Asian aviation is in the ascendancy, but it risks leaving its regulation to other parts of the world. This, in essence, was the message given to delegates at the 54th Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA), held in Brunei in November.
Statistics from the International Air Transport Association (IATA) show that the Asia-Pacific region will overtake the world’s busiest air-traffic regions, North America and Europe, within 20 years. This year, passenger traffic in the Asia-Pacific region will grow by 15 percent and air cargo by some 30 percent, compared with more sluggish growth of 1-3 percent expected from the two mature markets.
The AAPA comprises some of the region’s biggest carriers: All Nippon Airways, Asiana Airlines, Cathay Pacific Airways, China Airlines, Dragonair, EVA Airways, Garuda Indonesia, Japan Airlines, Korean Air, Malaysia Airlines, Philippine Airlines, Royal Brunei Airlines, Singapore Airlines, Thai Airways International and Vietnam Airlines.
These carriers will see growth accelerate over the coming decades, said Chris Buckley, Airbus executive vice-president for Europe, Asia and the Pacific. “North America is actually saturated, and thus almost no growth will happen over the next two decades and most aircraft sales will be for replacement. Europe still has room to grow, but our focus is now on Asia,” he said.
Over a third of the world’s requirement for 16,977 single-aisle aircraft will come from the Asia-Pacific region, Airbus estimates, and almost half of all demand for A380 or Boeing 747-class very-large airliners.
US airframer Boeing agreed, with Dr Fariba Aladari, Asian vice-president for the Chicago-based manufacturer describing the airlines of this region as “standout” in terms of traffic growth. “The airline industry made US$9 billion globally last year, of which US$5 billion was from Asia Pacific,” she said.
AAPA membership encompasses 60 percent of the Asia-Pacific region’s capacity, similar to its counterparts the US Air Transport Association (ATA) and the Association of European Airlines (AEA).
Yet unlike those groups, the AAPA has no single government to lobby for regulatory change. Most new aviation rulemaking comes either from Washington DC or Brussels, where the association now focuses most of its efforts. This leaves AAPA carriers at a disadvantage, notably since much of the regulation passed by the US Department of Transportation and the European authorities become global standards, said the association’s Director General Andrew Herdman.
There are several lead aviation safety regulators in the region, notably those from Australia, Hong Kong and Singapore, but little common lobbying against the raft of what Herdman views as "well-intentioned", but "ill-conceived and counterproductive" aviation legislation emanating from the old world.
“Aviation is a heavily regulated industry and this regulation is dominated by the US and European Union, because together they represent 60 percent of the industry. But as the emergence of the G20 [group of twenty finance ministers from major economies] as the world’s primary economic forum rather than the G8 [group of eight leading industrialised nations] shows, there’s a new world economic order. Asia has shown it can lead commercially, but it needs to take a larger role in shaping regulation,” he said.
The AAPA passed five resolutions at the assembly, all aimed at fighting a more concerted campaign in the face of this mounting legislative pressure. “Governments need to rethink unwarranted and ineffective policies on the environment, taxation and passenger services,” Herdman said in the assembly communiqué.
The association’s chief fear is the spread of mandatory passenger protection rules. The European Union was the first to guarantee minimum customer service and compensation guarantees in the event of flight delays and cancellations.
The EU Regulation 261 on air-passenger rights has drawn criticism not only from low-cost carriers (Ryanair is locked in a court battle over its refusal to compensate for delayed flights) but also from Asian carriers. This irritation turned to anger during the volcanic-ash related European airspace shut-down earlier this year.
Tony Tyler, chief executive officer of Cathay Pacific pointed to the "absurdity" of his Hong Kong-based carrier having to pay for two weeks’ hotel accommodation in London for stranded passengers.
Brian Johnson, the European Parliament's transport-committee chairman, defended the regulation, which guarantees stranded passengers between 125 euros and 600 euros compensation, depending on flight distance and the delays incurred when rerouted.
