The creation of a single-aviation market within Southeast Asia will generate a huge growth potential for each Asean member-state (AMS), with the region relying heavily on travel and tourism as massive revenue generators.
This is backed up by the latest report of the World Travel and Tourism Council, which showed that the aviation markets of the AMS will continue their upward trend. And AirAsia Philippines Chairman Marianne M. Hontiveros agreed, citing a five-year period of exponential growth within the sector.
“Travel and tourism are huge industries and contributors to economic activity. The number of air travelers worldwide—including in Asean—has been growing, and is projected to grow from 3 billion in 2012 to 3.9 billion in 2017,” she said.
Hontiveros added: “Tourist numbers have been growing, too. Worldwide, there was a 266 million increase in tourist numbers in year 2010, compared to year 2000, or a 39-percent change; and tourists are estimated to have numbered 1.1 billion last year.”
In Asean the increase in the number of tourists in 2010 compared to 2000 was bigger, at 95 percent. In 2013, there were around 90.2 million tourists in the region.
Asean is expecting 96.32 million international tourist arrivals this year. It is expected to rise sharply to 163.22 million by 2025.
Travel and tourism’s direct contribution to the Asean’s gross domestic product (GDP) was at $117.9 billion, according to the World Travel and Tourism Council. The figure, which represents 4.8 percent of Asean GDP, is expected to rise by 5 percent this year.
By 2025 the figure is expected to balloon to $209.4 billion.
“Indeed, travel and tourism are growing exponentially,” Hontiveros said. “Travel and tourism are huge revenue generators. They contribute greatly to the GDP of Asean and therefore, uplift the material quality of life of the people of Asean.”
Its total contribution—direct and indirect—to the region’s GDP was pegged at $291.8 billion in 2014, and is forecast to increase by 5.4 percent in 2015.
Budget carriers to dominate Asean market
Hontiveros said the growth will be fueled largely by Asean budget carriers such as AirAsia, Lion Air and homegrown Cebu Pacific.
“Low-cost carriers have been fueling the growth of aviation in Asean,” she said. “Low-cost carriers are proving to be so popular among travelers in the region.”
This means low-cost carriers will be dominating the overall aviation market in the Asean.
“The region has emerged over the past decade as one of the world’s fastest-growing emerging markets, capturing the attention of global suppliers. The rapid growth has primarily been driven by fast expansion of low-cost carriers—both independent groups and subsidiaries of full-service groups,” a report of think tank Centre for Asia-Pacific Aviation (Capa) showed.
As of end-2014, Southeast’s Asia overall budget carrier fleet stood at about 540 aircraft—including turboprops, narrowbodies and widebodies.
This represents growth of about 60 aircraft, or 12 percent, compared to the beginning of 2014.
“While still double digits, there was a significant slowdown compared to 2013, when the fleet grew by about 20 percent,” the Capa report read. “The slowdown in the growth rate over the last year can be viewed as a temporary hiccup. Market conditions were not favorable in 2014 and should improve in 2015.”
Hence, Hontiveros said, airlines in the region will be needing the full implementation of the Asean Single Aviation Market (Asam) to expand and reach its aspirations of serving more people.
“Asam would help meet the projected demand for 48,100 pilots and 50,300 aircraft technicians by 2032,” she said.
National University of Singapore Prof. Alan Tan said once the Asam comes into play, Cebu Pacific will be the clear winner in the Asean air-transport liberalization.
“In other words, the more routes are opened up in Asean, the better for low-cost carriers such as Cebu Pacific.
The same goes for AirAsia Philippines. Philippine Airlines (PAL), because of its higher cost structure, will struggle a bit, but its main concern should be the longer-haul routes,” Tan said.
Prepared, but still improving
Avelino Zapanta, an aviation expert, added that Asam will provide a larger market to address. Hontiveros called this market a “largely underserved market.”
“It means much bigger market for the air operators but it also means stiff competition. Being open sky in nature, it will be a test where the best among them would make it,” Zapanta said.
Hence, Philippine carriers are gearing up to face this challenge of a more competitive market. In fact, they have been preparing their plans for quite a long time now, with legacy carrier PAL gearing up for the whole integration itself.
