Is AirAsia’s New Pass the First Fruit of ASEAN Economic Community?

PHOTO: AirAsia has risen to the top of Southeast Asia’s megacompetitive low cost carrier sector. (Courtesy of AirAsia)

The news this week that AirAsia is launching Southeast Asia’s first regional air pass is a reminder that big changes are afoot in the region thanks to the coming of the ASEAN Economic Community (AEC) in 2015, which promises to forge a single economic community out of the 10 members of ASEAN. It’s totally consistent that AirAsia, which rode the waves of deregulation in 2004 to become the region’s top Low Cost Carrier (LCC), should once again be ahead of the pack in being best positioned for the coming of the AEC. The carrier sees the pass as a way to take competition onto a different plane in what may is probably the most competitive of regions for LCCs.

A single aviation market is high on the long list of the reforms that will lead to the AEC. Now the carrier, which is flying through some rough skies at the moment, announced that it will begin selling a regional air pass on Jan. 15 to 10 different Southeast Asian destinations. Though details have yet to be released, it’s safe to assume that ASEAN’s 10 member states will be prominent in the 10 destinations covered by the AirAsia ASEAN Pass. The pass will valid for travel to 10 Southeast Asian destinations in one month for 499 ringgit ($148), not counting airport taxes.

AirAsia’s Chief Executive Tony Fernandes said the pass will be the catalyst for increased air travel within Southeast Asia and also lure foreign tourists.

The ASEAN member states include Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Most of these are not only highly attractive destinations; they’re also growing source markets for international travel. Altogether the region is home to some 600 million people with a combined GDP of roughly $2.1 trillion. The region’s growing middle class represents a new and very rich vein of travel consumers.

An ASEAN Booster Rocket

A report that came out last February by MYTravelResearch.com (MTR) and the Pacific Asia Travel Association asserted that if the “ASEAN nations of Southeast Asia had fully implemented air liberalization over the last 15 years, the growth in aviation would have been greater and the economic benefits even more widely distributed.” The report claimed “that, if uninhibited, low cost carrier (LCC) networks expand rapidly and create new markets, new destinations and new economies.”

It’s all good news to Malaysia-based AirAsia. The stigma attached to Malaysian carriers in the aftermath of Malaysia Airlines’ twin tragedies (the lost Flight 370 and the shot down Flight 17 over Ukraine) has cast a pall over Malaysian aviation in general and AirAsia has seen diminished business from important regional markets such as China and Australia.

Last week Associated Press reported that the carrier fell 85 percent in net profits to 5.4 million ringgit ($1.6 million) for the quarter through September. Its long-haul brand, AirAsia X, posted a net loss of 210.9 million ringgit ($63 million) for the same period, its fourth straight quarterly loss.

The ASEAN Tourism Forum will be held at the Myanmar International Convention Center in the country’s new capital of Nay Pyi Taw. ASEAN Tourism Forum promotes the region as a single tourist destination. The show organizers said they expect some 1,500 trade visitors. Talk at the ATF show will likely be dominated by the impact of the AEC.

The AEC has already paved the way for more cross border road and rail building. David Painter, chief executive of group specialist Kuoni Group Travel Experts said, “Upgraded infrastructure coupled with political and legislative commitment will help drive trade links, both within the ASEAN region but also with the rest of the world in coming years. This will in turn drive the growth of potentially millions of middle class consumers with a greater desire and ability to travel.”

Examples of cross border projects multiplying. Last December, the Asian Development Bank (ADB) approved a $100 million USAID package designed to develop tourism infrastructure in Vietnam, Laos and Cambodia. The ADB projects will help build sea ports, implement water treatment in tourism spots and catalyze green tourism.

The member states of the Greater Mekong Subregion (GMS) have agreed to draw up a $50 billion pipeline of potential transportation, infrastructure, energy, tourism and other economic development projects over the next decade. Railways and tourism are prioritized.

“Completing missing transport links remains at the core of the GMS program, but strengthening knowledge and soft infrastructure such as skills development and trade facilitation, and collectively managing regional public goods is also a priority,” said ADB vice president Stephen Groff.

A multi-billion dollar highway connecting India to Thailand via Myanmar is nearing completion. Though the road was conceived to lighten the air traffic load between India and Thailand, which features more than 150 flights per week, it will greatly stimulate exposure and tourism to Myanmar. If Myanmar can avoid conflict between nativist Buddhists and the Islamic population in its western regions.

Soneva Kiri, exemplifies the trend on a smaller private level. Last week, the luxurious Thai resort is launching twice weekly flight by private plane to Siem Reap in Cambodia, home to Angkor Wat.

The ASEAN Single Air Market (ASAM) is a major component in creating the AEC and it’s due to take effect on Dec. 31, 2015. Many impediments must be overcome between countries that have only recently begun to see themselves as partners rather than rivals. According to its charter, ASAM will supersede all existing bilateral and multi-lateral agreements between ASEAN member states that are not consistent with its dictates such as third and fourth air freedoms between the capital cities of its member states.