In The News

In the Philippines: To Fly Friendlier Skies

February 25, 2009

Tourism remains one of the country’s major growth drivers. In 2007, visitor traffic reached 3.1 million and total international tourist spending reached $4.9 billion. Each tourist spends an average of $1,200 each trip and can support one job for an average Filipino worker for one year.

Boosting foreign tourist arrivals leads to increased creation of direct and indirect jobs in the tourism service industry. Thus, the Department of Tourism is targeting 5 million tourist arrivals to generate $5 billion by 2010. To do this, aviation experts say the country needs 10 million airplane seats, with at least 6 million seats to service Northeast Asian markets with a projected growth rate of 20 percent per year.

Policy environment

Thirteen years ago, affordable airfare and multiple airline choices were not available. It was the passage of Executive Order (EO) 219 in 1995 that transformed the domestic and international civil aviation policy of the Philippines. EO 219 designated at least two Philippine carriers and opened the floodgates to cheaper, more punctual flights with the entry of Cebu Pacific, Asian Spirit (now Zest Airways), Seair, and Air Philippines.

EO 253, released in 2003, aimed to strengthen EO 219 by expanding air services to the Diosdado Macapagal International Airport (DMIA) at the Clark Freeport Zone, and the Subic Bay International Airport (SBIA) at the Subic Bay Freeport Zone.

The measure opened up the DMIA and SBIA to international air cargo operators and resulted in a major jump in commercial air cargo. The liberalized charter policy under the Civil Aeronautics Board’s (CAB) Resolution No. 23 also aimed to enhance the development of the secondary gateways. It enabled low-cost airlines to fly to Clark to create new markets and provide alternatives to passengers.

The liberalized air policy was further bolstered when EO 500 was signed in January 2006, designating the DMIA and SBIA as developmental routes. It allowed budget airlines to fly to DMIA without limitation on traffic rights, capacity, and air freedom rights except cabotage (transport between two points within the country).

However, seven months after its promulgation, EO 500-A was issued, which required budget airlines to be designated first by their country of origin. It also limited airlines to third and fourth air freedom rights only, meaning budget airlines could no longer fly to a third country.

Tailender

Presently, although it has made gains, the Philippines still lags behind its Southeast Asian neighbors – Malaysia, Thailand, Singapore, Indonesia, and Vietnam – with regard to number of tourist arrivals.

Compared to its neighbors in 2007, the Philippines, with 3.1 million arrivals, was sixth. Malaysia led with 20.9 million visitors; followed by Thailand, 14.5 million; Singapore, 10.3 million; Indonesia, 5.5 million; and Vietnam, 4.2 million.

In the 2008 Travel and Tourism Competitiveness Index report published by the World Economic Forum, the Philippines ranked 81st among 130 economies. The ranking was based on the scores and rankings of each economy in three sub-indices: travel and tourism regulatory framework; business environment and infrastructure; and human, cultural, and natural resources.

The report indicated that matters of concern that the Philippines needs to address are “safety and security (ranked 113th), health and hygiene levels (91st), and a transport and tourism infrastructure that requires upgrading.”

Opening doors

Air access is important as the country gears itself to be a competitive player in the tourism industry. By 2006, the Philippines’ long-standing bilateral air service agreements with South Korea, Japan, Taiwan, Singapore, Hong Kong, Malaysia, Thailand, United Arab Emirates, the Netherlands, and Germany had already reached a level of full or high utilization of entitlements. This means that the parties to the ASAs were close to reaching the maximum seat and flight capacities set forth in their respective agreements.

Since May 2007, the Philippine air panel has held air talks with key markets. The successful conclusion of new air agreements with South Korea, Canada, New Zealand, Macau, Hong Kong, and Thailand has significantly expanded air access to and from the Philippines, particularly through the DMIA.

In less than two years, from a combined 23,850 airplane seats per week, the Philippines increased its entitlements to at least 58,100 seats per week to Korea, Macau, New Zealand, and Hong Kong.

