| by Dr. Ruwantissa Abeyratne
( February 16, 2013, Montreal, Sri Lanka Guardian) In the Daily News of 15 January it was reported that the Sri Lankan government was working towards implementing an open skies policy in Sri Lanka. It was also reported that the government was conducting fresh discussions with various airlines to adopt the policy with a view to “revisiting the matter to see whether it is workable”. Interestingly, the report also mentioned that attention would be paid to safeguarding SriLankan Airlines.
At first glance these three propositions are inconsistent with each other. If the authorities are “working towards” opening skies, there must be some level of certainty as to its workability. Also, open skies would mean just that - open skies - and one had better be sure that other interests are not harmed before even working towards it.
One wonders whether this could be a re-hash of the comical “managed open skies” that was touted in the country in the late eighties and nineties. Either something is open or it is not. If a door is half open, it has to be fully opened before one can enter.
From an aviation perspective, no one would deny that Sri Lanka has done well and that over the years, there has been much progress. It has excelled in its safety and security audits with the International Civil Aviation Organization and holds the reputation of a country which is up-to-date in its regulatory adherence. As for the industry, Sri Lankan Airlines, recognized as one of the fastest growing airlines in Asia, joined Oneworld, - one of the three large airline alliances in the world - earlier this year. The airline operates a fleet of 21 aircraft and carried 3.5 million passengers in 2012 between Colombo and 34 destinations in 22 countries across Asia, Europe and the Middle East, including Oneworld hubs Hong Kong, London Heathrow, Kuala Lumpur, Moscow Domodedovo and Tokyo Narita, along with Bangkok and Singapore. It is the most prolific carrier to the Maldives and Southern India.
One could only surmise that the more compelling interest in opening the skies would be to boost the establishment Hambantota International Airport which is considered an alternate airport to Colombo International Airport. In this context, the business aims of this new airport are very relevant. They are: to encourage new ventures such as general aviation and non-aviation sports facilities that could be available with the availability of low cost land and services; to facilitate establishment in the area of airport related industries such as aircraft paintings, aircraft workshops, engine repair shops, training schools and flight training facilities at low cost service; and to enable the growth of agriculture related industries due to the influx of cargo, thereby enhancing the national and regional economy. The loading and offloading of cargo will be a lucrative business as the southern region is a huge agricultural processing zone which produces vegetables, fruits and dairy products etc.
Additionally, the airport could be a boon to the tourism and hospitality industry which would flourish, with both the airport and harbour being in the same region and with their integrated development.. Airport operations would open up the potential for business ventures which in turn would generate jobs for the local populace. Aviation related Industries could be created with the influx of foreign carriers. A large traffic volume could also give rise to non-aviation related activities. The community could therefore have an overall benefit in terms of employment, business, improved Infrastructure facilities, a flourishing market for agricultural products, enhanced tourism in the area and a general upliftment of living standards and education.
The potential sources of income from this increased connectivity are identified as : income from the operation of a free zone at the airport; establishment of an aerotropolis; landing and parking fees; entry fees and other charges; land lease fees, concessionaires, and fuel fees.
All this, with open skies.
What becomes apparent from the report in the Daily News is that the authorities may be considering its old version of “managed open skies” if it intends talking to foreign carriers with a view to protecting the interests of the national carrier. Would this mean that, for the Southern airport, the skies would be fully open, without any restriction for foreign carriers in the classical sense of the term as practiced by the UAE, and a somewhat toned down and “managed” open skies would apply for Sri lankan Airlines hub – Colombo? Would fares be strictly regulated into and out of Colombo? Competition in the air transport industry is a complex process, as there is no consensus among airline economists as to the exact nature of the industry. The demand for air services, particularly in the context of the airline passenger, is a contrived one emerging from other demands based on activities such as business and leisure. This calls for a certain segmentation in travel where, in business travel, the passenger does not usually pay for the travel himself, whereas in leisure travel it comes out of his own pocket. Therefore, the leisure market calls for a different kind of competition, primarily based on the fare, whereas in business travel, although the fare is important, other considerations, such as facilities on board, may also play a considerable role in competition.
For an open skies approach to succeed, a key driver is proper airport management, particularly in the context of the new Southern airport.
Airports are a complex, big business. The first element in the airport business equation is the customer and it is therefore a good starting point to determine who the customers of the airport are. It is incontrovertible that airline passengers generate the bulk of the concession revenue and that the airlines who bring them would normally generate most of the rental or lease income. However other market groups, such as employees, visitors and airline crew are by no means inconsequential.
Airports are subject to both external and internal factors with regard to revenue generation and their cost-benefit equation. The most significant external factors are current and projected traffic levels, global and local economic fluctuations and currency exchange rates, taxes and charges imposed on airports by governments and authorities as well as charges that can be exercised by airports on their users. Internally, strategic planning in terms of air and terminal space, slot allocation and the nature and effect of taxes. A large number of factors will influence the southern airports’ ability to maximize its commercial revenues. There are first of all certain external factors, which are crucially important in affecting revenue generation or strategic options but which are largely outside the control of individual airport managements. These include the airport’s traffic levels and its proportion of international traffic, exchange rates and the level of taxes or duties imposed on alcohol or tobacco. Then there are a variety of factors which can be influenced directly by management. These are the area and the location of terminal space allocated to commercial activities, the nature of the contracts negotiated with the concessionaires and the quality of the concessionaires themselves.
Duty-and tax-free shops are arguably the most attractive to airports in terms of non-aeronautical revenue. These shops are ready to pay competitive rents since consumers find them more attractive than city centre shops as the prices in the former are substantially low. An added attraction for concessionaires to pay high rents is that since the profit margins earned by the concessionaires are considerably high, airports can negotiate a contract that is advantageous in obtaining for the airport a large share of the profits earned by such shops.
All inhibitors to open skies notwithstanding, the overall benefits of liberalization must outweigh the consequences of protectionism. As one commentator has said, when all is said and done, “every argument against open skies is an argument in favour of protecting some airline or other against competition…on the flip side of capacity dumping and predatory pricing you find a smashing deal for the markets in and out of the country, more business and tourist travellers, more goods moving by air, hotels flourishing, the overall economy better off and everybody’s happy”.
If the Sri Lankan aeronautical authorities play their role well, this could mean a win-win situation for the country as well as for visitors who would have better connectivity at the cheapest prices.
 In the Daily News of 15 January it was reported t...){kind=link}