“We are ready for the Asean integration. We have airplanes, we have qualified people,” Jaime J. Bautista, the flag carrier president, said in an interview.
He said aviation companies have five considerations if they want to compete aggressively. “You have to have the right assets, aircraft, people, systems and the support of the government,” Bautista said.
Dominant budget carrier Cebu Pacific is, likewise, ready to compete in an even larger market. “Our objective has always been to be globally competitive as an airline. We operate the youngest fleets in the whole world. Our people are very well trained and dedicated. The brand is quite strong. We are already the largest Philippine carrier to the Asean. So I would say we’re quite prepared,” Cebu Pacific President Lance Y. Gokongwei said.
The low-cost carrier has been the Filipinos’ airline of choice for quite some time now. It also operates Cebgo, formerly known as Tigerair Philippines.
“Integration will have more commonality of processes and have a much larger market to address. Of course, it also introduces more challenges in terms of more competition. But overall it should be very positive to the country and the customers,” Gokongwei added.
Just recently, Cebu Pacific ordered 16 turboprop planes from European aircraft maker ATR. The contract is pegged at P30.41 billion.
“We have been operating ATR aircraft since 2008, and they have enabled us to bring safe, reliable and affordable air transport to smaller cities and islands throughout the Philippines. This order is an affirmation of our commitment to extend the convenience of affordable air travel to even more communities. We are very pleased to be the launch customer of this new configuration of the ATR 72-600, as this will allow us to offer our customers more seats at even lower fares.” Gokongwei explained.
AirAsia Philippines, on the other hand, banked on its parent’s route network and capacity to brave the single aviation market.
Together with parent AirAsia, the low-cost carrier currently controlled by businessman Alfredo M. Yao launched the Asean Pass and the Asean Pass+ in February.
Holders of the AirAsia Asean Pass and the AirAsia Asean Pass+ can enjoy flights at a fixed rate to over 148 routes across all 10 Asean countries. Acting like a single currency, it diminishes the hassle of different foreign-exchange rates as flights are valued according to credits, allowing guests to be creative in planning their ideal trip through Asean.
The products are specifically designed to further liberalize and encourage travel among the Asean community.
“There are a lot of tourism destinations across the Asean that are well known. But in the Philippines, there’s a lot more to discover. This opens the Philippines to have more tourist arrivals,” AirAsia Philippines President and CEO Joy D. Cañeba said.
The Philippines, being so dependent on tourism, will certainly stand to benefit from the greater inflow of foreign tourists to savor its beaches and other attractions.
However, harnessing the full-growth potential of an integrated Southeast Asian aviation market might prove to be belated in the case of the Philippines due to the constraints in policy and infrastructure.
Currently, the ratification of Protocols 5 and 6 of the Multilateral Agreement on Air Services are still with President Aquino. It was seemingly left to gather dust, as it has been years since the documents were signed by the air-services regulator.
Protocol 5 refers to unlimited Third and Fourth Freedom Traffic Rights between Asean capital cities, while Protocol 6 pertains to unlimited Fifth Freedom Traffic Rights between Asean capital cities.
Fifth Freedom of the Air refers to an airline’s right to carry traffic between two foreign countries on a flight that originates and terminates in one’s own country.
“Beyond Fifth Freedom Traffic Rights, there needs to be a change of policy. It means that Congress or the Senate needs to approve this change in policy because it is quite radical,” Civil Aeronautics Board Director Porvenir P. Porciuncula said.
The Sixth to Ninth Freedoms generally refer to cabotage, which is still a touchy issue for Philippine legislators.
What the regulator is doing now is to push the implementation of a region-wide Air Passenger Bill of Rights to protect consumers from problems arising from air-travel related issues.
“We have no common air-passenger rights. We are pushing for the creation of such. Right now, we just want to make sure that we have a very strong Air Passenger Bill of Rights before we propose ours as blueprint,” Porciuncula added.
But even if these problems with policy development have been addressed before the actual integration, the Philippines still stands to lose due to its inadequate infrastructure. “We are not going to reap the full benefits from what can be operated or utilized by our airlines,” Porciuncula said. “Even if we increase our flights but the infrastructure is inadequate, then we cannot really grow that much.”