LEGACY airlines enjoy an advantage over their competition because the lack of airport expansion makes their landing slots more valuable over time, researchers commissioned by the Philippine Competition Commission (PCC) said.
In a research paper called “The State of Competition in the Air Transport Industry: A Scoping Exercise,” economists Gilberto M. Llanto and Ma. Cherry Lyn Rodolfo found that limits to the development of physical and institutional infrastructure hinder the growth of the air travel industry, and recommended a review of airport and air traffic management policy.
Presenting their findings on Monday, the economists said liberalizing and deregulating airports improves the air transport environment by fostering competition among airlines.
However, it noted the government has weak airport development plans and ineffective regulations that keep the industry from maximizing its potential.
“The congestion in (Ninoy Aquino International Airport) and poor infrastructure support in the provincial airports… have constrained the operations of airlines, with undue inconvenience to passengers and business losses to firms… The poor state of airport infrastructure has been used as an excuse (for) not adopting a more liberal and open air transport policy,” it said.
Last year, the aviation sector contributed 0.38% or P32.7 billion to gross domestic product (GDP). The tourism industry meanwhile accounted for 12.2% of GDP, while the movement of high-value commodity exports was 23.8% of GDP.
The study also said the country’s principal airport, NAIA, was not able to keep up with the growth of air travel. The absence of rapid exit taxiways, inefficient runway utilization, and the lack of investment in air traffic management equipment in other airports also restrict the industry’s growth.
“[C]apacity constraints in secondary airports, e.g., congested terminal facilities, absence of night landing equipment, have impacted negatively on efficiency and competition,” it said.
According to the Civil Aviation Authority of the Philippines (CAAP), only 20 airports are currently equipped for night landing, and only seven operate on a 24-hour basis.
The study also noted the current policy on slot allocation at NAIA, which is based on long-held rights of legacy airlines, and capacity as expressed in aircraft movements, which is the sum of takeoff and landings. The economists said these pose a threat of concentration among airlines as it prevents new entrants from operating.
“Having operated for a longer time than new entrants, the incumbents have the advantage of having landing and take-off slots allocated to them based on some history of operation…. Thus, legacy carriers possess more slots because they have operated and have continuously utilized their slot allocations for a longer period of time,” it said.
In the presentation, Mr. Llanto said aviation officials need to address serious inadequacies in physical infrastructure, improve air traffic management and review slot allocation guidelines, among others.
Cebu Pacific President Lance Y. Gokongwei, who was present at the presentation, said the slot allocation policy, though flawed, was fair.
“I guess the reason that there are slotting issues is (because) of our limited infrastructure…. I guess the slotting regime exists for a reason, because some of the airports are congested. And this is not a unique Philippine situation. This is true in many other neighboring cities where the growth has outpaced the infrastructure,” he said.
“The independent slotting regime is found to be the best way to allocate scarce resources. Over time, this has been successful in Sydney, Singapore, Brunei, and other world-class airports,” he added.
The Cebu Pacific executive said long-term holdings of airport slots does not foster “rent-seeking behavior” among airlines, as these allocations are hard-earned.
“It’s not like you’re awarded a franchise. We actually have to fly at least 80% of all these slots in order to maintain our slots, even if we are losing money,” he said.
Philippines Airlines (PAL) Vice President for External Affairs and Partnerships Maria Socorro R. Gonzaga concurred, saying that the auctioning of slots could be discriminatory.
“While the possibility was raised about the auctioning of slots, we’re concerned about that because it could be discriminatory. It could favor carriers with bigger markets,” she said.
Mr. Gokongwei noted that competition is fierce among domestic airlines, and slot allocation should not be a cause of worry.
“We are supportive of free competition, and I think we are competing like hell with each other,” he said. — Denise A. Valdez