASEAN Open Sky Agreement
ERIA Internship(Economic Research Institute for ASEANand East Asia)

Batari Saraswati
11D18039
Supervisor: Hanaoka Shinya

Background• ERIA (Economic Research Institute for ASEAN and EastAsia)• Located in Jakarta, ASEAN Secretariat• Internship duration: 3 June-28 July, 4 August-14
September 2011, Research Department

BackgroundASEAN
ECONOMICCOMMUNITY
2015
Single Market andProduction Base

Air Transport
Free Flow ofServices• ASEAN Single Aviation Market / ASEAN Open Skies▫ Relaxation of government control on air transport

Internship Objectives• Moving toward ASEAN Open Skies▫ How far have we gone?
▫ What are the next challenges?

• Review of ASEAN’s aviation regulations and reforms• Analysis of current liberalization state• Review of other open skies initiatives

• ASEAN Open Skies▫ December 1995 Fifth Summit of ASEAN leaders▫ ASEAN Community Strategic Approach Roadmaps for Integration of Air Travel Sector
ASEAN Multilateral Agreement on Air Passenger Service (MAFLPAS)• Unlimited third and fourth freedom between any points within ASEAN
by June 2010
• Unlimited fifth freedom between any points within ASEAN by 2015
• No restrictions on pricing, frequency and type of airlines• Relaxation on airlines’ ownership and control• Third freedom traffic right▫ Allows an airline to carry traffic from home country tosecond country
SecondcountryHome• Fourth freedom▫ Allows an airline to carry traffic back from second
country to its home country
SecondcountryHome• Fifth freedom▫ Allows an airline to carry traffic between second andthird country; it originates or ends in home country

Home

Second country

Third country

Past : Restricted

Future : Open skies

under bilateral

under multilateralagreementsagreements• One of the main challenges▫ Heterogeneity across member states (Li, 1998;Bowen, 2000; Hooper, 2005)
 Number of population
 Geographic condition
 Economic growth Managerial and technical skills availability

mber

SOUTHEAST ASIA
Myanmar

Laos

Thailand

Vietnam

Cambodia

Malaysia

Philippines

Brunei
Darussalam

Singapore

Indonesia

ADB (2009)• Singapore, Malaysia, Thailand▫ Capital cities act as aviation hub▫ ASEAN’s best performance airports▫ Strong national airlines• Indonesia, Philippines, Brunei, Vietnam▫ Indonesia & Philippines Archipelagic, dispersed area More investments for airport infrastructure (CAPA, 2011) Less competitive national airlines▫ Brunei & Vietnam

 Domestic travels rely on land transport National airlines 100% owned by government• Cambodia, Lao PDR, Myanmar▫ Air travel accommodate less than 2.5% of inboundoutbound traffic▫ Developmental stage from planned to market-based
system (ADB, 2009)

The scale of aviation sector among member states varies based on
their ability to generate, attract and support air traffic movement.
CountrySingapore
Malaysia
Thailand
Brunei DarussalamIndonesia
Viet Nam
The PhilippinesLao PDR
MyanmarCambodia

Total airtraffic/populationa(2009)
3.69
0.84
0.29
2.46
0.12
0.13
0.11
0.05
0.03
0.01

Tourist Arrivalb (thousand)Intra-ASEAN
Extra-ASEAN
Total (2009)(2009)(2009)
3,650.92
6,030.34
9,681.26
18,386.36
5,259.83
23,646.19
4,007.58
10,083.42
14,091.00
77.72
79.75
157.46
1,582.38
4,869.62
6,452.00
318.92
3,453.34
3,772.26
274.102,430.87
2,704.97
1,611.01
397.352,008.36
524.00238.54762.55692.82
1,468.76
2,161.58

Source: ASEAN, World BankScheduled
Operators
Singapore Airlines
Thai Airways
Malaysia airlines
Garuda Indonesia
Philippine Airlines
Source: CEICFY 2008 (Million USD)
Revenue
Net Income
12,985.77
1,666.18
6,670.60-712.65a
5,028.53
81.71
2,263.91
114.081,504.13
30.60

