Open Skies Policy at CRK

Originally posted by bustero in skyscrapercity forum.

A response to PAL, Part 1

by Avellino Zapanta

I thought PAL is wasting time and media space trying to destroy me instead of focusing on the
competitors. But so be it if it would rather train its guns on me than Cebu Pacific, which
is getting bigger and better than PAL by the day. I will be elevated to heights of public awareness
I do not seek while Cebu Pacific laughs its way to Philippine aviation dominance unchallenged.

Very quick explanations on the issues PAL cited.
(1) Repatriation of foreign airlines’ earnings
to their home countries.

I realized this amount is
so small compared to what the country would
gain if we open up our skies. I will cite only one
sector of the economy, the OFWs that remit over
$15 billion a year to the country. PAL’s total
revenue is no more than $1 billion. The foreign
airlines’ take from the country cannot be more
than PAL’s total revenue. By sheer magnitude, the
OFWs therefore count more for the national
interest. PAL’s interest should be subordinated to
this sector, which props up the economy during
difficult times. The even bigger sector is tourism,
but it will require volumes to write about the
opportunities the country has been missing in
tourism in protecting PAL.
(2) Executive Order 253, a unilateral grant of
7th freedom violates the national interest.

I believed this then because as PAL man I equated national
interest with PAL. The bigger picture is commerce
and trade spawned by air cargo services benefiting
all other sectors of the economy and employment.
Since PAL was not doing for the country
what FedEx, UPS, and DHL were doing then, it is
to the economy’s advantage to give them 7th freedom.
Furthermore, most of the airlines of the surrounding
countries operate a fleet of freighters.
PAL does not operate a single pure cargo aircraft.

(3) Secretary Neri’s view of open skies being
wrong.

He is right all along. The multiplier effect
of open skies in the economy is incalculable, so
much more than the $1-billion revenue of PAL per
year as demonstrated in item (1) above.

(4) SEAIR perceived as foreign-owned.

It wasafter all just mere perception. The issue was raised
with the CAB early in SEAIR’s 12-year history
(making it the second oldest airline of the country
next only to PAL) and proven wrong. SEAIR
complies with the 60/40 ownership requirement of
law.
(5) SEAIR being the only “primary Philippine
carrier” that did not sign the one-page ads against
EO 500-B.

SEAIR thanks PAL for recognizing it as
one of “the primary Philippine carriers.” SEAIR’s
not signing the ads is consistent with its position.
PAL’s “thwarting the expansion of SEAIR” is
evidenced by volumes of motions it filed before
the CAB against SEAIR’s lease of two A320s. Even
after the case had been submitted for resolution
PAL wanted more hearings to delay the
proceedings. The fallacy of the PAL statement on
Asian Spirit not granted permit on the Macau-
Clark route lies in the fact that the bilateral issue
is between the Philippines and Macau. Tiger
Airways as an excuse does not hold water because
it is a carrier of Singapore and not the Philippines.
Asian Spirit itself belies the attempt of PAL to
mislead the public. In the article “Local airlines
unite vs. open skies” by Daxim Lucas in the May
19 issue of the Philippine Daily Inquirer, EVP JackPo is quoted as saying “no clear reason was given
by the Macau government for rejecting my airline’s
application.” PAL’s conveniently laying the blame
on Tiger Airways therefore is another ploy to
mislead the public. What Jack Po may not realize
is that Air Macau and PAL may have something to
do with the rejection because the two codeshare
on the Manila-Macau route and PAL ground
handles Air Macau in Manila. A Clark-Macau flight
of Asian Spirit would be deemed a threat to the
cozy codesharing of the two.

(6) PAL is not against foreign airlines operating
in Clark, but only asks reciprocity to operate
also from Clark to other countries.

