Asia Must Further Liberalize Airline Sector to Unleash Growth Potential

Asia should further liberalise its airline industry to unleash the region's full growth prospects or risk losing billions in unrealised potential, industry experts said.

'We need one more revolution and that's from the government ... liberalisation,' said Peter Harbison, executive chairman of the Sydney-based Centre for Asia Pacific Aviation (CAPA).

The airline industry has enjoyed unprecedented growth in recent years despite high oil prices and avian flu outbreaks in parts of Asia, thanks largely to booming economies in India and China, industry players said at the regional Aviation Outlook Summit.

But they said Asia must now face the reality that further opening up -- for example by reducing restrictions on which carriers can fly certain routes -- is needed for continued growth.

'I think the greatest challenge that we face is to make enough money,' said Brian Pearce, chief economist at the International Air Transport Association (IATA), which groups 260 airline companies.

'Asia has been the most consistently profitable part of the world but even in Asia, the returns on capital are less than 5 pct,' Pearce said, adding that that is only half what it should be for long-term financial viability in a liberalised, commercial industry.

He said the region still lagged behind the European Union and the United States in loosening restrictions on its aviation sector and is losing 'billions' of dollars as a result.

'We have seen progress, we have seen good progress in a number of areas but in many ways, Asia is playing catch-up to what we have already seen in Europe and the US,' he told Agence France-Presse on the sidelines of the conference.

Harbison, of the Sydney-based CAPA aviation consultancy which organised the conference, also pressed the need for more deregulation.

'In this environment, the whole basis for tight regulation of international markets, or protectionism, just does not really exist,' Harbison said.

He cited the case of Malaysian low-cost carrier AirAsia whose phenomenal success in opening up the domestic market has shown authorities that the industry does not need subsidies or protection to be commercially viable.

Harbison said that when AirAsia entered the market, it expanded 'quite dramatically in ways which didn't require subsidy and in ways which stimulate traffic.

'The outcome, well just about everybody wins,' he said, adding that the emergence of AirAsia has forced flag carrier Malaysia Airlines to try to improve its performance, which is ultimately good for the industry.

AirAsia was launched as a budget carrier in December 2001 with just two aircraft but now offers more than 100 domestic and international flights around the region.

Andrew Herdman, director general of the Association of Asia Pacific Airlines, said liberalisation of the sector would benefit full service carriers and not just the low-cost entrants.

'Often they are liberalisation's biggest winners,' said Herdman. 'We must ensure that the regulatory framework keeps pace with industry needs.'



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