Lance G: Why not mutual open skies?

Expect someone like Lance Gokongwei to not just oppose something. He would also offer his own intelligent suggestion. Every reporter covering his speech (see full text in yesterday’s PhilStar Business) got what he said about the need for reciprocity on open skies because that’s in the headline of his speech at the Tuesday Club. But that’s old news.

Buried in the second page of his speech is his proposal for tweaking the open skies concept to bring in the tourists but also make it work in a way that would not discriminate against Filipino carriers. That’s the real story of the day… it also made me wonder why government bureaucrats already working on our air services agreements didn’t think of it first.

He didn’t even name his concept so I am calling it “mutual open skies”. The concept is reciprocal open skies made easy. In the old concept, the local carriers want reciprocity which entails long negotiations with counterparts abroad. In the meantime, it is status quo. That’s probably what the ordinary airline executives really want but that’s what the tourism industry thinks is stunting tourism’s growth.

Instead, Lance wants government to quickly ratify the Asean Open Skies proposal. The Philippines and Indonesia are the only remaining hold outs. Lance points out that this is a “multilateral open skies” approach and it is better than the unilateral open skies declaration in the recent P-Noy EO.

If we sign the Asean Open Skies deal, the region will be open to each country’s carriers immediately and on an equal footing… no more drawn out air rights talks. For Lance, it expands his market as we become part of the flourishing Asean tourism market. As for increased competition, Lance thinks he is ready to meet them head on.

Lance also pointed out that Japan had signed similar mutual open skies agreements this year with Singapore, Malaysia and South Korea and with the US late last year. According to Lance, it only took their respective governments an average of just more than a month to finalize these agreements. Lance thinks Japan is open to such an agreement with us and “this presents an opportunity the Philippines must grab quickly.”

I agree with Lance that a multilateral open skies agreement provides an equal playing field for local and foreign carriers and will enhance the competitive environment. He cited our case with Japan where the restrictions has led to the inability to offer lower fares.

Currently, he pointed out, Cebu Pacific flies to Osaka three times weekly. “We have been asking for additional flights to Osaka which the Philippines in entitled to under the current Philippine-Japan Air Services Agreement. However, our request has not been approved to this day.” Maybe our negotiators are not pushing hard enough. In the meantime, All Nippon Airways (ANA) was recently allowed to operate flights from Tokyo to Manila under the same Air Services Agreement. Why are we such pushovers?

On the other hand, Lance cited South Korea which he thinks is a notable success story we can build on and use as a model. In 2007, the Philippines negotiated a new air services agreement with South Korea. It is a virtual mutual open skies deal because it raised the capacity limit for each country to 19,000 seats a week, an almost three-fold increase from the previous limit of 6,800.

Because of this, Lance pointed out, “we can now compete with Korean carriers on Incheon and Busan routes, and airlines such as Korean Air, Asiana, Air Busan and Jeju Air are adding flights to the Philippines. Korea is now our country’s number one source of tourists.”

On the other hand, Lance cited the unfairness of the situation with Hong Kong. Ate Glue’s EO on open skies in Clark without reciprocity, Lance said, led to Hong Kong Express flying into Clark without limitations. Cebu Pacific was unable to compete because air rights to Hong Kong were fully utilized at that time (2008).

This inequity was solved only after subsequent bilateral air talks resulted in additional air rights. Lance pointed out that Hong Kong Express is no longer flying to Clark, proving that a local carrier like Cebu Pacific is still more dependable for enlarging our tourism market.

In advocating the “mutual open skies” concept, Lance admits he may no longer be in sync with the other local carriers. That’s probably because Lance is brimming with confidence on his ability to compete and PAL is saddled with union problems.

Lance said Cebu Pacific is now the country’s largest carrier. Last year, it flew 10,036,503 local and international passengers to PAL’s 9,259,982. In the domestic market, Cebu Pacific leads with 7,972,659 passengers to PAL’s 5,311,168. And he adds, with less staff than PAL. PAL still leads Cebu Pacific in the international market. Personally, I still prefer to fly PAL for flights longer than an hour if only for the leg room.

It is interesting to note that only the Philippines and Indonesia are refusing to sign the Asean Open Skies agreement. I guess it isn’t an accident that the Philippines and Indonesia (outside of Bali) are the two countries that are not attracting the big number of tourists the other Asean countries are enjoying. But in Indonesia, they at least have open skies in Bali and that’s where the tourists are flowing despite the terrorist attack and increasing criminality.

We should even work for an Asean plus Japan, China and South Korea Open Skies Agreement if only because these are the more probable markets for Philippine tourism. Lance Gokongwei realizes it is no longer possible to just say NO to open skies and hope the issue goes away. With his mutual approach, we can protect our airlines and also increase our tourism numbers.

San Miguel’s WiTribe

I got a reaction from reader RG San Luis. Here are excerpts from the rather lengthy e-mail.

I am a regular reader of your column in The Philippine Star.

I would like to react to the subjects of your last two columns; the PLDT buyout of Digitel and the one today about the emergence of San Miguel as a player in the telecoms industry.

 As a subscriber of Wi-Tribe, I am very disappointed with what they claim to be 4G technology, in terms of speed, but it is actually not. Upon its roll out, the cost of the whole package i.e., the modem and one month’s service was about P3,500.

It would appear that the reception was not as expected and in November 2010, they brought down the price to P998 which meant you got the modem for free and paid in advance for a month’s service. Just last week, there were ads in all the major dailies where they brought the price down further to P598 for the whole package.

This, despite the fact that, when Wi-Tribe was launched, they hyped up their hiring of Boy Martirez, the marketing whiz behind the success of Smart, who was eased out after a power play with the incumbent President, Polly Nazareno. Unfortunately, Wi-Tribe has never lived up to the hype and Boy Martirez is back with Indosat, which is supposedly majority owned also by QTel, San Miguel’s partner in Liberty Telecoms, the corporate vehicle of San Miguel for their foray in telecoms.

None of the existing telco players can lay claim to be able to offer decent enough broadband service. There are simply too many subscribers for the bandwidth available and the telcos make it a point to prioritize corporate over consumer clients. Bottom line, I don’t think San Miguel has the capability to compete with the existing telco players in terms of technology and the cost of deployment because it entails a large amount of capital expenditure. With interests in its core business, power, infrastructure, mining and supposedly broadcast, San Miguel is spreading itself too thin. Their core business doesn’t give them enough cash flow to go on acquisition binge like MVP is capable of doing because of PLDT, MNTC and the financial muscle of First Pacific out of Hong Kong.

In short, Mr. John Gokongwei looked into the not so distant future and liked what he saw. MVP’s group has more focus and direction. Unfortunately, San Miguel does not because they are trying to get into everything that MVP is already into. The rock star being followed by the groupie.

Thank you and I look forward to reading more incisive columns.

Navel gazing

Q: What did one navel say to another navel?

A: Every time we get together, somebody comes.

Boo Chanco’s e-mail address is [email protected]. He is also on Twitter @boochanco