PAL is muddling the issue again. Its president is quoted in the
BusinessWorld issue of April 19, 2007, that PAL is
“not keen on flying from Clark.” To PAL “DMIA is
not a priority for the airline.” It has all the rights to
operate from Clark to Singapore to reciprocate Tiger
Airways and Clark to Malaysia to reciprocate Air
Asia. PAL has no basis in claiming absence of reciprocity
except for its own refusal to operate in Clark,
a tactical error it will dearly regret in the not-sodistant
future when Clark becomes the country’s
gateway.

(7) Mr. Zapanta is singing a different tune
now.

The public may judge for themselves on the
basis of the issues discussed above. More illustrious
men than me changed hearts upon Enlightenment.
Gautama Buddha reached Nirvana and
St. Paul of Tarsus became a disciple of Christ.
They best exemplify the men of mission and
zeal.

In my case, I was and am aware of my enlightened
missions then and now. My focus as president
of PAL during its most difficult period of existence
in 1998 was to resurrect from the dead the
national flag carrier. To achieve the mission, I had
to battle with guns blazing at all obstacles, including
the aeropolitical hurdles.
That mission was done after over five years, but
it brought me to a crossroads. Family members of
the PAL owners began dictating policy changes that
would erode the newfound industrial peace and
profitability of PAL. I thought the honorable thing
to do was to retire rather than break my commitments
to the PAL people who sacrificed to
save the airline. In the end, the owners did not
implement the changes they asked me to do.
Otherwise, the harmony would have been shattered.
The issue today is not me, but the behavior of
the duopoly of PAL and Cebu Pacific, which is not
conducive to a stable air travel and tourism industry.
The duopoly is not living up to its mandates and
the expectations of the Filipino people.
As such, it has no business opposing the entry
of airlines, local such as SEAIR or foreign, willing
to provide the capacity and the flight frequency supportive
of air travel and tourism.

A response to PAL, Part 2

Despite huge profits PAL has not reversed its policy of operating only the profitable routes.
It continues to shun developmental and missionary routes. It continues to abandon the
Middle East, where OFWs are concentrated. PAL prefers to profit by allowing foreign
airlines, e.g., Emirates, Etihad, Qatar, and Saudia, to use the Philippine air traffic rights for
compensation at no cost, only revenues to PAL. It is not the mandate of PAL to collect
“compensation” from foreign airlines for the use of Philippine air traffic rights. Those [rights]
are entrusted to PAL to service the traffic, e.g., the OFWs.
and the domestic stations.

Thousands of Filipino seamen connect at major
cities in Europe to board their ships in Amsterdam,
Athens, New York, Miami, and other seaports of the
world. They have foreign airlines to thank for
servicing their needs. PAL continues to shun the US
East Coast and all of Europe. For years Filipinos in
these two major markets have been longing for the
PAL service in vain. Since it is the foreign airlines
who serve the OFWs it stands to reason that the
Philippines should open up our skies for them. They
will also add to Philippine tourism to boot.
PAL continues to hide behind the cloak of
receivership despite consecutive years of profits since
1999. The American carriers that declared Chapter
11 in 2001 due to 9/11 have all graduated from
bankruptcy. PAL continues to bask in government
protection from its creditors and labor unions. If
PAL, which refuses to operate in Clark, does not wish
to reinvest some of those profits to serve the Filipino
people, like it refuses to operate in Clark, then it
should not stop SEAIR, which is willing to operate
low-cost budget operation from Clark to the region

