ASEAN Open Skies Policy Comes Into Force, Raising Hopes of Higher Traffic Growth

The ASEAN Open Skies policy has come into effect on January 1, 2015 despite three airline tragedies involving Southeast Asian airlines in 2014.

The Open Skies policy, which is also known as the ASEAN Single Aviation Market (ASEAN-SAM), is intended to increase regional and domestic connectivity, integrate production networks and enhance regional trade by allowing airlines from ASEAN member states to fly freely throughout the region via the liberalization of air services under a single, unified air transport market.

Many airline industry analysts say the Single Aviation Market will lead to growth and development as it opens up the market to more competition. Greater connectivity between aviation markets arising from ASEAN-SAM should encourage higher traffic growth and service quality, while lowering ticket prices.

If ASEAN-SAM is successfully implemented, there will no longer be regulatory limits on the frequency or capacity of flights between international airports across the 10 ASEAN member countries.

Tellingly, however, not included in the current agreement are steps towards opening up ASEAN aviation to common ownership, in a market still very much populated by state-owned airlines.

Freedoms of the Air

The most important aspect of liberalizing aviation markets is the guarantee of third, fourth, fifth, and seventh freedoms of the air, which are as follows:

  • Third and fourth freedom rights: The right to fly from and airline’s home country to a foreign country, and vice versa, without government approval.
  • Fifth freedom rights: The right to fly between two foreign countries during flights originating or ending in an airline’s home country.
  • Seventh freedom rights: The right to fly between two foreign countries while not offering flights to an airline’s home country.

Third and fourth freedoms are already common practice in the ASEAN region. Under ASEAN-SAM, airlines would now be granted fifth freedom rights. The new agreement is silent on seventh freedom rights.

And there would not be a full implementation of fifth freedom rights. Although open skies will exist for capital cities, there will be a cap on slots given to airlines. In addition, there are restrictions for certain host countries which don’t exist in other international open air agreements.

Safety of Southeast Asian Airlines

Three aviation tragedies in 2014 have brought attention to the issue of safety of Southeast Asian airlines. On March 8, 2014 Malaysia Airlines MH370 went missing on a flight from Kuala Lumpur to Beijing. In July another Malaysia Airlines MH17 was shot down while flying over Ukraine. On December 28, AirAsia Indonesia flight QZ8501 went missing after leaving Surabaya for Singapore.

Air safety standards in much of Southeast Asia are improving, in Indonesia in particular. In 2007, safety standards were so bad that the European Union prohibited all Indonesian airlines from flying into its member countries. However, that ban was lifted in August 2009 for all airlines except Lion Air.

The new policy includes higher standards of safety and other regulatory measures regarding operating flights, although many of these won’t be implemented until the end of 2015. In addition to air service liberalization, some changes are intended to improve aviation safety, aviation security, air traffic management, civil aviation technology and air transport regulatory frameworks.

Performance of Southeast Asian Airlines

The financial performance of the aviation industry has been relatively strong in Asia despite high-profile tragedies. Asia-Pacific carriers are expected to be the second-best performers of 2014, with US$3.5 billion in combined profits. In addition, low oil prices should continue to keep

costs down in 2015.

There is much growth in Southeast Asia due to a surge in popularity of budget carriers in the region. A growing middle class has led to an increasing appetite for travel at affordable prices, and the geography of Southeast Asian archipelagos gives air travel an advantage over other means of transportation. Despite the tragedies of 2014, safety standards are set to improve if ASEAN-SAM is implemented effectively.

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