Subsidies Threaten Open Skies

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Philippine Airlines (PAL) has called for the elimination of all government airline subsidies as a pre-requisite for the liberalisation of the aviation industry and a new regional open skies policy.

Such a move could delay the country's inclusion in the Association of South East Asian Nations (ASEAN) open skies agreement. In 2004, ASEAN member-countries to adopt open skies policies in the region by December 2008. This would allow for unlimited flights between ASEAN member states' capital cities. However, member nations can opt out of the liberalisation move and defer implementing it until 2015.

Operators such as Malaysian Airlines, Thai Airways International and Singapore Airlines have all received government subsidies.

PAL's president and CEO, Jaime Bautista, said the challenge for an open skies policy is a matter of keeping competition fair.

"A liberalised aviation regime does not mean a lawless one.[..] Yet the playing field is far from level. Philippine carriers are private citizens that operate as business enterprises for profit, but the major airlines of the other ASEAN member countries are state-owned companies, many of which enjoy strong governmental backing."

Bautista continued, "So there is a need to establish safeguards against market distortions and anticompetitive practices by dominant or subsidized airlines, and this is a challenge that the ten ASEAN governments are currently working on."

The Civil Aeronautics Board, which operates under the Department of Transportation and Communication, is responsible for negotiating multilateral air traffic rights on behalf of the government.

CAB Executive Director Carmelo L Arcilla was recently quoted in local media echoing Bautista, "it's a very basic fundamental of a liberalised air industry. When you look at free trade [principles] and GATS [the World Trade Organisation's general agreement on trade and services] and globalisation, government subsidies of US and other countries to their companies is unfair competition."

The secretary general of ASEAN, Ong Keng Yong, has stated that the liberalisation process is slow and the 2008 deadline may be under threat although he would lobby the heads of government if necessary to try and help meet this date.

Advocates, such as the National Competitive Council, point out that it is in the national interest of the country to adopt the policy regardless of the fate of local carriers. They feel the Philippines would greatly benefit from joining the ASEAN agreement because of booming economic growth in the region.

A recent study by the congressional planning and budget department stated that with at least one-fourth of the world's economic output, 50% of the intra-regional trade and a potential market of more that two billion people, "East Asia and the Pacific is the prime market to develop to support a robust growth of the Philippine aviation and tourism industries".

Former Economic Planning Secretary Romulo Neri said that by curtailing the access of foreign airlines - and consequently capping the growth of the tourism industry and its almost $3 billion in annual earnings - is clearly against the national interest.

People have criticized PAL's position regarding its reluctance to liberalise the industry under its current structure, citing that the company is acting in a protectionist manner and is unwilling or unable to compete in a an open-market system. However, Bautista said he is not against de-regulation.
"We are not against open skies," he said in an interview. "In fact, we support liberalisation. But what we want is a kind of liberalisation that is fair and equitable.

During the next year, the CAB will continue to negotiate with other ASEAN countries to try to establish a fair and equitable framework. However, there is scepticism as to whether the Philippines will be part of the ten member nations united under the ASEAN open skies policy by the end of 2008.

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