Airline business needs competition to improve and grow.

March 26, 2011

We don’t have to look far for an example. For many years when Philippine Airlines lorded it over the skies as the country’s sole air carrier, it posted profits and basked in the glamour of being “Asia’s first airline” while also generating a legendary reputation for waste, sluggishness, inefficiency, unerring tardiness and pricey fares—all the ills of a smug behemoth enjoying the convenience of a competition-free environment.

But when the country’s skies were opened to new carriers, the environment changed—not only for PAL, but, more importantly, for the riding public, which found itself at the receiving end of more value-for-money services and improved performance from a suddenly invigorated industry, now that companies were forced to compete with each other in a more liberal marketplace. The entry of Cebu Pacific and other budget carriers inaugurated a boon in domestic travel and tourism in the country. PAL would soon lose its status as the country’s largest domestic airline as the Gokongwei-led carrier aggressively innovated the flying experience with bargain prices and a fun, youthful vibe aboard its planes.

Given this instructive experience, it’s easy to embrace the new executive order signed by President Aquino that adopts an “open skies” policy in the country, which would open up the airports of Manila, Clark, Cebu and Davao to greater traffic from foreign airlines. Its proponents say fully liberalizing the country’s aviation industry this way would lead to increased tourism, trade and investment. The Joint Foreign Chambers, for one, came out swinging for the executive order, saying it would not only generate more jobs and revenues, but is also a “giant step toward [the administration’s] goal of doubling annual tourist arrivals to more than six million by 2016.”

Well and good. That is, indeed, an outcome devoutly to be wished. It must be asked, however: How fair is the new policy toward local carriers?

Cebu Pacific and PAL, perhaps understandably given the impact it would have on their bottom line, both have come out with reservations against the “open skies” policy. Their statements have not been a categorical rejection of the policy. What they have asked is an assurance of “reciprocity”—that for every right given to foreign airlines to mount flights to every airport in the country (except the Ninoy Aquino International Airport), a corresponding concession would also be granted them in the airline’s home country. “If the Philippine government puts out the welcome mat for a foreign airline, [we] fully support that, as long as the foreign airline’s government grants Philippine carriers the same opportunity,” said Cebu Pacific. That position is shared by PAL, which also called for “fair, reciprocal” arrangements.

And it sounds like a reasonable request. While boosting trade and passenger traffic are laudable aims, the means to achieving them should not involve treating the local carriers shabbily and riding roughshod over their interests. These companies have painstakingly built the infrastructure, cultivated the routes, grown the market, served the local riding public loyally—however much that service could always stand improvement. They deserve, at the very least, to be treated fairly, to be allowed to compete honorably in the expanded arena created by Malacañang’s “open skies” EO.

The rub is that the EO is silent on reciprocity, for now. While it authorizes duly constituted Philippine air agreement negotiating panels to offer transport rights to foreign carriers, it makes no mention of similar rights to be enjoyed from other countries by local carriers. As late as January, a top aviation official had given the assurance that local airlines would not be put at a disadvantage by the upcoming policy. Other countries, he said, would also have to liberalize their own aviation arrangements if they were to enjoy the Philippines’ “open skies.”

“Whether it’s stipulated in the executive order or not, we will make sure that there is reciprocity in the agreements with other countries,” said Porvenir Porciuncula of the Civil Aeronautics Board.

Well, the EO as it stands now appears not to carry any such stipulation. If that remains to be negotiated by the panels, then the country’s representatives must be clear and unwavering on that one condition. “Open skies” in the Philippines? Then be prepared to offer the same thing to our carriers. That is only fair and just.

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