The Impact of Open-Sky Agreements on Regional Integration. Focused on case studies of the EU and ASEAN

Abstract

Economic integration in air transportation has been an area of interest for some regions. This is observed with the concept of open sky agreements. Open sky agreements have been successful in concept and implementation in European Union, however open sky agreements are still an ongoing project for the ASEAN region. The study offers an analysis on the rationale of open agreement in ASEAN taking the European Union as benchmark. Aviation in ASEAN accounted a remarkable expansion over the last decade. Domestic scheduled traffic passenger grew by 10.7% in 2017, making it the world’s largest domestic market. Despite the fact that ASEAN is still not a complete open sky, Low-cost carriers’ penetration grew from less than 30% to over 50% in 2018. This was mainly due to the introduction of cross border joint ventures that captured an important share of the domestic market. The purpose of this research is to understand the rationale of a fully integrated sky in ASEAN by assessing the prospects of ASEAN single aviation market. In other terms, the research assists ASEAN in forecasting and achieving the long/short term goals (full integrated sky) by analyzing the effectiveness of cross border joint ventures with the open sky already in place and if the new CATA would contain the sixth freedom carriers as the agreement suggests. The research found that the establishments of cross border joint ventures have contributed to the rapid expansion of ASEAN aviation industry. Their market share within and outside the region proves that joint ventures are indispensable to ASEAN aviation industry regardless of the open sky already in place. With the new Comprehensive air transport agreement between EU and ASEAN, cross border joint ventures might robust the airline industry of ASEAN and presumably there is not much that the comprehensive agreement can do to stem the loss of traffic to the 6th freedom rights. The two regions should not allow the agreement to be based on the sole desire of neutralizing the 6th freedom. They should rather focus on other area of liberalization that stimulate mutual profit such as trading relations and market philosophy. This research also evaluates the prospect of the comprehensive air transport agreement in regards to the pandemic that tremendously affected the airline industry and found that the airline consolidation, ASEAN-EU CATA will eliminate market access limitations. More ASEAN and EU airlines shall be able to enter existing hub-to-hub operations to compete with the current players, for example the Middle East and Gulf-based operators. The creation of new joint-venture operations should allow competing players on hub-to-hub routes to cooperate and engage in joint marketing and revenue-sharing, which can reduce shares of existing dominant players while at the same time decreasing average travel costs. The entrance of foreign operators into ASEAN domestic air operations should not be seen as a loss of sovereignty. It is a fast and realistic strategy to recover the entire aviation industry while at the same time sustaining connectivity within the ASEAN region to maintain the competitiveness of regional production networks and the attractiveness of the region as an investment destination. The strategy will also increase regional air transport market competition and improve efficiency and bringing down costs. ASEAN countries on the other hand might need to set up cabotage principles that ensure certain minimum of domestic shares ownership of the foreign companies and must elaborate and implement high market entrance standards in areas such as safety and security.

ASEAN에 항공산업은 지난 십년간 괄목할만한 성장을 거두었다. 국내선 정규항공편 여객수가 2017년에 10.7%까지 성장했다. 이에 따라서, 아세안 항공시장은 세계의 가장 역내 항공시장이 되었다. ASEAN이 아직 완벽한 항공자유화를 달성하지 못하였지만, 저 가항공의 역내선 시장점유율이 과거 30% 미만에서 2018년에는 50%이상으로 성장하였 다. 이것은 역내시장에서 중요한 역할을 하고 있는 회원국 간 Joint-Venture 항공사가 설 립된 덕분이다. ASEAN은 EU와 포괄적인 항공운송 협정이 거의 완성단계에 있다. 본 논문은 현재 운영되고 있는 항공자유화 단계에서 ASEAN 회원국간 항공사 Joint-Venture의 효율성에 대해서 분석하는 것을 통해서 아세안 단일 항공시장에 대한 전 망을 내리고 있다. 또한 본 논문은 EU와 ASEAN간의 포괄적인 항공운수협정에 포함된 제 6자유 항목은 EU와 중동, 중동과 ASEAN간의 포괄적인 항공운수협정의 제 6자유 항 목과 경쟁을 할 것인지에 대해서 분석을 하였다. 본 논문은 회원국 간 항공사 Joint-Venture의 설립이 ASEAN의 항공 산업의 빠른 성장 에 기여했다는 것을 밝혀내었다.