LCC Development and Regional Integration: Cases of EU and ASEAN

Dr. AHN, SANG WUK Professor, Division of International and Area Studies, Pukyong National University Contents

 Highly regulated International Market  Freedom of the Air  Development of Open Sky Policy in EU  Development of LCC(Low Cost Carrier) in EU  Development of Open Sky Policy in ASEAN  Conclusion Introduction

 It is considered that companies which dominate the market will have more important benefit than small companies.  According to network theory, the role of hub becomes more and more important with the development of networks.  However, with the market integration in EU, conventional which dominated market before market integration become less competitive than low cost airlines.  Low cost airlines dominates currently the market of airlines in EU. Top 10 largest airlines Europe 2016

Position Airlines Passengers

1 116.8 million

Lufthansa Group 2 109.7 million (incl. , Austrian, Swiss, Eurowings)

3 IAG (, Iberia, , ) 100.7 million 4 -KLM (incl. Air France, KLM, HOP!, Transavia) 93.4 million 5 easyJet 74.5 million 6 Turkish Airlines 62.8 million 7 Aeroflot Group (incl. Aeroflot, Rossiya, Pobeda) 43.4 million 8 SAS Group (Scandinavian Airlines) 29.4 million 9 Norwegian 29.3 million 10 Air Berlin Group (incl. Air Berlin, NIKI) 28.9 million Highly regulated International Airline Market

 Highly restricted International Air Route  Examples of Restrictions of International Air Route: Allowed Airline Companies, Number of Flight, Price etc.  Advantage for FSC (Full Service Carrier) - Before Open Sky agreement, international air route is allocated usually to FSC  Disadvantage for LCC (Low Cost Carrier)  Market barrier for LCC : Lack of opportunities of opening international air route (ICAO) Development of Open Sky Policy in EU

 1987: Removal of ‘single designation’ provisions, Removal of capacity restrictions, and removal of the ability of Member States to block proposals for economic low fares  1990: Introduction of element of ‘double disapproval’ for fares under which a fare set by an airline for a route between Member States would be permitted unless both States disapproved it, Opening of Air routes between almost all European Community airports, Reduction of restrictions on multiple designation of airlines on particular routes, Third and Fourth Freedom rights within the Community between airports that were open for intra-community air service  1993: Member-states’ airlines’ full traffic rights on any route within the EU, No capacity restrictions even on routes outside their own country, No price control, Harmonization of the criteria for granting of operating license for airline companies. EU citizens’ and airlines companies’ right to operate airline business in any member-states of the EU  1997: Right of cabotage. The Open Sky in the EU became complete. Development of LCC(Low Cost Carrier) in EU Use of the freedoms of the air by LCC and by FSC

5-7th Freedoms of the Air and Cabotage are widely used by LCC. LCCs have used liberalization of air traffic more actively than FSC. Share of Supply by Airline types LCCs’ share of supply of seats is more important than FSCs. The supply of seats of LCCs is sharply Increased in EU between 1992 and 2015. LCCs are leading the market of Airlines in EU Development of Open Sky Policy in ASEAN

 1995: ASEAN’s first discussion about Open Sky Policy (ASEAN Summit in Bangkok)

 2004: annual ASEAN Ministers’ Meetings n Phnom Penh Action Plan for ASEAN Air Transport Integration and Liberalization 2005-2015

Year Passenger Freight 2005 Third and Fourth Freedom between ASEAN sub region 3rd and 4th Freedom from more than two cities of each country of ASEAN sub region 2006 Third and Fourth Freedom 5th Freedom between designated points of ASEAN sub region 5th Freedom from more than two cities of each country of ASEAN sub region 2008 3rd, 4th, 5th Freedom 3rd and 4th Freedom between the capitals of ASEAN member-states 2010 5th Freedom between the capitals of ASEAN member-states 2015 Single Market

* ASEAN Sub region: Brunei––Malaysia–Philippines East ASEAN Growth Area (BIMP-EAGA)

Cambodia–Laos–Myanmar–Vietnam (CLMV)

LCC penetration rates (% of total seats) in Southeast Asia by country Since 1993, EU Citizen and companies are allowed to operate airline business in any states in EU Largest Airline companies in Asia

Rank Airline Passengers Carried (Millions, 2016) 1 Air China 96.5 2 Air Asia 60.1 3 Emirates Airlines 56 4 All Nippon Airways 47.3 5 IndiGo 41.3 6 Japan Airlines 40.6 7 Garuda Indonesia 34.9 8 Cathay Pacific 34.3 9 Lion Air 33.2 10 Hainan Airlines 31.7 LCC share of available seats within a region: 05-Jun-2016 to 11-Jun-2016

South East Asian LCC share of seats is more important than other regions Conclusion

 LCCs are playing important roles in the markets of Southeast Asia, Western Europe, North America.  However, LCCs’ role in North East Asia are limited.  North East Asia has to respond to the trends of development of open sky policy and of development of LCCs.