Archives

by Dr. Ruwantissa Abeyratne, International Civil Aviation Organization

Asian aviation is unique in many ways. Firstly, Asia is one region where there is no regional organization looking after the interests of aviation in Asia as a whole. Secondly, international mega carriers and much smaller international airlines coexist harmoniously without devouring each other.

Thirdly, the Asia/Pacific Region has the largest share of the world economy, experiencing the highest rate of growth among the regions in the aviation industry. Many Asian airlines reached strategic alliances in 1997, the most noteworthy of them being Japan Airlines with Air France, Singapore Airlines with Air New Zealand and Ansett Australia and Air India with Air France.

The key to successful aviation business in Asia has always been a three cornered concept: low costs; quality service; and the increasingly competitive business environment in the Continent. Many business enterprises in Europe and North America have been looking towards establishing bases in Asia which offers them growth and increased opportunities. Asian economies are generally strong, and the region relatively peaceful since the end of the Vietnam War in the 1970s. The busiest international route in the world is Hong Kong/Taipei and 50% of all B747-400S delivered in the mid nineties were to Asian carriers.

Despite all the fancy figures, aviation's bottom line is that it is a business, and profit making is the main objective. As an industry, aviation has an enormous appetite for investment, which should be cautiously balanced with the multifarious problems and challenges faced by the industry.

Airport congestion, intense competition among carriers, airspace congestion and the need for injection of resources for advanced navigational equipment are common issues for the aviation industry in any region of the world. Asia is no exception. Another compelling issue is market access and the question whether multilateralism will prevail in Asia or whether the region will proceed cautiously as it does with managed liberalization.

Whatever be the political stage in Asia and the rest of the world, commercial exigency dictates that the foremost challenge faced by Asian aviation is competition among carriers. The primary responses to this challenge lie in information technology and competitive strategy. With the information revolution sweeping the world today, business competition in Asia in general and airline competition in particular should focus mainly on achieving dramatic reductions in the cost of obtaining, processing and transmitting information in order to radically maximize on profit bases.

Most Asian carriers have already realized that information technology is more than just computers. Information relates not only to stored databases but to management of information through convergent and integrated technologies ensuring optimal information usage. With the current growth rate being experienced by Asian carriers, proper management of information would accomplish for them the following:

a) competitive edge and ways to outperform rival competition;

b) opening out of new businesses within parent companies; and

c) radical change in industry structure consistent with emergent challenges posed by the industry.

The airline product has both a physical and an information dimension. The information dimension or component broadly represents a systematic spectrum of knowledge to be acquired by the purchaser of the product and make maximum use of it. For example, convenient, convincing and accessible information on the particular product concerned would be important to the airline passenger or consignor.

It is an incontrovertible fact that the airline industry's structure in Asia is composed of five competitive forces which may eventually decide on profitability: the power of the purchaser of the product; the power of the provider (airline) of the product; threats caused by new entrants; threats caused by other modes of transportation; and the rivalry among existing competitors. Information technology can radically affect all those factors. For instance, information technology could create automated tickets and airway bills; produce pop-up computer reservations information on the internet; and create a direct communication link through telecommunication links between airline and passenger.

In addition, airlines could develop differentiated travel services for corporate customers through the use of information technology, which could arrange travel, monitor expenses incurred by a corporate entity on its travel budget. This can be accomplished by any competitive airline by searching for the lowest air fares and arranging for inter model travel when the passenger gets off the aircraft at his destination.

Information technology also has the capability of enhancing an airline's scope regionally and globally by increasing its ability to conduct business in its international offices in coordination with the head office. Above all, the use of information technology can give rise to derivative and generic business enterprises such as computer reservation systems and frequent flyer clubs. Airlines which use information technology prudently could also manage it in such a manner that excess capacity could be "sold" to other similar businesses.

The second tool which Asian airlines could use effectively is competitive strategy - which is essentially the genus of which strategic alliances between airlines is a species. Competitive strategy means being different.

There are several strategic measures that Asian airlines could adopt for the future. Firstly, they must continue to embrace globalization on the foundation of a unique competitive position. The first step towards effectively continuing to participate in a global market is to gain a competitive advantage over other carriers wherever possible.

Airlines should globalize also in areas (such as computer reservation systems) where they have the most unique advantages.

Secondly, airlines of Asia must concentrate on having a consistent policy in penetrating international markets. In order to achieve this objective, airlines must make a comprehensive assessment of market shares that can be tapped in foreign markets, with or without the assistance of other carriers involved in these markets. In order to establish business effectively in foreign markets, an airline would need to establish a clear home base from which to run its business. The home base should be located in the country which has the most favorable demand for the business. However, diverse activities of an airline should essentially be dispersed in appropriate markets in order to optimize fully on generic or derivation products.

Another gem of wisdom that can be effectively used by Asian airlines lies in the fact that alliances need not all be strategic and exclusively calculated to yield profits. There could be alliances which, where formed, merely ensure the global presence of an airline which can be developed into a viable business prospect at a later stage where market demands more capacity.

The basic challenge faced by Asian airlines, particularly those from developing countries, is to shift from the mere comparative advantage they may have in certain areas, to an overall competitive advantage. To achieve this, airlines must adopt distinctive strategies. As a starting point, they must form alliances to the extent possible on a regional basis and build regional networks as far as possible. These regional networks could develop distinctive product varieties for which the airlines could become known. With the effluxion of time these airlines would be able to build innovative capacity sufficient to enter more and more markets. It is then that most Asian airlines would gain the competitive advantage they are looking for.

