Kuwait Airways Expansion Hit Brickwall

Market shares erosion by PH carriers cause of discord

15 January 2016

Kuwait Airways (KAC) expansion to the Philippines starting April 2016 will hit a brick wall after its applications to transport passengers and cargoes for Manila - Bangkok - Manila route was put on hold by the Civil Aeronautics Board (CAB) after the Philippine regulator obtains copy of Fawaz Al-Farah decision barring a Philippine carrier from exercising similar rights between Kuwait and Dubai.

Directorate General of Civil Aviation (DGCA) of Kuwait earlier denied Philippine Airline's (PAL) request to transport passengers and cargoes between Kuwait and Dubai, which is inconsistent with the Air Services Agreement (ASA) amended and signed by the two countries in 2009.

Kuwait and the United Arab Emirates (UAE) implemented an Open Skies policy since August 2015, while the UAE recently granted fifth freedom traffic rights to Philippine-based carriers.

Kuwait and the Philippines entered and signed the first ASA in 1977 and by series of amendments incorporated fifth freedom rights to any intermediate points. In 2009, flight entitlements between Manila and Kuwait was raised to eight, equally distributed in the Philippines between PAL and CEB.

“For Kuwait, we gave four flights per week each to PAL and Cebu Pacific,” says Maria Elben S.L. Moro, chief of CAB’s Hearing Examiners Division.

KAC propose to adjust operations to the Philippines, which sees frequency increase from 6 to 7 weekly.  It intends to operate 3 of 7 weekly flights as direct Kuwait  – Manila nonstop flights, with A340-300 aircraft, while the 4 flights continue to operate via Bangkok using A330-200 aircraft.

The Kuwaiti airline used to operate daily flight last year until it was forced to downgrade flight frequency upon the entry of CEB which offers 3 times a week A330-300 direct flight services to Kuwait last year.
 

KAC will also see further cuts to its Kuwait City – Bangkok – Manila flight vv. which will see service reduction from 27 March 2016, from six flights a week to as low as three as PAL enters Kuwait market in January 17.

According to airline sources in Manila, it is prepared to give up Bangkok and fly direct Kuwait City – Manila beginning 13 April 2016 although they are still studying the impact brought by the re-entry of PAL to Kuwait as to desired frequency mix which are profitable to them.

KAC is entitled to fly Kuwait - Manila to as many as eight times a week. Should Bangkok be axe, the airline proposes to service the route on new time slots:

Kuwait – Manila – Kuwait

KU417 KWI0355 – 1910MNL 340 135

KU418 MNL2110 – 0135+1KWI 340 135

Bad Blood

14 January 2016

From a code share that goes wrong to the subsequent lawsuit that strained ties, Philippine Airlines (PAL) and Kuwait Airways (KAC) are at each others throat again after the Kuwaiti regulator denied the former fifth freedom traffic rights between Kuwait and Dubai, while the latter continues to enjoy that benefit between Manila and Bangkok.

Fuming mad amidst the January 17 launch where it will likely fly extension services, Philippine Airlines filed a petition with the Civil Aeronautics Board (CAB) of the Philippines seeking to revoke Kuwait Airways’ rights to carry passengers between Bangkok and Manila on its Kuwait-Bangkok-Manila route after a similar request with Kuwait authorities to carry passengers between Kuwait and Dubai was denied with finality.

PAL wants to revoke the fifth freedom rights enjoyed by Kuwait Airways under a bilateral air treaty agreement, after the Directorate General of Civil Aviation of Kuwait denied the airline's request to enjoy the same privilege upon the opposition of KAC.

The Philippines has granted fifth freedom traffic rights under a bilateral air treaty agreement with Kuwait to any intermediate points of their respective airline's choosing.

Kuwait Airways has chosen Bangkok as its intermediate point and has been granted fifth freedom rights and is operating the same route daily for more than 20 years without objections from PAL.

Meanwhile, Philippine Airlines recently selected Dubai as its intermediate point to Kuwait after securing fifth freedom traffic rights from the United Arab Emirates.

PAL would have flown in December 2015 had it not have problems with Kuwait Airways which changed its plans to January of 2016. The decision of denial was handed to the airline on the fifth of January effectively preventing them from transporting passengers between Kuwait and Dubai and vice versa.

PAL stopped flying to Kuwait in 1995 due to bitter dispute with KAC.

Kuwait Airways told to pay PAL $1M

For unpaid contract obligations

By Tetch Torres

MANILA, Philippines—Despite the backing of two governments, Kuwait Airways Corp. was ordered by the Supreme Court to pay the country’s flag carrier Philippine Airlines over $1 million in contract obligations between the two airlines.

The case stems from PAL’s claim that Kuwait Airways should pay for the uplift of passengers and cargo from April 13 to October 28, 1995, after the governments of Kuwait and the Philippines signed a confidential memorandum of understanding granting exemptions to royalty payments effective on the signing of the agreement, April 12, 1995.

In a 23-page decision of the high court’s second division penned by Associate Justice Dante Tinga, the high court dismissed the appeal filed by Kuwait Airways seeking a reversal of the decision by the Makati City Regional Trial Court dated October 25, 2002.

The bilateral agreement, Kuwait Airways had argued in its appeal, in effect terminated the commercial agreement it entered into with Philippine Airlines which specified that the third and fourth freedom traffic rights will be observed, along with the revenue-sharing agreement that go with it.

Freedom traffic rights are the so-called five freedoms in the International Air Transport Agreement (IATA) signed in 1944; each signatory country agreed to grant each other five freedoms. The third freedom is the privilege to disembark passengers, mail, and cargo taken on in the territory of the flag carrier’s country while the fourth freedom is the privilege to take on passengers, mail, and cargo destined for the territory of the flag carrier’s country.

PAL does not dispute the provisions of the confidential memorandum of understanding, but told the court it cannot take effect immediately. It said the termination date of the commercial agreement is October 31, 1995 or the last day of the traffic period for that year.

On the other hand, Kuwait Airways argued that the bilateral agreement is superior to the commercial agreement having signed by both governments. It maintained that the government-to-government accord terminated the airline-to-airline contract soon after the former was signed in 1995.

But the Supreme Court said not even the two governments could immediately terminate the commercial agreement between the two commercial airlines.

The high court explained that even if PAL is subject to the limits of the law, still, the government has to respect the property rights of the airline and cannot arbitrarily confiscate or appropriate any property without due process of law.

“There is nothing to prevent the Philippine government from utilizing all the proper channels under the law to enforce such closure, but unless and until due process is observed, it does not have legal effect in this jurisdiction,” it said.

“Even granting that the ‘agreement’ between the two governments or their representatives creates a binding obligation under international law, it remains incumbent for each contracting party to adhere to its own internal law in the process of complying with its obligations,” the high court said.

It added that the commitment made by the government or its alter ego cannot be considered “divine” so as to exclude the legal rights of private persons.

The high court added that had PAL remained a government-owned and -controlled corporation, it would have had no choice but to abide by the bilateral agreement. In 1992, a private consortium acquired 67 percent of PAL shares.

In its decision, the Supreme Court said that while it sympathizes with Kuwait Airlines for relying on the commitment made by the Philippine government, everyone still needs to “respect the segregate identity of the government and that of a private corporation and give due meaning to that segregation, vital as it is to the very notion of democracy.”

At the same time, the high court faulted the executive department, particularly the Civil Aeronautics Board, for its failure to resort to legal remedies such as annulment or reformation of the contract between PAL and Kuwait Airlines.