The liberalisation of the ASEAN air transportation sector has increased tremendous competition in the business approaches of Air carriers and Passenger traffic. This research work is about the process of understanding the act of liberalisation through the Open Sky policy and analyse the same in terms of the increasing competition in the selected domains. For this purpose the Case Study research methodology has been selected as the appropriate means of meeting the answers to the research questions. Moreover, interview sessions with experienced professionals from the aviation sector are also considered by this research work. The basic idea is to know the competitive advantages and the disadvantages led by liberalisation in the business approaches of air carriers and passenger traffic in ASEAN region. The data collected for CAPA (2016) will also be analysed in justification of growth that the liberalisation has added to the aviation sector. The way to control the activity of liberalisation for better benefit of the ASEAN aviation sector will remain as core target of this research work.
Executive Summary
The liberalisation of the ASEAN air transportation sector has increased tremendous competition in the business approaches of Air carriers and Passenger traffic. This research work is about the process of understanding the act of liberalisation through the Open Sky policy and analyse the same in terms of the increasing competition in the selected domains. For this purpose the Case Study research methodology has been selected as the appropriate means of meeting the answers to the research questions. Moreover, interview sessions with experienced professionals from the aviation sector are also considered by this research work. The basic idea is to know the competitive advantages and the disadvantages led by liberalisation in the business approaches of air carriers and passenger traffic in ASEAN region. The data collected for CAPA (2016) will also be analysed in justification of growth that the liberalisation has added to the aviation sector. The way to control the activity of liberalisation for better benefit of the ASEAN aviation sector will remain as core target of this research work.
1.1 Background Overview The ASEAN Single Aviation Market, or as popularly termed as ASEANSAM is the ASEAN Open Sky policy, which gets recognised as the most major policy of this particular region. Based on this policy, ASEANSAM geared up all the developmental approaches and further aimed in enhancing the unified as well as the market of single aviation business among the ASEAN members. According to the report of Tan (2009), the initial proceedings of ASEANSAM for the Southeast Asian members date back to 1 st of Jan., 2016. The Air Transport Working Group of ASEAN proposed the policy of ‘Open Sky’ in the aviation domain, and the same was supported by Senior Transport Officials. Moreover, ASEAN Transport Ministers endorsed it. The research based declarations of Chinaview (2007) and Tan (2009) state that the establishment of ASEANSAM was initiated with the aim to establishment the strong hold of ASEAN Economic Community, whereby it was expected to get accomplished by the activity of liberalization and air travel business among the ASEAN members. The approach of the ‘Open Sky’ policy is to offer direct benefits to the aviation sector and add the element of growth and sustainability in the business of air travel in the global sky. This policy is also meant to establish free tourism related services, ventures of trade and commerce, and assist in high quality based services to all the ASEAN member states (Chinaview, 2007 and Tan, 2009).
1.2 Problem Formulation The problem that this research laid emphasis on- is about the clashes of policies and agreements that are liable to happen between the aviation services of the ASEAN member state. Based on the investigative research of Forsyth, et al. (2004) and Forsyth & Rodolfo
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Liberalisation in Aviation: ASEAN Open Sky Page 5 (2006), this research concentrates in gaining the key towards progressive solution to the probable clashes. It also is in pursuit of attaining adequate amount of resolution in the implementation of liberalisation to the aviation industry under the regulations of ‘Open Sky’. The problem with the air traffic liberalisation among the capital cities, the ASEAN members are subject to get into the competition of holding unified aviation principles and at the same time designate individual competitive approaches, hence the current research approach.
1.3 Research Questions Keeping in consideration with the aforementioned problem formulation, the current research has attained some questions in terms of understanding the challenging competitive platform between the air carriers and passenger traffic, while implementing and developing ‘Open Sky’ policy, by the ASEAN liberalisation of aviation sector. These are the research questions are as follows:
What is the process of liberalisation of the air transportation system in the region?
How does liberalisation of the air transportation system create an impact on the competition between air carriers and passenger traffic?
What is the impact of air transport liberalisation on competition between air carriers and passenger traffic in ASEAN region?
What are the recommendations provided to appropriate entities for controlling liberalisation of the air transportation system that creates an impact on the competition between air carriers and passenger traffic in ASEAN region? The selection of these questions are meant for the understanding of the ‘Open Sky’ policy and the impact that the same as on the futuristic approaches of air carriers and passenger
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Liberalisation in Aviation: ASEAN Open Sky Page 6 traffic among the ASEAN members. Moreover, these are the questions that are further considered in adding research objectives to the current paper and are mentioned hereafter.
