Nitij Pal, Principal
Key points
- PACER Plus is the prospective trade and economic agreement between Australia, New Zealand and the Forum Island countries.
- The provision of regular, reliable and competitive transport services is crucial for the Forum Island countries.
- Australia and New Zealand typically maintain policies of liberalisation when it comes to aviation policies, while sometimes maintaining a case by case approach.
- Opening the skies in the Pacific may have some advantages but it will pose problems for Pacific carriers who already operate on long routes with small passenger numbers making their commercial viability challenging.
- Perhaps the better approach is that bilateral ASAs are developed separately from multilaterals such as PACER Plus.
What is happening?
The liberalisation of Australia’s international air services are typically conducted on a case-by-case basis. This liberalisation has recently seen Australia and China negotiatingto embark on a landmark air services agreement, with the cap on seats from China’s largest cities to Sydney, Melbourne, Brisbane and Perth tripling to almost 67,000 seats each week by 2016.1
Australia has air service agreements with a host of Pacific countries, and an open skies policy could further enhance the economic potential of the region. Bilateral ASAs exist collateral to the Pacific Islands Air Services Agreement (PIASA), which is a multilateral agreement between Australia, New Zealand and a number of PI countries, and is intended to provide a staged process for air services liberalisation throughout the Pacific.
That said, opening the skies in the Pacific arena must be assessed in light of the economic implications, and the capacity of existing Pacific carriers.
What is the difference between an air service agreement,and an open skies agreement?
Airlines operate within the capacity entitlements specified in air service agreements (ASA). An ASA is typically a bilateral agreement between two countries that gives authority to their respective aircraft to overfly the territory of the other country. The Australian Department of Infrastructure and Regional Development is responsible for Australia’s ASA’s.
ASA’s typically contain provisions on:
- traffic rights;
- capacity;
- designation, ownership and control;
- tariffs; and
- safety.
Liberalisation of these ASA’s ultimately leads to “open skies”, an international aviation concept for aviation liberalisation. An open skies agreement is a bilateral agreement between two countries which provides for open entry and unrestricted capacity and frequency on routes.Logistically, this translates as uncapped seats and competition. Australia has open skies agreements in place with New Zealand, amongst others.
What currently exists, and what is the future?
Australia has ASA’s with Fiji,2 Nauru,3 Papua New Guinea,4 the Solomon Islands,5 and Vanuatu.6 It also has in place agreements with French Polynesia, New Caledonia and Niue, but those instruments are of less than treaty status.
PIASA was signed in 2003, and it aims to commence a single aviation market among the Forum Island countries,7although not all countries have signed the agreement, neither has it come into force.
Phase III of PIASA, which commences thirty (30) months after PIASA comes into force, provides for a full single aviation market, allowing designated airlines of all parties to PIASA to operate scheduled 3rd, 4th, 5th, and 6th freedom services between all parties.8Phase III will extend beyond a regional open skies agreement to a multilateral open skies agreement, which would allow accession by Australia.
As we understand it, PACER Plus intends to create the framework for the gradual introduction of a regional free-trade area encompassing Australia, New Zealand and the Pacific Island Countries. Through this framework, the Pacific Island Forum countries have been considering whether an open-skies agreement is to be adopted.
An open skies policy inevitably leads to both greater capacity on, and frequency of, routes. Bigger airlines and countries have the resources and capacity to cope with a greater influx of passengers, whilst maintaining competition in the market. Conversely, local airlines could also suffer as a result, due to the possible entry of larger airlines that are able to offer a better service at lower rates. These local often smaller airlines cannot offer the same competitive pricing and frequency of flights.
There are arguments that refusing airlines wide-reaching access to different countries hinders competition and economic development. An open skies policy would undoubtedly boost Australian and New Zealand tourism in the Pacific region. The World Bank’s Pacific Infrastructure Challenge report argued that a multilateral air services agreement based on ‘open-skies’ would encourage competition, providing more choice and lower fares for passengers.
But this has to be balanced against the fact that the provision of regular, reliable and competitive transport services is crucial for the economic survival of Forum Island countries. The market for air services in the Forum Island countries is quite diverse in terms of the origin or destination of the traffic, and the reasons for travel. There is a large volume of business traffic to countries such as PNG and Fiji, a large volume of leisure traffic out of Australia and New Zealand to the Pacific, and a large volume of visiting friends and relatives from Australia and New Zealand to Fiji, Samoa and Tonga, particularly.
The airlines of the Pacific are usually state-owned enterprises and subsidised in one way or another by their national governments. These entities face challenges with adequate capital funding, inefficient equipment, reliance on expatriate staff and poor infrastructure. In turn the region as a whole suffers from infrequent, expensive and unreliable air transport.
What could be the way forward?
Australia has a forward-thinking attitude with regards to its aviation policy, and has adopted a liberated approach to its ASA and open skies negotiations. However, opening the skies to the Pacific presents challenges as well as opportunities. Aviation liberalisation should be conducted on a deliberate case-by-case basis so that the interests of both Australia and the Pacific Island region are best served.
The preference should be onbilateral air service agreements between Australia and each Pacific Island country being developed separately, as opposed to including air services obligations in multilateral agreements like PACER Plus.
1 See http://www.abc.net.au/news/2015-01-23/china-australia-sign-landmark-air-agreement/6043482
2 Signed 24 March 1982, supplemented by MoU 1999.
3 Signed 17 September 1969, supplemented by various instruments.
4 Signed 8 December 1980, supplemented by MoU of 2011 and 2010.
5 Signed 21 August 2012, of interim effect.
6 Signed 2 July 2013, of interim effect.
7 Pacific Islands Air Services Agreement opened for signature 16th August 2003, art1 – Cook Islands, Federated States of Micronesia, Fiji, Kiribati, the Republic of the Marshall Islands, Nauru, Niue, Republic of Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.
8 Pacific Islands Air Services Agreement opened for signature 16th August 2003, annex 1.