DMIA alone gained 12,600 seats per week in new entitlements as a result of their proactive stance and visibility during the conduct of air talks. The recent air talks also led to new and increased entitlements to other secondary gateways, such as Davao, Cebu, and Laoag.

In the south, the Philippines signed in November 2007 a memorandum of agreement to enhance economic growth in the East ASEAN Growth Area, which covers Mindanao and Palawan for the Philippines. The MOA effectively put in place an open skies policy by granting fifth-freedom traffic rights to selected airports in the BIMP (Brunei, Indonesia, Malaysia, Philippines) region. It also encouraged the development of international gateways – in Davao, Zamboanga, General Santos, and Puerto Princesa – covered by the agreement.

In November last year, transport ministers of the Association of Southeast Asian Nations (ASEAN) signed three deals that seek to liberalize freight and other air services in the region, namely Multilateral Agreement on the Full Liberalization of Air Freight Services, the Multilateral Agreement on Air Services, and the ASEAN Framework Agreement on the Facilitation of Inter-State Transport.

National interest

The adoption of an open skies policy means foreign airlines will be able to operate unlimited services in the country. Save Our Skies, a non-governmental organization that advocates fair trade and fair skies, believes, however, that the country’s skies are part of the national patrimony.

It also believes that foreign flight entitlements should be subject to reciprocity. The principle of reciprocity dictates that for every entitlement granted a foreign carrier, the same concession must be given to the Philippines by the foreign carrier’s country. The group Fair Trade Alliance also believes the same and pointed out that countries with landing rights in various airports in the country have not granted the same privileges to the Philippines. For instance, Macau denied Asian Spirit’s application to operate in Macau, while Tiger Airways can fly freely between Clark and Macau.

On the other hand, various overseas Filipino workers’ groups, local business chambers, and the National Competitiveness Council argue that liberalizing restrictions will better serve the national interest of the Philippines. For the Civil Aeronautics Board, “national interest” should take into consideration the larger interest of the country, especially the users of air services.

Moreover, reciprocity is not simply about reciprocal flights but reciprocal benefits that would have a large impact on the country’s economic development.

Future promise

The current trends in the Philippine aviation industry seem to point that we are well on our way to liberalizing our skies. The country’s tourism target by 2010 is realistic provided that the industry continues to grow at least 20 percent every year. This can be done by aggressively seeking new markets and enhancing our relationship with current ones.

Secondary gateways must be opened to new markets, while airport infrastructure should be developed and rationalized. The country needs to optimize our airports’ current capabilities and proceed with expansion plans for the airport terminals to accommodate future capacity.

The case of the DMIA in Clark is well documented: “build it and they will come.” As a result of the CAB’s Resolution No. 23 and EO 500, the DMIA became an international gateway utilized by South Korea’s Asiana Airlines, Malaysia’s Air Asia, Singapore’s Tiger Airways, and the United Parcel Service. The airport’s passenger traffic rose by 950 percent from 49,546 in 2004 to 470,867 in 2006. There has also been an at least 70 percent increase in tourist arrivals, from 55,000 visitors in 2005 to 93,000 in 2006, boosting the tourism industry and real estate business in the Clark area. At least $200 million in tourism receipts were generated in 2006.

Competition has lowered airfares, provided more airline choices, and, evidently, increased local economic development. Overseas Filipino Workers and their families are now able to hold reunions more often because of the more affordable plane fares. And, in this liberalized environment, the country’s two flag carriers and smaller industry players have been posting profits.

The fast-paced growth of the tourism industry indicates that it has been responding to the increasing number of passengers and tourists. Discounting a few hiccups, the Philippines’ target of 5 million tourist arrivals by 2010 may soon be within reach.

Vivien Suerte-Cortez is a former Assistant Program Officer at The Asia Foundation’s Manila office. This article was originally published in the September-October 2008 issue of Philippine Business, a publication of the Makati Business Club. MBC is a non-stock, non-profit organization composed of almost 800 top-level executives representing over 400 leading corporations in the Philippines.

 

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