HK expert cautions RP against open skies

An economic expert has cautioned the Philippines against entering into an unlimited open skies arrangement with the United States or any other country because of its dire economic consequences.

In a forum sponsored by the De La Salle University Graduate School of Business, Dr. Cheung-kwok Law, administrative director of graduate programs of the Faculty of Business Administration of the Chinese University of Hong Kong, said a strong national airline is vital to any country’s economic development and that the aviation industry’s contribution to the economy is enormous.

"Any policy or regulatory changes would affect the industry and hence the overall economy significantly... if the Philippines also accepts the development of a strong national airline is vital for her economic development, an unlimited open skies arrangement with the US or any other country will not be advisable at this stage," Cheung-kwok said.

He said given the possible penetration of US carriers, "the Philippines’ airlines seem not operationally competitive and financially sustainable to retain their market share at this stage."

"If the US’ demand is for unlimited open skies arrangement, it would have a lot of negative impact on the Philippine airline industry and related sectors, both in the short run and long run. Even the favorable impact would become uncertain in the long run," he said.

Cheung-kwok, previously the research director and chief economist of the Hong Kong Policy Research Institute, said the home carriers have much stronger linkage and multiplier effect to the economy, including repair and maintenance, ground services, cargo handling services, management, training, catering and other support activities.

This is the reason, he said, the US government provided financial and non-financial support to its airlines directly and indirectly after the Sept. 11 terrorist attacks.

According to him, an open skies condition is definitely not a necessary and sufficient condition for any country to develop as an aviation hub. "The development and interplay of a host of factors are important and complicated for the development of an aviation hub."

He said among the factors for a successful international hub are a cost effective home carrier, efficient airport with sufficient capacity, good geographical location, good operating and business environment, good aviation policy framework and relatively weak regional hubs.

The economist advised the Philippines that during the negotiation process with the US, it is necessary to obtain the views of various parties concerned, including the tourism trade, to formulate its position and strategy. "Possible actions and new developments of the other regional players should be monitored closely."

Cheung-kwok stressed that given the trend of globalization, it is necessary for the government to consider policies to improve the competitiveness of the national airline. "Even though the current bilateral negotiation framework may fend off international competition for some time, it is vital for the national airline to be able to stand on its own under international competition."

"If the US would like to have a new landing rights in more cities in the Philippines, the Philippines can request for equal and reciprocal arrangements to more US cities or other arrangements like code sharing," he added.