Warwick ASEAN Conference

ASEAN Aviation: The Sky is No Longer the Limit

Disclaimer: Warwick ASEAN Conference would like to clarify that all opinions expressed in this article are the authors’ and editors’ own.


49 years since its conception, the 10 members of the Association of Southeast Asian Nations (ASEAN) have been gradually moving towards greater liberalisation. The introduction of the ASEAN Open Skies Policy, which came into effect in 2015 despite three airline tragedies involving two South-east Asian airlines the year before, is a major milestone in the regional economic integration agenda in ASEAN. Under the ASEAN Open Skies Policy, also known as the ASEAN Single Aviation Market, airlines from member states are able to operate freely between their respective home countries and another member state under a unified air transport market. The advancement in the aviation industry will help to increase connectivity, promote economic growth and social welfare by boosting tourism within the region. This article will focus on the benefits and the possibilities of a completely liberalised aviation market within ASEAN, while highlighting the challenges faced as well as the challenges that continue to lie ahead. The first part of the article will delve deeper into ASEAN Single Aviation Market and what it really means. The latter part will compare ASEAN with the present EU Single Aviation Market.

Airspace liberalisation removes constraints on route entry and service capacity, thus allowing airlines to compete more effectively and operate more efficiently. It also drives down prices of air tickets, allowing low-cost carriers (LCCs) and even national carriers to expand and eventually become regional players. In addition, enhancing intra-ASEAN air connectivity will lead to substantial economic and traffic growth. Subsequently, the rapid growth brought by liberalisation presents additional job opportunities in the aviation sector. According to studies conducted by InterVISTAS in 2006, airspace liberalisation will create an estimated 1.4 million new jobs in aviation and other related industries.

The ASEAN Single Aviation Market, however, is not a completely “single”, fully liberalised market, and is much less ambitious compared to what the EU has achieved. This is because the seventh freedom, heralded as the most important freedom, is excluded in this agreement. The seventh freedom refers to the right of a carrier to operate between two foreign hubs outside of its home country. Right now, the only practical way to exercise the seventh freedom is by establishing a joint venture between foreign countries, which has been adopted by ASEAN LCCs such as AirAsia, Tiger Airways, Lion Air and Jetstar.  A fully liberalised aviation market with the seventh freedom akin to the EU’s will encourage greater competition between airlines throughout the region. Recent economic studies by the Indonesian Central Government have identified benefits of approximately 6 trillion Rupiah (US$650 million) in additional GDP that could potentially accrue to the overall economy if an “open skies” policy were to be adopted by 2025.

The Open Skies Policy was not fully ratified by all the member states until 2016, as it lacked support from the Phillippines and Indonesia. Indonesia had consistently opposed efforts to open up the ASEAN aviation space, citing concerns that stronger competitors from Malaysia and Singapore will dominate the international market between Indonesia and these countries. As a huge archipelago and an international hub, Indonesia has many places to offer the international market, whereas smaller countries like Singapore only has one. It will, therefore, present a systemic imbalance for exchanging traffic rights. In simpler terms, smaller countries such as Singapore are seen to benefit disproportionately as it has the opportunity to tap into a potentially huge market home to 270 million people, while Indonesia will only be able to access or offer routes between Singapore Changi Airport and their home country.

Parallel to previous Open Skies Policies in the EU and the United States, LCCs are likely to be the biggest beneficiaries of liberalisation. As most national carriers and full-service carriers (FSCs) are state owned, countries have the incentive to implement protectionist policies in order to reduce competition. Integrating the ASEAN air space may therefore pose a threat to FSCs operating under protectionist measures. Garuda, the national airline of Indonesia, has continuously lobbied for their government to steer clear of the ASEAN multilateral agreement. Yet, it is evident that the success of the Open Skies Policy hinges on Indonesia’s participation in the ASEAN Single Aviation Market, as it not only boasts the largest economy among ASEAN’s member states, but also houses almost half the entire population in Southeast Asia.

Although the Open Skies Policy lifts several restrictions, there needs to be deeper integration and policies that go further to allow all freedoms of air. Open Skies grant the third, fourth and fifth freedom of air while keeping the restriction on seventh freedom in place. Firstly, it is important to understand what these freedoms entail. In aviation, commercial flights by airlines are negotiated by states in the form of “freedoms”, which will usually be granted in bilateral negotiation between governments. For example, a commercial Malaysia carrier carrying passengers, baggage and cargo from Kuala Lumpur to Jakarta would require the third freedom, while the journey back to the hub in Kuala Lumpur would require the fourth freedom. In between the journey, the fifth freedom allows the carrier to stop over in Singapore to drop off passengers and fill up the seats with new passengers.

In order to achieve a fully integrated aviation market, there are many things to consider. With security the main concern, one key task lies in adopting the same level of security standards and checks across ASEAN nations. However, unlike the European Union, ASEAN does not have any regulatory body or organisation like the European Commission, European Court of Justice and European Aviation Safety Agency to oversee the aviation sector. There is no higher authority to settle disputes and ensure adherence among countries or even businesses, through price standardisation and regular monitoring of aviation security checks. Infrastructure support is another challenge, especially if existing infrastructure is insufficient to accommodate additional demand. For example, airports may be too congested and lack the capacity to accommodate more flights and issue new landing slots. The new Passenger Service Charges tier for ASEAN member countries introduced by Malaysia could be a potential solution for this problem, at least in the short term, as it closes the gap between the two airports’ charges, thus encouraging airlines to land and offer routes to a secondary airport.

Progress towards a fully liberalised and integrated aviation market is certain to be slow, as political and economic impediments remain. On the economic front, the sustainability of many low-cost carriers may be called into question as increasing competition continue to drive down revenue and profit margins, while capital expenditures remain high. ASEAN itself boasts seven low-cost carriers that operate in the region, and with national carriers increasingly entering the market for low-cost travel, it may be necessary for airlines to consolidate through mergers and acquisitions in order to achieve economies of scale and compete more effectively. For example, in Vietnam, government-owned Vietnam Airlines and VietJet Air merged to formed a virtual duopoly in the country. Myanmar, on the other hand, has eleven airlines, perhaps representing the country’s potential but also its immature market. As ASEAN’s aviation industry continues to liberalise, there will be increasing opportunities for consolidation in Myanmar and other countries in order to effectively operate in an environment characterised by fiercer competition.

ASEAN’s aviation industry offers compelling potential for growth. Despite uneven levels of development, government protectionism, and inadequate infrastructure impeding development in the short term, the region’s vast long-term potential outweighs these issues. Whilst further liberalisation needs to take place, there is no doubt that the ratification of the ASEAN Open Skies Policy by all ten Member States should be celebrated, as it represents a significant step forward in achieving one of the key ASEAN policy objective of creating the Single Aviation Market. What remains to be seen, however, is whether the development of ASEAN Single Aviation Market will eventually resemble something similar to what can be found in the European Union.


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