1.4 Research Objectives This research paper aims in gaining the insight into the liberalisation of Aviation in the peripheral count of ‘Open Sky’ venture noted by ASEAN. Diversified aspects, especially the concerns of capacity deregulation, along with the approach on the process of implementing price related controls, will be investigated hereby. This research work will focus in understanding all sorts of different agreements and policies, counted as per geographic as well as functional dimensions in the competitive arena of air carriers and passenger traffic, for the meeting the liberalisation approaches as noted by the formulations of ASEAN ‘Open Sky’. The core objectives of this research paper are as follows- To gain adequate critical information about the relevance of liberalisation through ‘Open Sky’ by ASEAN. To understand the challenges and the issues related to the developmental approach of ASEAN air carriers. To understand the challenges and the issues related to the developmental approach of ASEAN passenger traffic. To identify the competitive stress among the air carriers & passenger traffic, caused by liberalised ‘Open Sky’. To figure out the possible resolutions in offering better competitive edge to ASEAN air carriers and passenger traffic. 1.5 Research Rationale The rationale behind this research work, is to gain a critically analysed understanding of the liberalisation of ASEAN aviation sector and to point out the impact of ‘Open Sky’ policy
over the ASEAN air carriers and passenger traffic. As this gets initiated this research paper aims in offering resolution to the increasing competitive stress between the air carriers and passenger traffic of the ASEAN members. The chief purpose is to derive all those proceeding through which this research can aim in generating the positive aspects of liberalisation and eventually add a comfort level to the international competitive platform of aviation industry.
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The outstanding rise of three major Full Service Carriers of the Gulf area, namely, Emirates, Qatar and Etihad; has reshaped entire market of global aviation, especially around Dubai, Abu Dhabi, and Doha. These airlines are adopting diversified means of business strategies in order to meet the increasing global competitiveness. with initiations of these FSCs the Gulf airlines are developing as “global super-connectors” that has the capability of connecting any of the two determined global points, with single stopover in the Gulf (Editorial, 2013, see Figure. 1).
The derivations of Ulrichsen (2015) showed that the culminated achievements of these airlines in Jan. 2015, made Dubai International Airport overtake the Heathrow Airport of London, and thus, it is recognised as the busiest airport in the world. The report added that there is 6% increase in the annual collection of international passengers, which was 70 million (approx.) in the year 2014, as against least increasing rate led by Heathrow operations at near-peak capacity in terms of regulatory and space related constraints. Moreover, the analytical discussion led by Mutzabaugh (2015) states that Emirates, Etihad, and Qatar Airways are much benefited by the absence of any kind of legal or political constraints, as in the “legacy carriers” of Europe as well as the North America. It has been also mentioned that the models of state capitalism, in both economic and political development process, further add to these constraints.
In this paper, the achieve approach is to gain in-depth realisation about the aviation market and the distribution of the major airlines of the world, which are Emirates, Etihad and Qatar. The business models, along with their strategies and networking systems will be analysed for more elucidated understanding of this business domain. The technical, regulatory, and legal concepts of these airlines will be illustrated with the aim of achieving a closer and comprehensive ways knowing their business practices. Significant emphasis has been led over Emirates’ commercial co‐operation, in reference to Qantas joint service deal, Etihad’s investments in multiple carriers from diversified international markets, and Qatar’s participation in the global alliance. These selected commercial strategies get analysed with supportive illustration from Etihad’s approach in particular.
According to the records of CAPA (2013) Emirates is identified for its wide ranged and very broad international connectivity. It is a company that is getting the key position in creating competitive edge for all the other global aviation companies. The report adds that among all the major three Gulf carriers, Emirates comprises of the most mature networking functionality in the entire North American region. This is the reason that this company gains the leverage to have strong hold in aviation industry for a longer duration. the strategic approach of this company depends on its way of managing commercial co-operation with various aviation companies. CAPA (2010), refers to the established carriers networking of this company in European and the Australia market. These deals perceive the strategic approach of Emirates as strong and dynamic in the global carrier business. This happens through the increasing commercial co-operation of Emirates with Europe, North America, Asia and Australia.
CAPA (2013 a) laid focus on the commercial co-operation of Emirates with Qantas and American Airlines. The profitability has been inscribed by this report by stating that in a couple of year there is the transformation programme, whereby Qantas avails underlying profit prior to the tax amounting 192 million AUD (or 172 million USD) for FY 2012-13. Moreover, it is important to note that Emirates still is on the form of offering cooperation rather than getting in to long-term alliances. The research initiative led by Parker and Löfberg (2009) noted Emirates for its anti-competitive elements and the ideology that through alliances, a company tends to gain artificial speed in the business. This can be referred to the relationship of Emirates with American Airlines that was led with the aim of offering more benefits to the consumers through the availability of multiple airlines.
In the same thread there is the codesharing initiated by the Emirates with Malaysian airlines (Cole, 2016). The report by Cole (2016) analyses the purpose of this commercial co-operation of Emirates to the Malaysian airlines and notes that this venture looks forward to offer more seamless kind of travel options to the passengers to 15 Malaysian cities, with convenient connectivity to Kuala Lumpur. On a reciprocate ground these travellers are also benefited by the expanded network, that comprises 90 destinations from the Middle East, Europe, America and Africa.
