Ownership And Control, The ASEAN Community Carrier And Cross Border JVs

Transcript

Alan Tan:So this is the Aviation Stream, and we're going to be discussing joint venture airlines in Southeast Asia in particular for this morning's proceedings. I have great pleasure in introducing my panellists. To my left, is Siva Kannan, who is Senior General Manager, Legal, Human Relations, and Corporate Affairs at Malindo Airways, based in Kuala Lumpur in Malaysia. Next to him is Brendan Sobie, who many of you would know. He's Chief Analyst at CAPA. Next to Brendan is Juergen Keitel, who is Chief Global Affairs Officer at AirAsia. And next to Juergen is Alan Polivnick, partner at Watson Farley Williams. So we are going to start off— we're going to start off today talking about the prospects of joint venture airlines around Southeast Asia. And I've prepared a few slides just to give you a taste of what's happening in the region. These are the joint venture entities that we have in Southeast Asia. And by joint ventures, we are referring to those with equity, with equity investments, and not just those with codesharing or some kind of business agreement that's immunised or otherwise. These are the ones with real money on the table. I've missed out Knox Good, my apologies. And so you can see that Thailand is the hotbed, if you like. Yeah. Like, for these joint ventures. There's Thai AirAsia, Thai Lion, not to forget Thai Vietjet, and a shout out to Knox Good. And Jetstar has a presence in Singapore, as many of you would know, in the form of Jetstar Asia and Jetstar Pacific in Vietnam. AirAsia, of course, is present in the Philippines and Indonesia as well. Vietjet ought to be mentioned because there is Thai Vietjet based out of Thailand, and I thought I should mention Cambodia Angkor, which is a joint venture in the form of an investment by Vietnam Airlines, and many of its— many of the Cambodian Angkor and Vietnam Airlines flights are codeshared for that purpose. So the traditional model has always been the 51-49% investment in the sense that you've got to find a local partner to own the majority of the shares and the brand owner, if you like, the parent airline owns a minority share. Slightly different in the Philippines with a different ownership mathematical structure, but generally the idea is that the parent brand takes a minority stake, thereby fulfilling substantial ownership. Effective control is another story. We then talk and gossip about whether effective control truly resides in the local partners or resides somewhere else. We even had a case up north in Hong Kong in relation to the character of Jetstar Hong Kong. In any event, We've assembled a nice panel today, and we're going to be talking about some of these joint ventures. I thought, as a matter of introduction, I should also mention that, and this is my favourite hobbyhorse, as many of you would know, no discussion of ASEAN aviation will be complete without mentioning the ASEAN Single Aviation Market, which sounds really, really grand, but in substance is essentially open 3rd, 4th, and 5th freedoms only for now. And even for 3rd and 4th freedoms, the Indonesians have a peculiar provision in their domestic law that says open skies is actually limited to 5 cities, the 5 major cities of Jakarta, Bali, Makassar, Medan, and Surabaya. We also have, of course, slot problems, which effectively negates whatever potential there is in open 3rd and 4th freedom flights. But the good news is that much of the low-cost carrier business around the region has been riding largely on the fact that there are no limitations as far as 3rd and 4th freedom flights are concerned. 5th freedoms, some new developments. Juergen would be happy to tell us about how the ASEAN transport ministers are meeting this very week And there is a potential for 5th freedoms to really be opened up in an unlimited fashion because hitherto, some countries in the region maintain that 5th freedoms have to be more or less in a straight line. And so if AirAsia wanted to do a Kuala Lumpur, Singapore, and then Rangoon, it would not be in a straight line, so to speak. And this is actually 7th freedom through the back door because you're going to have all your passengers getting on in Singapore, you're going to have an empty plane, carrying passengers from Singapore to Yangon, and that would be 7th freedom effectively through the back door. So it's remarkable how an unrestricted 5th freedom morphs into 7th freedom rights, if you like, which is of course not on the table for negotiation just yet. So this is what's not in the ASEAN Single Aviation Market, to be contrasted very dramatically to what you have in Europe, where 7th freedom rights, you know, prevail and Carriers like easyJet can literally hop about anywhere they like between any 2 points, even domestic points. ASEAN, no 7th freedom, no domestic traffic. Multiple bases exist in the form of the joint ventures we are talking about, but they have to adhere scrupulously and religiously to the ownership and control local majority ownership rules. So the 51-49 rule prevails. We should also talk about the goldmine that is China. So the ASEAN states now have an agreement with China that promise and give unlimited 3rd and 4th freedoms, again subject to slot constraints. And so this has been a goldmine for many of the ASEAN low-cost carriers, particularly in Singapore and in Thailand. The reverse network, of course, is that the Chinese airlines, because China is a unified backyard, can fly from any point in China to any point in Southeast Asia. This kind of network cannot be replicated by the ASEAN airlines because they don't give each other 7 freedom rights. So Scoot cannot, for instance, fly from Manila to China, but can only fly to China from Singapore. So I thought I should flag that as some of the discussion points. ASEAN-China 5th freedoms are available. But what the Chinese have done is to take away Beijing, Guangzhou, and Shanghai from the table, and so you've got largely secondary cities. And in a fit of pique, the ASEAN countries say, well, if you put secondary cities on the table, we will respond and put secondary cities as well. You know, in Singapore's case, we looked around hard for a secondary point but decided at the end of the day Changi Airport was all that we had. And so these are the points available for fifth freedoms. I've made a point before that these are meaningless because you literally have to say have a Garuda start from Lombok, you know, to Banda Sri Begawan and then to Xi'an, maybe. But then the Chinese look around and tell us, look, you know, our secondary cities have 10 million people, nothing to be, you know, to scoff at. Finally, I thought I wanted to flag the fact that there is an ASEAN-EU negotiation at very advanced stages, going to culminate in an announcement soon. that the first block-to-block air services agreement between ASEAN and EU would soon be announced. The big sticking point there, of course, is 5th freedom rights, and ASEAN, principally Singapore, wants 5th freedom rights out of the European points, presumably to the United States. So that's something we can discuss as well. It's still not resolved, and it's still— It's still a topic of debate. Under wraps. Okay, so let me start off by posing the question to Juergen and Siva as the representatives of AirAsia and Malindo respectively. Is the region saturated as far as joint venture airlines are concerned? We have, of course, Myanmar, which is the big gap. No joint venture agreements of any sort there. AirAsia has tried in Myanmar. Any developments that you can share with us there, Juergen?

