Moves towards open skies in South-East Asia have left the future unclear for some airlines
David Fullbrook/PHNOM PENH
Authorities in Cambodia, Laos, Thailand and Vietnam have been marching at different paces towards their own interpretations of open skies in recent years. At the core of their individual missions is a commitment to attracting more high spending tourists who do not share backpackers' delight in bus marathons on the region's dangerous roads.
Vietnam and its allies Cambodia and Laos are working together as the Mekong Forum to increase flights. Since October, Vietnam Airlines has flown one of the more innovative routes resulting from this agreement: its ATR72s link Hanoi with Vientiane, Phnom Penh and Ho Chi Minh City. In April a fourth weekly flight was added due to healthy demand.
Impoverished Cambodia, however, sets the pace in liberal aviation policy. President Airlines, flag carrier Royal Air Cambodge (RAC), Royal Phnom Penh Airways (RPPA) and Siem Reap Airways (SRA) are engaged in a tough dogfight for domestic tourist traffic. There aren't enough tourists to go round and few Cambodians can afford to fly.
John Rico, spokesman for President Airlines, is certain no airline can survive on domestic routes alone. Only the Siem Reap-Phnom Penh route holds real potential, he says: "It's the only feasible one, but since there are so many operators under the open skies it's not feasible right now."
International aims
President, which began operations in October 1998, now has one Antonov An-24, one Fokker F27-100 and one Fokker F28-1000 plus an Antonov An-12 and an An-26 for cargo operations. It plans to join its competitors and fly internationally.
Even the government thinks there may be a surfeit of carriers. "I think that at the present time we could say that there are too many airlines," comments under-secretary of state for civil aviation Keo Saphal.
Unfortunately none of the airlines - perhaps except Bangkok Airways subsidiary SRA - are profitable. As a result, regular failures have been a feature of Cambodia's airline industry over the last decade. Even RAC is dripping in red ink.
RAC's management has been overhauled and a new business plan is being prepared to stem losses, says Saphal. RAC will not be replaced with a new debt-free national carrier, Saphal adds, denying persistent rumours to the contrary. RAC's future may be brighter if another partner carrier were to be found. Air France is known to have expressed interest, but whether a new strategic partner will replace Malaysia's Naluri Helicopter Services (MHS) is unclear.
Cambodia threw open its skies in 1999 nominally allowing one airline per foreign country to fly to the kingdom in the belief that regular international flights would bring in tourists dissuaded from visiting the country by gruelling dirt roads and occasional bandit attacks.
Cambodia's open skies remain hazy, though. "Frankly speaking, the open skies policy has not been written into regulation. The real meaning of the open skies policy is that we allow all the airlines to come to [Phnom Penh's] Pochentong Airport, and for regional flights to go to Siem Reap airport," says Saphal.
He expects the haze to be lifted soon: "The Asian Development Bank promised to write down the real meaning of the open sky policy, but it's not yet finalised."
Cambodia's policy may not be perfect but Bangkok Airways president Prasert Prasarttong-Osoth praises the authorities for their nimbleness, saying he doesn't have to wait months for decisions - unlike in Thailand.
Thailand's permanent transport secretary Srisook Chandrangsu says Thailand's regulatory environment contributes to a stable aviation industry that avoids wasting investment by preventing weak airlines from operating.
But the red tape is still suffocating, in frustrated Prasert's view. Fare price changes need to be agreed by a government committee that meets rarely and must be chaired by the transport minister, he explains.
Cambodia's policy has detractors. RPPA president Norodom Chakrapong says: "I think some people want to politicise the business. I don't have the same right as the other companies. Look at Bangkok Airways - what they want to do, they can do it."
He dismisses SRA as a Trojan horse, complaining most staff are Thai, yet RPPA cannot get an employment visa for the carrier's general manager for Thailand, his son.
Same rights as foreigners
"I support the policy but on one condition: that we Cambodians have the same rights as foreigners. We ask the permission of our government to fly from Siem Reap to Bangkok, but unfortunately our government doesn't allow us to fly. I think it is not open skies. It must be equal," he says.
Still Norodom is convinced RPPA, which he owns, will survive and, with losses falling, break even in two years. "If I have the same rights, maybe less than two years," he says.
Controversy over Cambodia's laissez faire policies will no doubt continue. Meanwhile, international carriers face capacity constraints, especially at Siem Reap Airport. If capacity grows, more airlines from the same country will be allowed to fly to Cambodia, says Saphal.
Pochentong is undergoing a $120 million upgrade by French operator Société Concessionnaire de l'Aeroports (SCA). Navigation equipment and security have been improved and a much-needed extension to the international terminal opens in May complete with two airbridges, the airport's first.
A second international terminal, with plenty of retail space easing reliance on terminal charges, will be completed in time for the 10-member Association of South East Asian Nations summit in mid-2002, promises SCA commercial and development manager Philippe Rose.
The project is still going ahead, despite traffic growth slowing from 15% to 12-13% annually after the government, bowing to airlines and travel agents demands, opened Siem Reap airport to international flights and gave visitors direct access to the ruined temple city of Angkor Wat.
"Of course we feel the impact of Siem Reap airport opening to international traffic," says Rose, who adds: "Globally for Cambodia it's beneficial. For Pochentong it has been detrimental."
Many airlines have since switched flights from Phnom Penh to Siem Reap, reducing traffic. Silk Air is flying a triangle route serving both cities from Singapore. Dragonair, which has a good cargo and passenger business between Hong Kong and Phnom Penh, is considering adding Siem Reap. Korean carriers may follow later this year, thinks Saphal.