“It’s like drunk-driving laws. I would never drink and drive, but laws let people know it’s wrong. So airlines now know it’s wrong to overbook and then bump passengers off,” he said.
However, he also admitted that the rules as they stand were not designed for such extended periods of disruption as the ash cloud and said that “his bet” was that 261 would now be altered to limit the duration of any payments as well as being extended to other forms of transport, levelling the playing field.
Nonetheless, Herdman points out that in the US there is a notice of proposed rulemaking passing through Congress on similar broad passenger-protection regulations for US airlines. The rulemaking on enhancing airline-passenger protection proposes a minimum of US$650 compensation for overbooked flights and similar penalties for severe delays and lost bags.
Within the AAPA’s own region, China, the Philippines and Thailand are all, for example, tentatively considering passenger-protection rules.
Herdman said these minimum levels of compensation amount to a "compulsory insurance" that would raise air fares and effectively take choice away from consumers. Asian airlines are known for better service than US and European carriers, but these rules could make them lose that competitive advantage, he warned.
"Introducing overly prescriptive legislation to regulate customer care constrains the airlines' ability to innovate and use superior level as a point of difference," he said.
“The AAPA calls on governments to refrain from introducing legislation that would act as a disincentive to compete freely on customer service standards, and also [to] ensure mandated regulations related to passenger processing and treatment are designed from the outset to be practical, cost-effective, efficient and sustainable,” the 17-member association agreed.
Many of the calls for passenger-protection regulations arise from the varying service standards allowed by airline deregulation.
“We used to have standardised baggage allowance rules but we were accused of collusion, so every airline went [its] own way and now we see passengers confused when they interline from one carrier to another and get fined when there are different allowances. So now the regulators say we should standardise our baggage allowances,” Herdman said.
He further argued that if any denied-boarding compensation standards or passenger-protection regulations are needed, the right forum for such discussions would be the International Civil Aviation Organization (ICAO), ensuring that globally harmonised rules can be formulated.
The AAPA’s preferred solution would be to push for better adoption of travel insurance that covers force majeure and other airline eventualities. “If you want to stop bad things happening, then you have to insure against it. In other areas of life people take chances, risking not insuring, so why not travel?” Herdman said.
The AAPA also railed against a series of new taxes being imposed, largely by European countries, many of which are distance-based, thus discriminating against Asian carriers flying into the Old Continent. Austria, Germany and the UK were singled out as worst offenders.
The taxes, often dressed up as security charges or departure fees, do not go to fund airport infrastructure or even rival transportation like fast trains, instead ending up in general consolidated government revenue, Herdman said.
“These taxes are paid by the passenger and collected by the airline on their behalf. They come under a number of different labels and are contained within the ticket price, so whether it’s an arrival fee, a departure fee, security surcharge, airport passenger duty, visa processing fee or whatever, these all appear to the passenger as being part of the ticket. Around 15 percent of most tickets are taxes of some kind,” he added.
The AAPA is “very concerned about the proliferation of new taxes,” he continued. Such government charges are counterproductive and could lead to fewer new routes as the cost of flying rises. It is now cheaper, for example, for passengers travelling to London from much of the Asia-Pacific to fly into Brussels and take the Eurostar high-speed train.
The Netherlands is alone among European nations to realise the negative impact of high airport taxes. The country was praised at the Brunei meeting for having scrapped its passenger-movement charge after a study showed its negative effect on business traffic.
"Unjustified taxes do untold damage to the economy of the state imposing [them]," Herdman said. “Fortunately economies in this part of the world know the value of tourism and aviation to their economies.”
Another example of European legislation that has generated much industry opposition is the emissions trading scheme, which will apply to airlines for the first time from 2012.
All airlines must buy carbon credits for the entire duration of any flight entering the EU, not just that part flown over European airspace. Asian airlines object to the plan, arguing that on a flight from Seoul to Paris, for example, the majority of the emissions would occur outside EU airspace.
