Pacific Studies Series About Oceanic Voyages: Aviation in the Pacific International aviation services are crucial to trade, growth, and development in the Pacific region. Improved access provided by international aviation from every other region in the world to an increasing number of islands is opening new opportunities. Tourism contributes substantially to income and employment in many Pacific countries, usually in areas outside of the main urban centers, and enables air freight services for valuable but perishable commodities that would otherwise not be marketable. Although some features of the Pacific region make provision of international aviation services a challenge, there have also been some notable successes that offer key lessons for future development. Case studies of national aviation sector experience show the value of operating on commercial principles, attracting international and OCEANIC V private-sector capital investment, assigning risk where it can best be managed, and liberalizing market access. Integration of the regional market for transport services, combined with harmonized but less restrictive regulations, would facilitate a greater range of services at more competitive prices. Pacific island country governments have the ability to create effective operating environments. When they do so, experience O shows that operators will respond with efficient service provision. YAGES: About the Asian Development Bank Av ADB aims to improve the welfare of the people in the Asia and Pacific region, IATI particularly the nearly 1.9 billion who live on less than $2 a day. Despite many success stories, the region remains home to two thirds of the world’s poor. ADB is O N IN THE PACIFIC a multilateral development finance institution owned by 67 members, 48 from the region and 19 from other parts of the globe. ADB’s vision is a region free of poverty. Its mission is to help its developing member countries reduce poverty and improve their quality of life. ADB’s main instruments for helping its developing member countries are policy OCEANIC VOYAGES dialogue, loans, equity investments, guarantees, grants, and technical assistance. ADB’s annual lending volume is typically about $6 billion, with technical assistance usually totaling about $180 million a year. Aviation in the Pacific ADB’s headquarters is in Manila. It has 26 offices around the world and more than 2,000 employees from over 50 countries. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org Publication Stock No. 090807 Printed in the Philippines Oceanic Voyages-Aviation in the 1 1 12/09/2007 3:32:31 PM ADB Pacific Studies Series OCEANIC VOYAGES Aviation in the Pacific Asian Development Bank © 2007 Asian Development Bank All rights reserved. Published 2007. Printed in the Philippines. Cataloging-In-Publication Data Publication Stock No. Asian Development Bank. A study on the aviation sector of Pacific developing member countries 1. Pacific developing member countries 2. Aviation sector 3. Case studies The views expressed in this material are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Use of the term “country” does not imply any judgment by the authors or ADB as to the legal or other status of any territorial entity. Contents ACRONYMS AND ABBREVIATIONS ............................................. vii PREFACE ............................................................................................. ix FOREWORD ....................................................................................... x EXECUTIVE SUMMARY ................................................................... xiii INTRODUCTION ............................................................................... 1 THE PACIFIC OPERATING ENVIRONMENT ......................... 3 Overview of the Pacific Market ................................................... 3 Pressures for Air Service Reform .................................................. 20 Influence of the External Operating Environment .............................................................................. 36 Slow Movement Toward Liberalization ...................................... 45 CHALLENGES AND RESPONSES IN SELECTED FORUM ISLAND COUNTRIES ............................... 52 Lessons from the Case Studies ..................................................... 53 MOVING TO A MORE SUSTAINABLE AIR SERVICES STRUCTURE ....................................................................................... 57 The Policy Approach: Laying the Foundation for a Sustainable Solution .......................................................... 57 Strategy Options to Achieve Reform ............................................ 64 CONCLUSIONS AND RECOMMENDATIONS .......................... 85 Reassessing the Options for Aviation............................................ 86 Experience in the Pacific ............................................................... 87 iv Oceanic Voyages: Aviation in the Pacific Region The Policy Approach...................................................................... 89 Recommendations .......................................................................... 90 APPENDIXES 1. The Fiji Islands Case Study ................................................... 93 2. Solomon Islands Case Study .................................................. 105 3. Case Study of Tonga, Samoa, and Niue ................................ 114 4. Vanuatu Case Study ................................................................ 133 5. Profile of Air Services in the Pacific ....................................... 142 6. Supplementary Data ............................................................... 150 7. Pacific Island Forum Principles on Regional Transport Services ..................................................................................... 153 8. Freedoms of the Air ................................................................ 155 9. Profiles of the Major Airlines in the Pacific ........................... 159 LIST OF TABLES 1: Development Models for the Four Route Types ........................................................................................ xix 2: Pacific Region Population Estimates and Growth Trends ....................................................................... 4 3: Pacific Region 2004 GDP and GDP Growth Rates – Actual to 2005, Forecasts for 2006 and 2007...................................... 5 4: Share of Total Country Exports Main Trading Partners of Major FIC Exporters ............................. 6 5: Share of Total Country Imports Main Trading Partners of Major FIC Importers ............................. 7 6: Visitor Expenditures in Selected Pacific Countries .................................................................................. 9 7: Visitor Value of Tourism in Selected Pacific Economies ...... 9 8: Tourism Arrivals in the Pacific Region .................................. 11 9: Visitor Arrivals to Pacific Countries by Major Source Markets, 2005 ........................................................................... 13 10: Summary of Air Service Provision in the South Pacific, including the French Territories ............................................ 15 11: Ownership and Fleets of Airlines of the South Pacific ......... 16 12: Comparison of Employees and Aircraft by Airline ............... 27 13: Comparison of Economy Fare Pricing on Pacific Routes Involving Lower Cost Airlines................................................ 29 Contents v 14: Aggregate Australia and New Zealand Volumes of Air Freight Imports from and Exports to Pacific Islands, 2005 .. 33 15: Freight Rates for the South Pacific Islands, 2006 ................. 35 16: Forum Island Country and French Carriers and Code- Share Partners .......................................................................... 48 17: Assessment of Development Strategies in Case Studies ..... 55 18: Development Models for the Four Route Types ................. 69 A1.1: Fiji Islands, International Trade, 2004 ........................... 95 A2.1: Solomon Islands International Trade, 2004 ...................... 106 A3.1: Trade Data by Value and Percentage for Samoa, Tonga, and Niue, 2004 .................................................................... 122 A4.1: Trading Partners of Vanuatu, 2004 .................................... 136 A5.1: International Air Services to/from Pacific Islands (including French Protectorates) by Aircraft Type, Weekly Frequency, Weekly Seats, and Cargo Capacity ............................................................................... 142 A.5.2: Domestic Air Services in South Pacific (including French Protectorates) by Aircraft Type, Weekly Frequency, Seats, and Cargo Capacity ............................ 147 A6.1: Published Capacity of Boeing Aircraft .............................. 150 A6.2: Published Capacity of Airbus Aircraft .............................. 151 A6.3: Profile of Airports in the Pacific ......................................... 152 LIST OF FIGURES 1: Overview of Route Structure and Airline Situation in 2004 ...................................................................................... 23 2: Overview of Route Structure and Airline Situation in 2006