Date: April 2003

Open Skies Accord Due in October

As the Philippine and US governments prepare to implement an "open skies" policy between the two countries in October this year, local airlines have mobilized anew their own resources to convince the government to delay the liberalization of the air transport sector.

Local airline companies and travel agencies have formed two major groups dedicated to opposing the implementation of the 1982 RP-US Air Transport Agreement by October this year. These two groups are the Save our Skies (SOS) movement and the Network of Independent Travel Agencies (NITAS). They are trying to win the support of several senators and congressmen known for their nationalist sentiments.

On the other side is the Freedom to Fly Coalition (FFC), another group of domestic tourist agencies and travel operators, which has been claiming that the liberalization of the air transport sector would bring 5 million tourists to the Philippines by 2010. Currently there are only 2 million foreign tourist arrivals in the country each year. International tourism to the Philippines is way below that of other countries such as Thailand.

Recently, there have been reports that the FCC has been receiving financial support from the Accelerating Growth, Investment and Liberalization with Equity (AGILE), a US-funded lobby group in the country.

This claim drew significant criticism from the Save our Skies movement, which has been lobbying for a gradual, phase-by-phase liberalization of air policy, instead of a one-time full opening of the country's skies to foreign airlines.

Under the 1982 air accord, designated passenger carriers from each side will be allowed unlimited flights between the Philippines and the US by October 1, 2003. The Civil Aeronautics Board (CAB), the Philippines government's airline policy maker, however, wants to first test the accord with cargo traffic only.

A CAB official admitted recently that the Philippines is only prepared to commit to a liberalization of cargo transport. He added that it would take another 10 years before the country becomes fully prepared to open its air passenger sector.

There are fears that the full implementation of the agreement would be a boon to American airlines and a bane to Philippine carriers. Presently, a number of American airline companies are in the brink of closure because of dwindling passenger volume.

National flag carrier Philippine Airlines is asking the Senate to renegotiate the provisions of the accord and to hold its implementation until the local airlines completes their rehabilitation program. Philippine Airlines and other players in the local aviation industry need to pour more investments into product enhancements, technology, and networks in order to compete with American airlines. Of course, there is also the issue of tourism infrastructure, which remains underdeveloped in the Philippines.

American airlines have been receiving billions of dollars in subsidies from the US government since the September 11 terrorist attacks in 2001.

In affirming its position on the question, the US embassy in Manila stated that liberal rules and the removal of limits on flight frequency between the two countries is the best policy framework.

A paper entitled "Philippine Civil Aviation: Opportunities Missed and Seized" and penned by a professor of the Makati-based Asian Institute of Management (AIM) claimed that the Philippines could attract at least five million foreign tourists each year by 2010 and generate P17 billion in annual tourism revenues, with the implementation of the RP-US air accord.

In contrast, a study conducted by Dr. Cheung-Kwok Law, vice-president of the Hong Kong Economic Association, concluded that the Philippines would not be ready for an open skies agreement until it is assured of the competitiveness of its national airlines.

The author of this paper recommended that the Philippine government develop policies to help its local carriers to become more globally competitive before allowing a greater degree of international competition. He said that local airlines are not operationally competitive and financially sustainable at this point.

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