Juergen Keitel:Well, thank you, Professor Alan, for the introduction, and I think happy to be here. Good morning, everyone. Before we go into that specific question, I think first of all, we sort of have to clarify that joint ventures, it's a business model, and business models are also driven by sort of planning purposes and trying to access markets. And so when you relate to the question of, you know, is it saturated, we from AirAsia Group definitely see potential, a lot of growth in future in the region, in Southeast Asia, as you just mentioned, in ASEAN, in ASEAN beyond ASEAN into China. You heard yesterday how Japan can play a big role for the AirAsia Group into India. So So there's potential for growth. Now the question is, how do you grow and how do you utilise sort of the conditions? And joint ventures are basically one model how to actually sort of grow. If you talk about Myanmar, we consider ourselves with our 3 other affiliate airlines already as the true ASEAN carrier for the region. We fly into all ASEAN member states, we fly into Myanmar, we fly into each of the 10 member states, having driven that through connectivity and through various models. On one hand, you can do it through joint ventures. On the other hand, you can use the ASEAN Single Aviation Market. And the sort of initial thoughts, by the way, if we wouldn't have had these third, fourth freedom rights, and if you wouldn't have the developments of the ASEAN Single Aviation Market, we wouldn't be there today where we are within the entire region, because as you can see, the growth has resulted from sort of opening up and liberalising the market. So, coming back to the question with Myanmar, it's a question of what does the market allow? How do you go in? Do you need a joint venture really to go into a market like Myanmar? Do you see it as a holistic—

Alan Tan:The answer, if I could interrupt you, is yes, if you wanted to fly from Myanmar. to other countries, right? And not just from Malaysia or from Thailand.

Juergen Keitel:And I think for now we have always said we're looking into all of the options and we will see where they— we're never going to close any options. We will look into the situations, what we need and what the network needs and how we can grow.