As compensation, SCA was given a concession for Siem Reap ending in 2005. But Siem Reap is small and it faces problems as demand rises. Rose sees Siem Reap as Cambodia's tourism hub and thinks its traffic could exceed Pochentong's by 2007. "We will have a 50% growth rate this year at Siem Reap. If no decision is taken we will have to say stop, we cannot accept any more flights," says Rose.
Redevelopment will probably be the cheaper option, but there's a strong case for a new airport further away. It is feared that the vibration and kerosene vapour from increasing numbers of take-offs and landings at the present airport will damage Angkor's magnificent temples 4km away.
Dithering over the future
Louis Berger International and UNESCO should finish separate studies on the issue soon. Saphal expects the government to decide on the airport's future within a few months. Dithering is stalling planned terminal expansion, the final part of a $14 million Asian Development Bank improvement project.
SCA hopes to redevelop Siem Reap Airport to give it another 10-15 years of life and the government breathing space to consider where to build a new airport. Rose wants a longer concession as he fears Bangkok Airways will win control in 2005, although Prasert denies any interest. Bangkok Airways, however, has a track record in building well-designed tourist-focused hub airports.
Pochentong's future lies as a regional airport, insists Rose. Phnom Penh will remain Cambodia's business hub, ensuring a steady flow of traffic especially from China and north Asia. But Rose worries that high fuel costs due to taxes and transport charges will hamper development of Cambodia's air transport, especially domestic airlines.
Airport investment is not limited to Cambodia though. Officials in dirt-poor Laos hope tourists will arrive at Luang Prabang, a World Heritage town, in Boeing 737s instead of turboprops like ATR72s and Xian Y7s now that the runway has been extended to 2,000m (6,557ft) long and 45m wide, compared to the original 1,800m long and 30m wide.
In Vietnam's Mekong Delta, a civil terminal and other facilities will be added to Can Tho Air Force Base to serve embryonic Air Mekong. The Vietnamese civil aviation authority doesn't expect to receive an application for an air operator's licence soon, though, as the carrier is still being established as a company.
Yet all these projects are dwarfed by Suvarnabhumi Airport, a $2.6 billion monster being built on Bangkok's eastern fringe. The first phase - two runways and a terminal handling 40 million passengers a year - was due to open in 2004, but 2005 or 2006 is more likely following terminal design changes.
With traffic growing 6-7% annually, about a dozen new gates, plus a high speed taxiway and other improvements are being made to Bangkok's current Bangkok International Airport at Don Muang to ensure it can cope before Suvarnabhumi takes over.
The new airport is a strategic move to cement Thailand as the region's gateway, which includes renegotiating air services agreements to boost flights. "We have to look for more rights in countries around us and in Europe, the USA and China to ensure Thailand remains the gateway for the Mekong sub-region," says Srisook.
Growth in Thailand
Airlines have been growing in Thailand to provide new services to the region and haul in travellers from beyond. It is difficult to say, however, that this directly results from a looser domestic aviation policy. Srisook might call this "open skies". Others are not so sure.
The biggest change came last September when Thai Airways International lost its veto on applications by competitors to fly the same domestic routes. Since then, no serious challenges have been mounted to Thai on domestic trunk routes.
But then it is questionable whether there is enough traffic to sustain two carriers on the same route. Deputy transport minister Pracha Maleenond strongly suggested Thai cut non-profitable domestic routes in April.
On the other hand, Thai is finding increasing traffic on services to Indochina and other Mekong countries. Although tourists rule, business travellers are creeping up.
But more people would fly if the region was less cosseted in red tape, reckons Angel Air CEO Somchai Bencharongkul. "It's the formality of getting from the runway into town. I think if they can standardise and reduce the red tape there will be fewer problems. If they can resolve that, then we will be interested in the Mekong."
Only Cambodia and Thailand issue visas on arrival. But with Cambodia there is tiresome form filling, queues and a fee, unlike Thailand where passports are simply stamped. Laos and Vietnam demand most visitors acquire expensive visas before they arrive. Myanmar requires visitors exchange $300 on arrival putting many people off.
Co-operation, not competition, is the only way to grow, Somchai says: "I think we should all work together as we're all Thai. It's always been my policy to work together. We only fly the same routes if there is too much demand."
It could be suggested that there are whiffs of a cartel and artificially high prices, but Somchai disagrees. "Existing prices are low compared to aviation costs. The government won't allow prices to go higher, so people are getting the best prices already."
While Angel steers clear and Thai sticks to the region's major cities, Bangkok Airways continues to expand. Using subsidiary SRA to access the freer traffic arrangements between Cambodia, Laos and Vietnam, more World Heritage destinations will be added to the innovative network this year and next.
Adding more routes
"We hope by early next year to fly from Siem Reap to Danang to connect easily to Hue and Hoi An, which are World Heritage sites in Vietnam. Hopefully, next year we will also flyto Jinghong in Southern China and Pagan and Mandalay [in Myanmar]," says Prasert in his office high above Bangkok's busy Sukhumvit Road.
Bangkok Airways' ATR72-200s or Boeing 717-200s should touch down at Jinghong in the first quarter of 2002. Like Luang Prabang, Jinghong will be served from the carrier's cultural hub at Sukhothai.
How Bangkok Airways and the region's other airlines develop services will depend on governmental willingness to award traffic rights, and on hitting the right route mix to tempt tourists. At the moment time is on their side, but in the distant future they face stiff competition from decent roads and long-mooted plans for a Mekong rail network.
Source: Flight International
