What is happening?
The liberalisation of Australia’s international air services are typically conducted on a case-by-case basis. This liberalisation has recently seen Australia and China negotiating to embark on a landmark air services agreement, with the cap on seats from China’s largest cities to Sydney, Melbourne, Brisbane and Perth tripling to almost 67,000 seats each week by 2016.
Australia has air service agreements with a host of Pacific countries, and an open skies policy could further enhance the economic potential of the region. Bilateral ASAs exist collateral to the Pacific Islands Air Services Agreement (PIASA), which is a multilateral agreement between Australia, New Zealand and a number of PI countries, and is intended to provide a staged process for air services liberalisation throughout the Pacific.
That said, opening the skies in the Pacific arena must be assessed in light of the economic implications, and the capacity of existing Pacific carriers. The COVID-19 Pandemic absolutely crippled the global travel industry and every airline, (particularly within Australia and the Pacific, where we have had such heavy restrictions) is in desperate need of a lifeline in the form of the ability to fly more frequently again. The next 12 months in particular will be very challenging for smaller airlines who will need to raise capital to re-employ staff and start flying again. An open skies agreement will mean that a larger airline will potentially take over previously ‘protected’ routes within and across the pacific and make it financially impossible for a local airline to compete, which may spell the nail in the coffin for many carriers who are hanging on by a thread.
What is the difference between an air service agreement, and an open skies agreement?
- traffic rights;
- designation, ownership and control;
- tariffs; and
Liberalisation of these ASA’s ultimately leads to “open skies”, an international aviation concept for aviation liberalisation. An open skies agreement is a bilateral agreement between two countries which provides for open entry and unrestricted capacity and frequency on routes. Logistically, this translates as uncapped seats and competition. Australia has open skies agreements in place with New Zealand, amongst others.
What currently exists, and what is the future?
Australia has ASA’s with Fiji, Nauru, Papua New Guinea, the Solomon Islands, and Vanuatu. It also has in place agreements with French Polynesia, New Caledonia and Niue, but those instruments are of less than treaty status.
PIASA was signed in 2003, and it aims to commence a single aviation market among the Forum Island countries, although not all countries have signed the agreement, neither has it come into force.
Phase III of PIASA, which commences thirty (30) months after PIASA comes into force, provides for a full single aviation market, allowing designated airlines of all parties to PIASA to operate scheduled 3rd, 4th, 5th, and 6th freedom services between all parties. Phase III will extend beyond a regional open skies agreement to a multilateral open skies agreement, which would allow accession by Australia.
As we understand it, PACER Plus intends to create the framework for the gradual introduction of a regional free-trade area encompassing Australia, New Zealand and the Pacific Island Countries. Through this framework, the Pacific Island Forum countries have been considering whether an open-skies agreement is to be adopted.
An open skies policy inevitably leads to both greater capacity on, and frequency of, routes. Bigger airlines and countries have the resources and capacity to cope with a greater influx of passengers, whilst maintaining competition in the market. Conversely, local airlines could also suffer as a result, due to the possible entry of larger airlines that are able to offer a better service at lower rates. These local often smaller airlines cannot offer the same competitive pricing and frequency of flights.
There are arguments that refusing airlines wide-reaching access to different countries hinders competition and economic development. An open skies policy would undoubtedly boost Australian and New Zealand tourism in the Pacific region. The World Bank’s Pacific Infrastructure Challenge report argued that a multilateral air services agreement based on ‘open-skies’ would encourage competition, providing more choice and lower fares for passengers.
But this has to be balanced against the fact that the provision of regular, reliable and competitive transport services is crucial for the economic survival of Forum Island countries. The market for air services in the Forum Island countries is quite diverse in terms of the origin or destination of the traffic, and the reasons for travel. There is a large volume of business traffic to countries such as PNG and Fiji, a large volume of leisure traffic out of Australia and New Zealand to the Pacific, and a large volume of visiting friends and relatives from Australia and New Zealand to Fiji, Samoa and Tonga, particularly.
The airlines of the Pacific are usually state-owned enterprises and subsidised in one way or another by their national governments. These entities face challenges with adequate capital funding, inefficient equipment, reliance on expatriate staff and poor infrastructure. In turn the region as a whole suffers from infrequent, expensive and unreliable air transport.
What could be the way forward?
Australia has a forward-thinking attitude with regards to its aviation policy, and has adopted a liberated approach to its ASA and open skies negotiations. However, opening the skies to the Pacific as part of the PACER Plus agreement presents challenges as well as opportunities. Aviation liberalisation should be conducted on a deliberate case-by-case basis so that the interests of both Australia and the Pacific Island region are best served.
The preference should be on bilateral air service agreements between Australia and each Pacific Island country being developed separately, as opposed to including air services obligations in multilateral agreements like PACER Plus. This will ensure that as airlines navigate their way out of the COVID-19 pandemic have every chance of continued operation and success, whilst balancing the needs of the traveling public and our economies.