Alan Tan:We'll come back to Myanmar in a moment. I think Brendan has some information that he'd like to share. Siva, Malindo of course is the joint venture of Lion Air In Malaysia, and you've got Thai Lion as well, right? Any indications that stopping there with those 2, or are there plans to establish more in the region?

Siva Kannan:We are— I mean, part of the group's efforts is to continuously look out for other locations from which we could start off operations or hubs to build hubs. Again, as you can Just clarify, these are impacted by joint ventures, etc. So that is being undertaken as an ongoing activity at the group level. Coming back to Malindo specifically, yeah, we— I don't see us really expanding beyond a couple of cities in Myanmar, but to operate out of Myanmar as an entity, I think it's still pretty early stages for us.

Alan Tan:Right, in terms of a Myanmar Lion.

Siva Kannan:Yeah, it's pretty still— some work has already been initiated, but it's still not sufficient for us to even start talking about it in terms of—

Alan Tan:So how is Malindo doing, if I may be provocative? Is it profitable?

Siva Kannan:We are, I'd say, a startup carrier. And as a startup carrier, we have had to walk, run, jump, crawl, everything at the same time, given the highly competitive market that we have been operating in.

Alan Tan:Sure, and you are up against the incumbent AirAsia.

Siva Kannan:And we see ourselves as caught between 2 giants. We are not only the youngest kid, but also the smallest kid in the Malaysian sphere, so to say. So we are still not profitable yet, but this has been simply because we've wanted to scale up our operations. We've got today about 43 aircraft in place and supporting about 4,500 people across How many international points? 50. Totally, we are operating into 53 destinations, 54, including 16 countries right now. And there's more to come, provided we can— we are ready to induct, if we are ready and able and capable of inducting more aircraft.

Alan Tan:So what about China? Are you riding on the ASEAN-China agreement?

Siva Kannan:Yes, we are, and in fact, we have also started— we're also starting on a lot of charter operations into China, some of the secondary and third-tier cities in China. And we have got regular flights, scheduled flights operations into most of the main first-tier cities.

Alan Tan:Brendan, let me come to you. The ASEAN single aviation market as a whole, is it a myth? In terms of the promise that it holds out?

Brendan Sobie:Well, it's had virtually zero impact since it was finally implemented a couple of years ago.

Alan Tan:Seriously? Zero impact? What about—

Brendan Sobie:Virtually. I mean, I think there's some—

Alan Tan:Modestly, the 3rd and 4th freedoms, there must be some impact.

Brendan Sobie:In terms of direct impact, because one question, how many 5th freedom single aviation market routes have been launched since that was available? Zero. You know, and you're talking about the straight line, which was an issue, yes, and that, you know, the Kuala Lumpur-Singapore-Yangon was a real issue a few years ago. However, there's nothing stopping AirAsia from operating Singapore-Yangon from Jakarta.

Alan Tan:Yes, that's AirAsia Indonesia. It would be the straightest line you could possibly take. There's many, many route opportunities, you know, from the single aviation market that, and zero of them have been actually One could say that the region is too small for 5th freedom flights, and it's not even the operating model of low-cost carriers to use 5th freedom flights.

Brendan Sobie:Well, that's one argument. Malindo, by the way, has 5th freedom routes to Australia, so there's opportunities there. AirAsia had one from Indonesia to Malaysia to India, but it only lasted less than a year, I believe.

Siva Kannan:Mm-hmm.

Brendan Sobie:So, AirAsia has 5th freedom routes between New Zealand and Australia. So they actually have some examples outside of the ASEAN Single Aviation Market, but not within the market that they operate in, and they've been able to cover everything virtually using their bases. So basically what, getting back to the other question about Myanmar, is what do new JVs do? Allows you to access the domestic market, because the international market, for all intents and purposes, is open with the 5 Freedoms, especially somebody like AirAsia, because they have 4 of them. Any route they want to do, they basically can do now. It's just a matter of them doing it or not doing it, and they haven't done any so far of those routes. They've done lots of ASEAN connectivity routes, secondary destinations, lots of ASEAN routes, but nothing under the SAM actually has been introduced with 5 Freedoms yet.

