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AirAsia, truly ASEAN

Luc Citrinot, eTN  Dec 26, 2010

(eTN) - The ASEAN logo is proudly displayed on the aircraft's livery of some of AirAsia's Airbus A320 all across Asia, and this is more than justified. In less than a decade, AirAsia - an unknown Malaysian regional carrier which used to fly from Kuala Lumpur to both Langkawi and Malaysian Borneo - has turned into an icon of air transport in Southeast Asia. After expanding in Malaysia, AirAsia rapidly stretched its wings with affiliates in Thailand and Indonesia. It now enters what can be considered Southeast Asia's last market with a big potential: the Philippines.

The Philippines remain Southeast Asia’s second largest archipelago with over 7,000 islands and one of the most populated in the world, as its total population is gradually approaching the symbolic mark of 100 million inhabitants. Looking at a map of the region, the Philippines is an ideal air gateway, located just half way between Northeast Asia (China, Japan, and Korea) and the rest of Southeast Asia. It takes roughly 3 hours to reach Bangkok, Singapore, Beijing, Osaka, or Seoul.

International air transport to and from the Philippines is, however, far less developed than its Thai or Indonesian counterparts due to adopted protectionism from the Filipino government. Despite claiming to be liberal, the previous government of Gloria Arroyo Macapagal remained restrictive in according traffic rights - Manila was virtually closed to low-cost new entrants and Cebu was restricted, leaving only smaller airports available for new entrants.

Among them, Clark airport – 80 km away from Manila- was designated as the country’s gateway to low-cost traffic. Tiger Airways, AirAsia, and Cebu Pacific are the main users among low-cost operators present at Clark Diosdado Macapagal International Airport. Its total traffic remains, however, modest: while Manila welcomes some 25 million passengers a year, Clark will have only seen between 0.65 and 0.70 million passengers passing through its terminal in 2010. AirAsia has been present in Clark since April 2005 but has failed to expand operations due to regulatory restrictions.

It is not sure whether the new government of Benito Aquino will be radically liberal. However, it seems to be, at least, more attentive to the requests of low-cost carriers, acknowledging the benefit they represent to bring prosperity to the regions. As tourism is seen by the government as a key development area with the objective of doubling the total number of international arrivals from three to six millions travelers during Aquino’s six-year term, the Filipino government has made a policy decision to reactivate a 1995 law known as "pocket open skies" to relax aviation regulatory restrictions and attract airlines to operate more flights to provincial airports.

Meanwhile, well-established low-cost operators such as Tiger Airways (Singapore) and now AirAsia announced new partnerships to capture some of the Filipino market. Last October, Tiger Airways inked a marketing agreement with Southeast Asian Air (SEAir) to base two Airbus A319 in Clark and fly out to Singapore. Speaking to a local newspaper, SEAIR CEO Avelino Zapanata has indicated that the airline will get two more Airbus by next year to start servicing destinations in Hong Kong, Thailand, Vietnam, Korea, Japan, and Taiwan.

And now it is AirAsia's turn. In mid-December, Group CEO Tony Fernandes flew to Manila to formally announce that his Malaysia-based airline has formed AirAsia Philippines with Filipino businessmen - a joint venture comprising AirAsia Berhad (40%) and Filipino businessmen such as Antonio Cojuangco, Marianne Hontiveros, and Michael Romero, each of them owning a 20% stake. Cojuangco is a cousin of Benito Aquino, a position which is likely to help the new carrier. Romero owns Harbour Centre Port Terminal Inc., a 15-hectare area at Manila's port. Hontiveros is involved in the world of media and culture and will become the CEO of the new affiliate.

"The Philippines is starved of connectivity. It is painful to come to the Philippines. There is a massive amount of connectivity that is required here," remarked Fernandes at a press conference, who aknowledged the amount of difficulties faced by foreign carriers to serve the country. First, negotiations with Filipino authorities started already in 2006, he explained during his media briefing.

AirAsia Philippines looks to start its activity by August or September 2011 with regional and some domestic flights. All the current flights operated by the Malaysian affiliate will then be transferred to its new Filipino subsidiary. As AirAsia Philippines plans to fly within a four-hour radius from Manila, it will then help Asia’s biggest lowcost airline to also strengthen its presence in important markets such as Japan and South Korea. Fernandes promised also to bring new routes never flown before and connect airports which never had traffic before.

The quest for a pan-ASEAN network is, however, not over for AirAsia. The airline will soon have to refocus its attention on the joint venture signed almost two years ago with Vietnam and seems to have its wings clipped as Vietnamese authorities continue to protect their national carriers. But this is just the start of the battle to take over "Fortress Vietnam."

AirAsia, truly ASEAN
After Kuala Lumpur, Bangkok and Jakarta, Airasia will soon open a hub in Manila (photo: L. Citrinot)

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