It is incontrovertible that liberalization of air transport is a global trend that is irreversible and has been ongoing since the eighties. In the liberalization process, fluctuations of global economic factors and their effect on the role and national approaches to market access continues to be the most critical element in air services agreements between States. These factors remain integral to substantive regulatory liberalization should a State decide to radically alter its stance toward opening the skies. .

In considering liberalization of market access, States invariably face two basic issues: the extent of liberalization, i.e. how open the market access should be in terms of the grant of traffic rights; and the approach to liberalization, i.e. whether liberalization should be national, bilateral, regional, plurilateral, or multilateral and the pace with which liberalization should be pursued.

With regard to the extent of liberalization, it would largely be up to each State to decide on parameters depending on its national and economic interest. Although basic third and fourth freedom traffic rights are a given in most bilateral air transport arrangements and a starting point, most arrangements go beyond to cover a whole range of traffic rights as well as other market access considerations. The extent of market access being available to air carriers could vary widely because of such determinants as the competitive advantages and disadvantages of both States and carriers, as well as size, location, and stage of development of States and the competitive strategies open to particular economies driven by national policy.

As for the approach to liberalization, the experience of the last two decades seems to suggest that States will endeavour, as much as possible to utilize all the existing avenues in pursuing liberalization provided they do not face an overt or covert threat to their economies. A case in point is a State depending heavily upon tourism where it will be in the interest of that particular State not to depend entirely on market decisions of air carriers bringing in tourist traffic to its territory.

It must be noted that although many States have unilaterally introduced liberal air transport policies, frequently taking to consideration a broader perspective of national interest including economic development and trade benefits, it would indeed be surprising if a State were to advocate and pursue liberalization without reservation, purely in order to promote a liberal global air transport industry to the detriment of its own economy and industry.

The bilateral approach continues to offer flexibility and viability through which States can expand air services while retaining the control over the pace and direction of liberalization. However, the serious disadvantage of bilateralism is that it may also be a constraint toward any attempt at achieving liberalization on a wide scale because of the inherent inflexibility of the system in not being able to facilitate accord between a large number of involved States.

The underlying objective for liberalization, in the long run, should be to optimize efficient and economical trade and communication links among States and to promote to the fullest possible extent national and regional growth and development, while at the same time ensuring the rights of each State to a meaningful participation in international air transport in accordance with the Chicago Convention. In the meantime, States can be expected to continue to pursue liberalization in market access at their own choice and pace, taking into account the related benefits and risks, using bilateral, regional and/or multilateral avenues as appropriate. Liberalization may also be gradual with phased introduction or by blocks of market access such as air cargo.

Regional agreements amongst States with common levels of economic development (and usually members of more general economic and trade groupings) seemingly have proven to be an easier and faster tool in achieving liberalization. Adoption of such agreements has led to an expansion of air services within the regions concerned and provided more prolific air services when a market demanded them.

However, regionalism in air transport agreements has also raised concerns in the minds of those running air carriers particularly if such carriers are national airlines of States that are not part of the regional arrangements and are entirely dependent upon existing national and bilateral air service regulations while having to adhere to regulations of States which are parties to such regional arrangements. Regional arrangements may also have a deleterious economic effect in that they could hinder progress of the liberalization process as once the membership of such an agreement reaches a certain level of saturation, reaching consensus on amending the agreement or removing any remaining barriers to market access may become an impossibility.

It must be mentioned that at the multilateral level, The International Civil Aviation Organization continues to provide a global forum in facilitating air transport liberalization, and multilateralism in commercial rights to the greatest possible extent remains an objective of the Organization.

The 5th Worldwide Air Transport Conference of ICAO, under the theme "Challenges and Opportunities of Liberalization", was held in Montreal from 24 to 28 March 2003 and attracted 794 participants from 145 Contracting States of ICAO and 27 observer Organizations.

The Conference was held in the backdrop of an economic slowdown which had occurred in the two previous years, where the World's stock markets had fluctuated; growth slowed in Western Europe and other industrialized areas; the Japanese economy was bordering on recession and the United States and the rest of the world were still reeling from an unprecedented terrorist attack which had set the aviation world back in the amount of 30 billion US dollars. During the Conference, and in the face of an ongoing war in Iraq, several of the world's airlines announced cuts in jobs and flight schedules in response to a slump in air travel made worse by the war.

The pivotal point and culmination of the Conference lay in a Declaration of Global Principles for the Liberalization of International Air Transport adopted by the Conference by ovation, which, inter alia, emphasized the critical importance of safety and security in international air transport; noted the changes since the fourth Worldwide Air Transport Conference in 1994 in the regulatory and operating environment of international air transport brought about by economic development, globalization, liberalization and privatization; and reaffirmed the basic principles of sovereignty, fair and equal opportunity, non-discrimination, interdependence, harmonization and cooperation set out in the Chicago Convention which have served international air transport well and continue to provide the basis for future development of international civil aviation.

www.crescat.com

News | Business | Features | Editorial | Security
Politics | World | Letters | Sports | Obituaries |

Produced by Lake House
Copyright 2001 The Associated Newspapers of Ceylon Ltd.
Comments and suggestions to :Web Manager