ASEAN Open Skies Policy To Be Implemented in 2015

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Asean-map-for-CB-2014-07The ASEAN Open Skies policy came 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.

Airline industry analysts are very positive on the new policy and many say that 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 be no regulatory limits on the frequency or capacity of flights between international airports across the 10 ASEAN member countries. Tellingly, 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.

RELATED: Competition Set to Take Off in ASEAN as Open Skies Policy Looms

The most important aspect of liberalising 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 an 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.

While third and fourth freedoms are already common practice in the ASEAN region, ASEAN-SAM would grant fifth freedom rights, leaving seventh freedom rights up in the air. However,  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 do not exist in other international open air agreements.

Safety of Southeast Asia Airlines

Three aviation tragedies this year have brought attention to the issue of safety on Southeast Asian airlines. On March 8, 2014 Malaysia Airlines MH370 went missing on a flight from Kuala Lumpur to Beijing. In July, Malaysia Airlines MH17 was shot down while flying over Ukraine, and last Sunday December 28, AirAsia’s 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 bad enough 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.

RELATED: Vietnam’s Airline Industry Takes Off

The industry has seen strong growth in the Southeast Asian region due to a surge in popularity of budget carriers in the region. A growing middle class has also 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. Despite the tragedies of 2014, safety standards are set to improve if ASEAN-SAM is implemented effectively.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

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