Singapore Airlines' outgoing Chief Executive Chew Choon Seng, said the scheme discriminated against Asian carriers whose journey into Europe was far longer than those of their Middle-Eastern rivals. "We are halfway around the world. Why not pay at point of entry [into the EU]?" he asked European parliamentarian Johnson.
Johnson replied that the emissions trading scheme was the responsibility of the parliament’s environmental committee, not his own transport committee. The environmental committee comprises ecological fundamentalists, he said.
His is the voice of reason within the European Parliament, watering down the initial proposals for a 100% charge for aviation, he claimed. "You want to see what the Taliban – I mean the environmental committee – first proposed and believe me, this is a whole lot better," he said.
No matter. The AAPA wants a global approach for the global industry. ICAO should be the forum where a new global standard should be decided, Herdman said.
Rather than shy away from the need to control emissions, Asian carriers have more incentive to work towards greener fuel initiatives, since they fly longer stage lengths than European and North American counterparts, he said. Just as with passenger-rights legislation, the AAPA fears emissions trading schemes in Australia and California may seek to include aviation and could be followed by a series of other such schemes.
“Even though governments reached a consensus at the ICAO 37th Assembly last month, this may not prevent the introduction of a patchwork of nationally- or regionally-imposed, market-based measures,” Herdman said.
The final two resolutions passed by AAPA covered safety and security. On safety, too, European and US legislation putting pressure on Asian carriers. But unlike the costly consumer-protection or emissions-trading legislation, the AAPA is broadly supportive of the US Federal Aviation Administration’s (FAA’s) Category 2 watch-list of airlines and even the blacklist of carriers banned from European airspace due to fears over their safety records.
But safety problems often originate not with airlines themselves, but with national aviation safety agencies and their relative lack of oversight, Herdman argued. “You’re only as good as your regulator,” he said.
Johnson, who personally signs off the blacklist after consultation with the European Aviation Safety Agency (EASA), pointed to the case of Garuda Indonesia, which undertook the International Air Transport Association’s Operational Safety Audit (IOSA) and was able to demonstrate acceptable standards using its own procedures-led safety standards, despite the country’s overall record being poor.
As a result, Garuda became the first Indonesian carrier to resume flying to Europe after the country’s airlines received a blanket ban from the EU in 2007, due to concerns over the safety culture within Indonesia’s National Transportation Safety Committee.
Johnson said the EU’s latest area of concern is the Philippines, where the national carrier Philippine Airlines (PAL) has been subject to Category 2 status since 2008, despite completing its own IOSA. PAL’s tentative plans to return to Europe with the restoration of it services to Zurich and Paris was dealt a blow in September when all Philippines-based airlines were prohibited from operating within the EU. Similar concerns exist for a number of other, smaller Asian nations, Johnson said.
Herdman said the Asia-Pacific region needs properly resourced safety regulators. “All our member countries are signatories of ICAO, but the track record in implementing its aviation safety regulations has been imperfect and some need help to pull up,” he said. A pooling of oversight capabilities across the region, similar to what has happened in Europe and is now taking place in the South Pacific would be one potential solution, albeit politically unlikely.
Staff secondment from the region’s leading oversight bodies was another short-term option, he proposed. However, since much of the role of the aviation authorities is to ensure international treaty obligations are met and that the intricate texts of annexes are made into national law, Herdman said the issue remains largely about recruiting and retaining good government employees.
“[In the] long term, the pay scales need to be high enough to retain staff and take away the temptation for corruption,” he said.
Similarly, Asia must work with Europe and the US on the issue of security, Herdman said.
