By Chan Quan Min
The aviation industry is in for a shake-up come 2015, the year Asean Open Skies is slated to take effect. With the ultimate goal of forming a single aviation market among member countries, Asean Open Skies will benefit some players but disadvantage others, said Mohshin Aziz of Maybank Kim Eng.
First, Asean Open Skies will liberalise the aviation market allowing unlimited flights between all 72 international airports across the Asean economic region. Under the 2010 Multilateral Agreement for the Full Liberalisation of Air Services (Maflpas), member countries have agreed to allow third, fourth and fifth freedom rights.
“This will enable airlines to access more cities within the region, and also give them the right to fly beyond the first destination onwards to the second destination in the region – provided that these are international routes,” said Mohshin Aziz as he explained the details of the agreement.
“Since the seventh, eighth and ninth freedom rights are absent from the multilateral agreements, domestic markets are still very much insulated from opening up… Only the international sectors, intra-Asean will get the boost of deregulation.”
Thus, according to Mohshin, this is not true open skies, because there is still a demarcation between international and domestic sectors. An example of true open skies would be the European Union single aviation market.
Second, under Asean Open Skies, ownership limits would be relaxed for the aviation industry. The air transport sector will see ownership limits raised to 70% for Asean investors. For comparison purposes, the current rules in force limit foreign shareholding of airlines to between 40%-49%.
Finally, Asean Open Skies will allow the free flow of skilled labour among Asean countries. This means registered pilots, cabin crew, engineers, technicians and other professionals will move freely within the Asean bloc, said Mohshin.
“This will help transform supply and demand dynamics for airline professionals and make it more robust, in our view,” he added.
The impact of Asean Open Skies
According to Mohshin, the main beneficiary of the agreement would be the average consumer. In markets that have undergone a deregulation of their air services, the results were overwhelmingly consistent.
“Competition increased with record numbers of new airliner start-ups, resulting in lower fares for travellers, greater numbers of people travelling, greater choice of airlines and routes and improved service levels,” said Mohshin.
However, home carriers and secondary player will not fare so well because liberalisation has typically led to a loss of market share by the home carrier, he added.
“This could be compensated by the ability to expand into new markets, forming strategic alliances and consolidating with other home carriers in a different country.”
Smaller airlines especially, would be forced to consolidate or form strategic alliances because it will be increasingly difficult to survive on a standalone basis.
Even among national flag carriers, strategic alliances and mergers will become commonplace, Mohshin predicted. Strange bedfellows such as Malaysia Airlines and Singapore Airlines might even decide to form an alliance or merger.
The AirAsia group, said Mohshin, will be the single largest beneficiary of Asean Open Skies. He explained:
“With the Open Skies in hand, (AirAsia) can mobilise its capacity and manpower freely across the region and derive the densest route permutations imaginable.
“We also think (AirAsia) will be able to open up operations in Vietnam and Singapore – two countries that have been most elusive to its growth ambitions.”
Certainly, it will be established players that can leverage on their position to take advantage of the situation. Also standing to gain, are countries with the infrastructure to service the new flights, he surmised.
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