Though there is no room or extensive alliances led by Emirates, yet even in the future Emirates aims to continue with its strategic approach of offering commercial co-operation to various airlines. As reported by The Emirates Group (2012) the company added seamless connections between Dubai International Airports and Lisbon. It is through the reciprocal codesharing that the customers are availed with the benefit to enjoy single-combined ticket for the Emirates as well as TAP flights as operated from Portugal. Apart from that The Emirates Group (2013) further notifies that Emirates SkyCargo along with Qantas freight are getting into partnership for gaining new trading and business opportunities. This is a partnership that is offering seamless access to the consumers from their network to other networks.
The CAPA (2013 a) report declared that in the FY 2012-13, entire international aviation commercial strategy revamped with and around the co-operations as offered by Emirates. There are competitive platforms marked from Virgin Australia. It is here that the Qantas makes some distinct progress and gains transformational international look in the aviation business, until FY 2014-15. The approach is in terms of putting these commercially equipped partners in the position of preparing extensive expansion of their routes from 2016 (Emirates, 2015)
Following the commercial success of Dubai in the aviation industry, the rulers from Abu Dhabi, UAE, decided to meet the economical gap by the establishment of a flag carrier meant for UAE. As in the year 2002, Qatar gets withdrawn from Gulf Air, the Abu Dhabi rulers planned to establish a new airline (Etihad, 2015 a). Initiated by a royal decree in the month of July 2003, the Etihad Airways had its first flight in November 2003 (Opu, 2010). This airline came with the commercial strategic approach of investing in the venture of getting hold over multiple carriers across the world (UAEInteract, 2003). Since then, Etihad grew with 70 aircraft to meet 80 destinations and designated itself as the world’s ‘fastest growing airline’ (Al-Sayeh, 2014). As recorded by Al-Sayeh (2014) until 2014, this airline was operating to all the continents, with extensive announcement of expanding multiple carriers in the European and Asian nations.
The commercial strategy of making investments in multiple carriers by Etihad Airways offered it with the mode of quick growth scope in a very short span of time (Etihad, 2013). By the last part of 2011 the Etihad Airways decides about increasing its ownerships in the stakes that are spread over multiple international markets. The strategy started by increasing stake ownerships with Air Berlin, and soon covered Aer Lingus (by 3%), Virgin Australia (by 20%), Jet Airways (by 24%) and Air Seychelles (by 40%) (Etihad, 2013). By 2014, this airline acquired 49% of stake ownership over newly re-launched flights of Air Serbia. This is the commercial strategy of Etihad, which allows the company to buy or invest in stakes of multiple carriers, as per ‘craft codeshare agreements’ being in its favour.
Conclusively, obvious rise and development of the three major Gulf airlines, namely Emirates, Etihad, and Qatar get noted in the international aviation market. As a result, of this the global market is in great demand of implementing exemplified or similar commercial strategies for sustainability amidst the competitive platform as created by these Gulf airlines. The study of Emirates’ commercial co‐operation, as through Qantas joint service deal; Etihad’s commercial strategy of investing in global multiple carriers; and Qatar’s decision to be a part of global alliance, show that the airline industry should start functioning in more innovative commercial way. It is highly important for all the international airlines to abide to international agreements and maintain transparent consumer–oriented service deliveries to all the stakeholders of the aviation industry.
As exemplified by the ‘Big Three’ airlines from Gulf, irrespective of operating from closely located hubs, these airlines are successful. The reason is that they follow different commercial strategies of aviation business.
Emirates stands as the pioneer with long-haul network, fiercely dominated competitiveness, along with incumbent carriers in order to connect traffic. The partnership of Emirates with Qantas strengthens this trend of dominance, especially in the routes connecting Australia and European nations.
As for Qatar Airways, it has been a process of meeting a huge ambition and the same gets achieved through its opening up to the global Oneworld alliance. As a result, Qatar Airways transforms its carriers into various connecting routes.
Lastly, the commercial strategic approach of Etihad appears more outstanding. Etihad is a company that joined the bandwagon very late, yet is equally offering aggressive competitive edge to its contenders. Its success is in its decision of investing over multiple carriers with more service-led facilities and offers in both regional networks and long-haul connections, on a parallel basis.
Thus, it is to be noted that to gain positive edge of the global competitiveness, the international airlines must have right commercial strategies, as in case of Emirates and Qatar, to be specific; and follow change in both fundamental as well as strategic approaches. The basic approach of any international airline should be in creating critical customers, specifically assessed destinations, and offering innovative services and products, in order to gain competitive advantage over the selected region and attain upward mode of mobile clientele; as in the case of Emirates, Etihad, and Qatar.
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