Author: Mei Ling Tan

Low-cost airline groups and manufacturers of smaller passenger aircraft will be among the main winners after Southeast Asia’s open skies agreement finally came into effect last month, although airport capacity constraints could limit the benefits.

Ratification of the Association of Southeast Asian Nations (ASEAN) open skies agreements by Indonesia and Laos in April lifts restrictions on capacity and competition, allowing airlines to launch unlimited flights from their home to any point in the region subject to airport slot availability.

Hubs like Singapore, which have a clear expansion plan, could gain from an increase in air services, as will budget carriers which are ideal for a region where no two points are more than a few hours apart, say analysts.

“Airlines can launch any number of international flights as the market can support,” said Alan Tan, an aviation law professor at the National University of Singapore. “Travellers can thus look forward to more flights at more competitive prices.”

Dominant low-cost airlines like Malaysia’s AirAsia , Indonesia’s Lion Air, and Philippine carrier Cebu Pacific plan to do just that.

AirAsia, for example, wants more international flights from the Philippines and Indonesia, a spokeswoman said. This will help its affiliates, which have found it tough to break into the domestic market in those countries.

“Improved connectivity in the region will be a boon to tourism and strengthen ASEAN as an economic union,” the spokeswoman said.

Full service airlines like Thai Airways, Garuda Indonesia and Philippine Airlines, which have lost market share to budget carriers over the last decade, say they plan to use their long-haul network to connect passengers to their Southeast Asia services.

The Singapore Airlines group has an additional advantage, given its ability to operate services using two premium brands and two low-fare subsidiaries, analysts say.

The opening up of regional destinations can also boost manufacturers of 70-130 seater aircraft, like Brazil’s Embraer , Canada’s Bombardier and ATR, a joint venture between Airbus and Italy’s Finmeccanica.

These planes can serve some routes more profitably than the larger Airbus A320s and Boeing 737s, they say.

“Many of the region’s airlines are beginning to recognise the potential advantage of right-sizing and the ratification of ASEAN open skies, we feel, will simply accelerate the process,” said Mark Dunnachie, who leads Embraer’s aircraft sales in the Asia-Pacific.

HUBS LIMIT GROWTH

While there will clearly be winners from the open skies deal, the full gains could be limited by airport constraints.

Bangkok’s Suvarnabhumi Airport, Ninoy Aquino International Airport in Manila, and Jakarta’s Soekarno-Hatta International Airport serve Southeast Asia’s three biggest domestic markets of Thailand, the Philippines and Indonesia respectively.

All have reached full capacity with congestion and delays the norm, creating spillover problems for smaller airports in those countries as well.

“Unlimited flight capacity is meaningless if airport and slot congestion remains unaddressed by governments,” Tan said.

Singapore’s Changi Airport is the exception. Despite having relatively little domestic traffic, it has three terminals which can handle 66 million passengers and served 55 million in 2015, the most in Southeast Asia. Work has begun on two more terminals.

Such long-term national aviation policies are needed due to the lengthy gestation period for terminals and runways, said Vinoop Goel, Asia Pacific director for airports at the International Air Transport Association (IATA), a global airline trade body.

IATA estimates that ASEAN countries can add almost 25 million jobs and $298 billion to the region’s GDP by 2035 if they invest in aviation infrastructure. This is up from 11.6 million jobs and $144.4 billion to GDP in 2014.

“Clearly, failing to tackle airport infrastructure will have an economic cost,” Goel said.