The International Air Transport Association (IATA) has called on the government of the Philippines to maximize the economic and social benefits that aviation can bring to the development of the country by addressing airport infrastructure deficiencies in Manila, abandoning proposals for increased taxation on aviation and adopting smarter regulation principles.
Speaking to participants of the Philippine Aviation Day in Manila organized by the Air Carriers Association of the Philippines, Alexandre de Juniac, director general and CEO, IATA, said, “Aviation is vital to the Philippines. It supports 1.2 million jobs and US$9.2bn in GDP.
“The domestic network binds the country across 7,000 islands. International links keep families and businesses connected, and bring in tourists. But the social and economic benefits of air transport are at risk if the key issues of airport infrastructure, excessive regulation and taxation are not addressed.”
Ninoy Aquino International Airport was built to handle 30 million passengers but is handling nearly 40 million passengers currently. “There is an urgent need for an airport masterplan to accommodate the growing demand for connectivity,” added de Juniac.
The top priorities are to enhance the runway and terminal capacities at Ninoy Aquino International Airport; to further develop Clark International Airport as a secondary airport for Manila; and quickly deciding on a site within reasonable proximity of metropolitan Manila where a two-runway airport can be built and expanded. This recognizes that physical constraints at Ninoy Aquino Airport and Clark Airport’s distance from Manila prevent either from fulfilling this role.
“There is no time to lose – every landing that cannot be accommodated is lost money and opportunity for the Philippine economy,” said de Juniac. “Siting, designing, building and financing a new airport and the connecting infrastructure can easily be a 10-year project. Even the most aggressive possible incremental capacity expansion plan of Ninoy Aquino airport will not be able to adequately cope with the growing demand.”
When examining excessive regulation, De Juniac cited the new consumer protection legislation in the Philippines that would cap air fares, prohibit overbooking and impose onerous consumer protections extra-territorially.
“Well-constructed regulation has played a key role in making the industry safe and reliable,” he said. “But excessively onerous regulation can be a huge burden on the ability of aviation to deliver its social and economic benefits.”
In 2016, airfares in the Philippines were 77% cheaper than a decade before. Over the same period the number of destinations served directly from the Philippines increased from 40 to 55, while the number of travelers nearly tripled from 24 million to 64 million.
“Aviation is competitive,” de Juniac added. “Airlines offer a wide variety of fares at different price points to satisfy consumer needs. Introducing government-imposed fare caps would likely have the unintended consequence of reducing deeply discounted fares. If airlines cannot charge a premium for ultimate flexibility, then covering costs will likely lead to a rise in average fares.”
The reality in the Philippines is that more bookings are made than people who actually fly. Managed overbooking helps fill the plane and keeps fares low. Revenue management systems watch trends and adjust the selling with tremendous accuracy. IATA believes that when this goes wrong, a flexible market solution, not inflexible regulation, provides the solution.
The industry supports robust consumer protection in line with global standards and smarter regulation principles. The Montreal Convention and the International Civil Aviation Organization’s (ICAO) principles for consumer protection are the model to follow. But what is being proposed by the Philippine government is misaligned and oversteps the national boundary.
“Powerful market forces govern a hyper competitive industry. When things go wrong, airlines have every incentive to make them right because they don’t want to lose their customers. And if the customer is disappointed, they have the ultimate power in their wallets of choosing another airline for their next trip,” said de Juniac.
De Juniac urged the authorities to adopt smarter regulation principles when developing the regulatory framework. These include respecting global standards where they exist; focusing on solving real problems; the ability to pass rigorous cost-benefit analysis; and encouraging transparency so that it does not distort competition.
Green Fee and taxes
De Juniac called on the Philippine government to avoid implementing a tourism tax and to abandon a proposed Green Fee. The economic and social benefits of tourism are compromised by tourism taxes.
“Short-term budget gains quickly disappear when tourist arrivals drop,” he explained. “The government should focus on making wise investments in the tourism infrastructure that will encourage people to visit. The extra tourist dollars you attract will pay for the investments and make a greater economic contribution.
“The proposed Green Fee is misguided and should be abandoned. Governments through ICAO have agreed a global approach to climate change based on improvements in technology, infrastructure and operations. And there is an agreed Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The cause of sustainability is best served by the Philippines supporting this global approach and volunteering to participate in CORSIA,” concluded de Juniac.