FY 2009
Revenue
Net Income
13,005.12
863.01
5,386.76
244.793,792.95
173.932,089.67
119.18
1,793.12-291.91

FY 2010
Revenue
Net Income
10,331.14
175.45
6,019.62
511.66
4,341.29
78.42
2,285.52
60.32
n/an/aIntra-region Traffic Growth
Intra-ASEAN international weekly scheduled flight frequencies 2003
OriginVietnamVietnamThailand

Laos

Cambodia

Myanmar

Malaysia

Singapore

Brunei

Philippines

Indonesia

758620183003032125

3166

177

53614110000000

1015000412000236

2122144

1819260

514

Thailand

69

Laos

1327

Cambodia

57130

11

Myanmar

03400

Malaysia

20780144

Singapore

31185

01512243

Brunei

060002022

Philippines

34100024

430

Indonesia

014000150

262

10Source: Leindbach (2004)50

Intra-region Traffic GrowthIntra-ASEAN international weekly scheduled flight frequencies (2003) and 2011
OriginVietnamVietnamThailand

Laos

Cambodia

Myanmar

Malaysia

Singapore

Brunei

Philippines

Indonesia(75) 70(8) 52(62) 182(0) 818 (76)(30) 102(0) 3(3) 14(0) 11(32) 51(125) 91(31) 49(66) 183(177) 226(5) 7(36) 42(14) 336(11) 22(0) 0(0) 3(0) 0(0) 0(0) 0(0) 0(0) 1(10) 33(15) 37(0) 0(0) 0(0) 1(4) 19(12) 37(0) 0(0) 0(0) 0(236) 396(21) 37(22) 27(144) 519(18) 14(19) 151(260) 174(5) 10(14) 9

Thailand(69) 84

Laos(13) 39(27) 51

Cambodia(57) 103(130) 91(11) 30

Myanmar(0) 3(34) 49(0) 0(0) 1

Malaysia(20) 76(78) 163(0) 3(14) 33(4) 19

Singapore(31) 102(185) 166(0) 0(15) 37(12) 35(243) 418

Brunei(0) 3(6) 7(0) 0(0) 0(0) 0(20) 39(22) 14

Philippines(3) 14(41) 42(0) 0(0) 0(0) 0(24) 27(43) 151(0) 10

Indonesia(0) 11(14) 59(0) 0(0) 0(0) 0(150) 410 (262) 590(10) 10(5) 16(0) 16• Low-cost airlines have been given rights to operate most of the routes▫ LCA hold 22.3% share of passenger traffic at Changi (CAPA, 2010)• Some are in world’s 50 busiest routes list , based on seats (CAPA, 2011)▫ SIN – CGK, SIN – KUL, SIN – BKK
Source: Leindbach (2004), OAG

Key elements on current state

Where are we now?
Traditional bilateralapproach

ASEAN Open
Skies/Multilateralagreement (MAFLPAS)

Current liberalizationstage

Market access

Limited third, fourth andfifth freedoms

Unlimited third, fourth (2010)
and unlimited fifth freedoms(2015)

Third and fourth freedom
with specific access point,
few fifth freedom routes

Designation

Single or double ormultiple (pre-determined)

Multiple designations

Multiple designations withrestriction*

Ownership andeffective
control

Substantial ownership andcontrol in the contracting
party designating theairline

Substantial ownership andcontrol in the party
designating the airline by
one or more member statesb

Substantial ownership andcontrol in the contracting
party designating theairline

Capacity

Determined frequency andaircraft type (quota)

Unrestricted, subject toapproval

Increases, subject toapproval

Fares

Both government approval(double approval)

Tariffs charged need not be
filed or approved by either
contracting party

Single disapproval ingeneral principle

Source: ASEAN, author’s data

*Flight slot limitation for foreign airlines (MacDonald, 2010)