The presidents’ assembly came just days after the attempt to ship liquid explosives hidden inside printers from Yemen to two Chicago synagogues using airline belly freight and the association was anxious that governments should not leap to rash decisions. Martin Eran-Tasker, the AAPA’s technical director, said airlines should be grateful that key lawmakers including the US secretary of homeland security Janet Napolitano, were attending the IATA aviation security conference AvSec World in Frankfurt when the attempt took place, allowing experts to counsel them immediately.
The fear of knee-jerk reactions to the latest attempted act of terrorism is greatest for Asian carriers, who together carry some 40 percent of all air cargo. Eran-Tasker said the most extreme counter-terrorism idea being considered in some world capitals is to ban all unaccompanied cargo from passenger aircraft.
In the US, where there are dedicated freighters and a vast segregated air-cargo infrastructure, this would be a terrible idea, he said, but in Asia it would be catastrophic. Only half of all air cargo is carried by freighters, he said.
Luckily, Herdman said, reaction to the latest incident appears calmer than in the past.
“We long ago learned that it is human nature that each new security incident prompts a desire to introduce yet more security measures, but it takes a certain political maturity to remain calm and not fall into the trap of knee-jerk reactions by the imposition of new security measures of unproven effectiveness,” he said.
Need for co-operation
The AAPA has consistently emphasised the need for government agencies and the aviation industry to work together to ensure a secure supply chain.
“This plot was foiled after Saudi Arabia tipped off British authorities. The lesson from this incident is that the biggest pay-offs come from intelligence gathering and sharing,” Herdman said.
The US is now calling for 100 percent cargo screening, which would also place Asia at a disadvantage, since few airport terminals have the equipment to process LD3 containers. Similarly, much freight starts off in remote locations, consolidated only at major hubs. Total freight screening would further complicate and delay procedures, Herdman said.
Much of the Asia-Pacific region’s exports are fresh produce or perishable goods, which would spoil if left in containers awaiting scanning, he said.
“The Americans are great believers in technological solutions, not procedural. But a technology that works in the US might not work in Fiji and might not be affordable across our region,” he said.
The fear of unfeasible security regulations being imposed from afar symbolises the AAPA’s wider struggle to be heard. There is no central regulator in Asia, although those in Hong Kong and Singapore act as leading regulators for the region and are “more engaged in the international debate,” Herdman said.
One potential heavyweight national regulator is the Civil Aviation Administration of China (CAAC). However, the problem for the AAPA is that it has no mainland Chinese member airlines. On this, Herdman is pragmatic: the association was set up for international airlines, and the Chinese market, while representing some 7 percent of global passenger traffic in revenue passenger kilometres (RPK) and 2 percent of cargo traffic in freight tonne kilometres (FTK), is still largely domestic in focus.
Herdman said that while “obviously” he would like a Chinese carrier “or two” to join the AAPA, he is prepared to wait for them to see the value the association brings.
Open to LCCs
The same view holds for the lack of low-cost carriers in the association. The AAPA was established as a flag-carriers’ club 54 years ago and today its members still reflect the old world order of full-service, scheduled international airlines.
Herdman said he would like to see Asia’s new long-haul low-cost carriers join, just as hybrid airlines have joined the EAA. However, rather than recruit new members, his focus this year has been to prevent existing members from leaving. Australia’s national carrier Qantas Airways let its membership lapse earlier this year, citing lack of value for money. Herdman said the door is still open to Qantas to cooperate in any AAPA meetings.
With no regional regulator to lobby, the association needs to try and influence each national regulator to move in the same direction.
“We are not naive enough to think that the world will change as a result of our resolutions. We’re part of a debate and we try to engage in dialogue and at a time when most regulation in our region is still domestic, we would like to help shape sensible policy in the region,” Herdman said.
The AAPA is certain about one thing: next year, fares will rise across the region. After a year of super-low fares, the association expects to see ticket prices rise as demand for air travel outstrips supply next year.
Still, many other external factors, in the form of taxes and charges, still lie beyond the control of an Asia-Pacific association, leaving the AAPA still beating a path to Brussels and Washington.