Crucial sector needs reforms

Just how important is the air transportation sector to the Philippines?

The International Air Transport Association (IATA), the trade association of the world’s airlines, revealed that airlines, airport operators, airport on-site enterprises such as restaurants and retail, aircraft manufacturers, and air navigation manufacturers, employ around 45,000 people in the country.

But in addition, by buying goods and services from local suppliers, the sector supported another 127,000 jobs. On top of this, the sector is estimated to support a further 37,000 jobs through the wages it pays its employees, some or all of which are subsequently spent on consumer goods and services. Meanwhile, foreign tourists arriving by air to the Philippines, who spend their money on the local economy, are estimated to support an additional 954,000 jobs. In total, around 1.2 million jobs are supported by air transport and tourists arriving by air, IATA said.

The same report noted that the air transport industry, including airlines and its supply chain, are estimated to support $2.7 billion of gross domestic product in the country. Spending by foreign tourists supports an additional $7.7 billion of the country’s GDP, for a total of $10.4 billion. In total, IATA said that 3.4 percent of the country’s GDP is supported by inputs of the air transport sector and foreign tourists arriving by air.

IATA added that the most important benefits from air transport go to passengers and shippers and the spillover impact on their business, noting that the value to passengers, shippers and the economy can be seen from the spending of foreign tourists and the value of exports.

It said that a key economic flow, stimulated by good air transport connections, is foreign direct investment, creating productive assets that will generate a long-term flow of GDP.

The report disclosed that Asia Pacific is the largest market for passenger flows to and from the Philippines, followed by the Middle East and North America.

The five international tourist arrivals in terms of all modes of transport by country of residence are Korea, China, US, Japan and Australia, while the top five busiest direct flight arrivals are Korea, Singapore, Hongkong, Japan and China. The five busiest air cargo routes are Hongkong, Korea, UAE, Chinese Taipei and Japan.

In highlighting the importance of the air transport sector to the country, IATA explained that air transport generates benefits to consumers and the wider economy by providing speedy connections between cities. These virtual bridges in the air, it said, enable the economic flows of goods, investments, people and ideas that are the fundamental drivers of economic growth.

Meanwhile, IATA emphasized that if air transport’s unique contribution is the bridges it created between cities, then the flow of goods, people, investment and ideas that stimulate economic development must be unimpeded to maximize their contribution to consumers and the wider economy.

But the Philippines’ passenger facilitation is only 4.4 out of 10, which means that it is slightly below the Asia Pacific average of 4.7. On the World Economic Forum’s Travel and Tourism Competitiveness Index, IATA noted that the country ranks 41st for visa openness and 53rd out of 136 countries for cost competitiveness.

The report likewise revealed that the country’s facilitation of air cargo through its customs’ and borders’ regulations ranked 54th out of 124 countries in terms of the Air Trade Facilitation Index (ATFI) and 61st out of 135 countries in the eFreight Friendliness Index (EFFI) globally. The Enabling Trade Index (ETI) ranked the Philippines 82nd out of 136 countries worldwide for the facilitation of the free flow of goods over borders and to its destination.

Specifically, the Philippines ATFI score was 7.6 out of 10, for the EFFI 0.03/10, and for the ETI, 4.1/7.

In another paper, this time by the DLSU Angelo King Institute for Economic and Business Studies published in 2019, it was explained how the air transport industry is the top contributor of economic output resulting from the same level of investment made in other sectors as evidenced by its output multiplier of 2.46, which accounts for the direct and indirect effects to the Philippine economy.

The study noted that the sector’s activities generate the highest number of net indirect tax revenue for the government with an indirect tax multiplier of 0.0842. In terms of job creation, there are two jobs created for every million pesos invested in the air transport industry.

But numerous issues hamper growth and expansion in the aviation sector.

First, the paper pointed out that the privilege to fly international routes requires an official designation, indicated in the air services agreement from the home country. Non-designated airlines are thus denied access rights in bilaterally negotiated routes. In the Philippines, with a 60 percent minimum domestic equity requirement, designated routes are thus owned and controlled by Filipino corporations or the government.

Second, while airlines have the liberty to set airfares, they cannot be offered to the flying public if disapproved by aviation authorities of the bilateral partners.

Third, foreign air carriers are still denied cabotage traffic rights, or the right to transport passengers and goods between two or more points within the Philippines.

Lastly, the fifth freedom (right to put down and take on, in the territory of the first State, traffic coming from or destined to a third State) is granted subject to conditions set by the Civil Aeronautics Board while granting the sixth and seventh freedoms have not been addressed in any liberalization effort. The sixth and seventh are considered unofficial freedoms of the air. The sixth freedom refers to the right of an air carrier to carry passengers between two countries through an airport in the home country while the seventh is the freedom to base aircraft in a foreign country for use on international services, in effect establishing a de facto foreign hub. It covers the right to operate passenger services between two countries outside the home country.

Pursuing liberalization of the air transportation sector, it said, would yield an increase in competition among airlines, improvement in services, and reduce fare prices, thus the need for government to consider eliminating the cap on foreign investments and introducing policy reforms to achieve economic growth, it stressed.

Newly appointed Transportation Secretary Jaime Bautista, formerly president and CEO of Philippine Airlines, said his goal is to transform the transport industry to global standards by adopting and putting in place policies and infrastructure and improving systems, just like those in developed countries.

He said that culling from his experience as an airline executive and as a director of a shipping company, he wants to look at processes and procedures “to see where we can improve to make the lives of passengers more comfortable.” Adopting global standards, he emphasized, means having facilities and procedures which are friendly to passengers. And as cost of operations for operators go down, this, Bautista said, will translate ultimately to lower fares.

With an air transport expert at the helm of our transportation department, there is big hope that the skies will be friendlier. And we have no doubt that his expertise will contribute a lot to a better land and water transport sector for the country too.

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