Current Liberalization State• Agreements : signed but not fully ratified!
• Mixed regulatory reactions▫ Indonesia

 Open 5 from 26 international airports (Jakarta, Medan, Bali,Surabaya, Makassar)
 Further implementation subjects to government deals
 Indonesia National Air Carrier Association (INACA),“If foreign airlines get special advantages in Indonesia,
Indonesian airlines should get the same things abroad.”(Ministry of Transport website, DGCA News)▫ Philippines EO 29 March 2011 : third, fourth, fifth freedom traffic right tothe airports other than Ninoy Aquino (CAPA, 2011)

MemberStatesTariffTariffRegulation
Regulation(Domestic) (International)

7th Freedom
Passenger Rights

National Clauses

Brunein/aNoAllows 7th freedom
passenger right(MALIAT)

Allows "principal placeof business" (MALIAT)

Cambodia

YesYesDoes not allow

Allows only "substantialownership"

Equity Participation
Put limitations on equity
participation, but nonumerical limited is stated
Put limitations on equity
participation, but nonumerical limited is statedCompetition
Regulatory
No competition
regulatory

No competition
regulatory

Allows 7th freedom
Allows "principal place
passenger right(several bilateral ASAs, of business" (MALIAT)
MALIAT)
Allows only "substantial
Does not allow
ownership"

No limitations on equity
participation

Has competition
regulatory

Maximum permitted foreign
equity is 49%

Has competition
regulatory

Singaporen/aNoIndonesia

YesNo

Malaysia

NoNo

Does not allow

Allows only "substantialownership"

Maximum permitted foreign
equity is 49%

Has competition
regulatory (2012)

Myanmar

NoNo

Does not allow

Allows only "substantialownership"

Put limitations on equity
participation, but nonumerical limited is stated

No competition
regulatory

Does not allow

Allows only "substantialownership"

Maximum permitted is 30%(single foreign investor) and49% (total foreign equity)

Has competition
regulatory

Does not allow

Allows only "substantialownership"

Maximum permitted foreign
equity is 40%

No competition
regulatory (enforcedby respective sector
regulators)

Put limitations on equity
participation, but nonumerical limited is statedHas competition
regulatory (has notbeen implemented)

Maximum permitted foreignequity is 49%

Has competition
regulatory

VietnamPhilippines

Yes

Yes

No

Yes

Lao PDR

Yes

No

Does not allow

Allows only "substantialownership"

ThailandYes

Yes

Does not allow

Allows only "substantialownership"

www.iata.org/economics

• Liberalization of Singapore – Kuala Lumpur route▫ Duopoly Malaysia Airlines & Singapore Airlines until February 2008
3,000,000

2,485,090
1,720,044

2,000,000
1,000,000

1,715,029

2,734,086

1,699,108

1,905,855

1,678,719

0
2004

2005

2006

2007

2008

20092010

Feb 2008: 2 flights daily; Sept 2008: 6 flights daily
From around $180 on average, went down into $30 in 3Q08 (Zhang et al., 2009)

Country of origin
Malaysia

Singapore

Carriers

Frequency/week

Type of aircraft

Available seat km/week

AirAsia
Malaysia Airlines
FireFly
Silk Air
Tiger Airways
Singapore Airlines
Jetstar Asia

70
49
49
42
35
17
10

A320
B737-400
ATR 72
A319/A320
A320
A330-300
A 320

3,666,600
2,033,799
1,157,1841,685,763
1,833,300
1,409,895
912,160

Source: Centre of Asia Pacific Aviation

Conclusion:
Key Points of Current Liberalization State• Government are in the midway between on the one
side encouraging airline and tourism growth, on theother retaining national principles▫ Broader assessment : impacts on tourism and overall
economy• Progressive liberalization▫ Less developed countries could grow in a reasonable
time frame▫ Periodic assessment

ASEAN Open Skies : Higher commercial risks arebalanced by potentially high rewards• Carefully assess the policy dilemma• Address the identified critical issues