Regarding PAL’s, and also Cebu Pacific’s recent
acquisition of multiple aircraft, they did not hear
any opposition from the small airlines like SEAIR.
Yet today, for two A320 aircraft which SEAIR is
leasing, they have succeeded in blocking it for five
long months at the CAB. This is the only time SEAIR
has encountered resistance in expanding its fleet.
Being the second oldest airline of the country, SEAIR
acquired over 14 aircraft in its 12 years of existence
without any problem. Today, the duopoly does not
seem to want SEAIR to spread its wings.
Cebu Pacific was critical of SEAIR finances. A
review of the latest available financial papers (2005)
is showing that SEAIR and Cebu Pacific have the same
level of authorized capitalization and subscription.
The profit margin of SEAIR as a percentage of
revenue is better than Cebu Pacific. The Cebu Pacific
balance sheet shows hundreds of millions of “deposits
for future subscription,” which is yet to happen. Cebu
Pacific is in a hurry to do IPO possibly to convert
this liability to equity to show a pretty picture.
Cebu Pacific President Lance Gokongwei is
quoted in the May 28 issue of the BusinessWorld on
the subject of EO [Executive Order] 500-B as saying
“it is better for Cebu Pacific not to be a Filipino carrier
if we are not in a reciprocating situation.” There is
not a single foreign airline operating in Clark today
that denies PAL or Cebu Pacific the right to operate
reciprocal flights. On Tiger Airways’ Clark-Singapore,
they only have to decide right this very minute and
they can operate. On Air Asia’s Clark-Malaysia, the
same thing; they only have to will it.The claim
therefore of not being “in a reciprocating situation”
is an empty one designed to muddle the issue.
The reality is they are afraid to compete such
that in the same May 28 BusinessWorld [issue] and
in Philippine Star, Secretary Ed Pamintuan is quoted
that “top economic leader and industry expert Mr.
Washington SyCip told me that he personally
conveyed to Mr. Lucio Tan and Mr. John Gokongwei
the futility of stopping the full development of the
DMIA.”

SEAIR serves the higher purpose of tourism.
Among others, it performs a vital tourism service
of bringing the foreign tourists from the gateways
to the tourist destinations of the country. It also
serves the Filipino tourists who now see the value
of domestic tourism resulting in the conservation
of foreign currencies.
PAL and Cebu Pacific stick to the profitable domestic
trunk routes and some secondary routes. The
air services in many of the 55 domestic points PAL
abandoned years back have been lost forever. Very few
remember that once upon a time, there were air services
in such places as Bagabag, Ormoc, Hilongos,
Guiuan, Kiamba, Lebak, Allah Valley, Mati, Banganga,
Siocon, Labason, and many more. SEAIR is far better
than the duopoly in terms of corporate social responsibility
because for several years now it continues to
operate the commuter routes long abandoned by PAL,
including Manila-Busuanga, Cebu-Camiguin, Cebu-
Cotabato, Cotabato-Zamboanga, Zamboanga-Jolo,
and Zamboanga-Tawi-Tawi.
Regretfully, the obsession of the dominant
carriers today is to throw the gauntlet to the smaller
Philippine carriers operating in Boracay. Its priority
is to squeeze out these small carriers with the
acquisition of several turbo-prop aircraft. (PAL will
deny this because it is its sister airline, Air
Philippines, which is given that mission.) Boracay
might implode with too many airlines operating in
a very limited airport while many parts of the
country hunger for their share of air services.
Deregulation and EO219 do not seem to have
provided for unhealthy situations like this, but reality
has a way of dealing with this kind. In due time,
the concepts of fleet commonality and operational
simplicity will catch up with PAL and Cebu Pacific,
and they will wake up one day with history repeating
itself with another airline industry debacle of a
magnitude far greater than the one preceding the
One-Airline Policy of 1973.
In the wake of the PAL and Cebu Pacific invasion
of Boracay, the smaller carriers like SEAIR will need
alternative areas of operation to survive. But they
have blockaded all avenues of relief. SEAIR’s lowcost
budget service planned for the last five months
has been frozen at the CAB. The game plan is to
keep it frozen until they get their turbo-props and
altogether kill the small carriers. It is a cruel game
plan, but that is the perception the delay is creating.
Ultimately, the victim is the Philippine economy. It
should have been enjoying the benefit of a real
honest-to-goodness lost-cost, low-fare carrier in
SEAIR from Clark to Cebu, Davao, Macau, Singapore,
to later include Bangkok, Seoul, and Darwin.
The public can only wish the CAB rendered a decision
soon.


The article reflects the personal opinion of the
author and not the official stand of the Management
Association of the Philippines. The author is president
of South East Asian Airlines. Feedback at
mapsec@globenet.com.ph