Alan Tan:Okay.

Brendan Sobie:But the domestic market issue, you know, because unlike EU, the ASEAN Open Skies doesn't include domestic cabotage, so you need the JV to access the domestic market, and Myanmar is the last of the remaining domestic markets that's of significant size. However, it's not ready for an LCC at this point. It's too small. You have mainly turboprops operating that market. You have too many airlines. Even with 3 airlines exiting within the last year, you still have 8 domestic competitors. The AirAsia example that came out that was looked at was one of the exiting airlines, FMI, approached AirAsia and approached Bangkok Airways, thinking those would be the 2 airlines interested in Myanmar domestic market, but both of them, after doing their due diligence, didn't follow through for good reasons, because the market is too saturated. It's hard to make money. If you're an LCC, you have to have turboprops because most of the airports can't accommodate jets. Yeah, visiting aircraft. You don't have— many of the smaller airports don't have nighttime operations, so completely against the LCC model. You have to use small airplanes with low utilization. As an LCC, you just can't do that. Too competitive. So Myanmar's not ready, plus you have a downturn in Myanmar now because of the political instability issues. Tourism has actually stopped growing, so there's just no reason to do Myanmar at this point.

Siva Kannan:Okay.

Brendan Sobie:But it could come up later.

Alan Tan:Right. Alan, 2 questions for you. Do you think 5th freedom is overrated for a region as small and relatively compact as ASEAN, where the low-cost carriers don't really believe in 5th freedom flights and only want to operate according to point-to-point? And what are your views on Myanmar as a potential goldmine in terms of aviation that's still untapped?

Alan Polivnick:I'll start with the second question, if you like. In terms of Myanmar, it's a very difficult market. I mean, we've seen people like ANA come in and have come away twice now from that market. There is a lot of potential there, but one of the issues is infrastructure, and the operational issues which Brendan raised, I think, do have a big bearing on that. Certainly, when we've looked at it with clients, one of the issues has been utilisation, it's been the turnaround times, It's been how to make money on those routes. You also have a fairly big disparity between the domestic market, what the domestic market can afford, and what international tourists are going to pay for, and that makes it very difficult to price the model. In terms of 5th freedoms, I don't think if we really had a single ASEAN market, it's too small. I think there certainly is scope for that. One of the issues we have, though, is capacity, and you raised Manila and Jakarta, for example. Those are good examples of where we don't have capacity. Even in Bangkok, for example, Don Mueang now is practically full. So, and there's no system to price those slots yet. We don't have a way that airlines can do that. The other part of this, of course, is that we have a fairly dense network of airlines operating routes already. And in many cases, they offer connectivity that you don't have in other places, like in Africa, for example. So I don't think the 5 Freedoms are overrated. Certainly, I think if that's the way to go, that's going to be the way to make money. And my view on this is people like AirAsia, like Malindo, have a very sharp eye for the financial side of it. They're not in this for nostalgia or flying the flag for a particular country. It's a business case. Can we make money on this route, yes or no? And I think that's where the focus has to be. But again, my concern with this is we talk about 5th freedom rights. If we really had a single aviation market, they wouldn't exist anymore.

Alan Tan:That's right.

Alan Polivnick:And until we get to that point, and while we are talking about joint ventures and 5th freedoms, we aren't going to have that single aviation market.

Alan Tan:Well, the reality is that the single aviation market here is not really single. It's a misnomer. And it's really missing out on the most important market liberalising feature, which is the 7th freedom, the ability of an airline based in Malaysia to actually put a plane in Singapore and fly to the Philippines. And if I were to be cynical, I think the prospect for 5th freedom is actually in the 7 freedom rights that it allows. Because if 5th freedoms were to be allowed between any 3 points, from A to B to C within Southeast Asia without regard to directionality and whether it's a straight line or not, you effectively have a 7th freedom. You effectively have a hopping feature and hopping sectors where you can unload and disgorge all your passengers and take on a new load. And so I think that's what— I was speaking to some of the CEOs in Southeast Asia, that's what they're hoping to get. And there's some promising movement out of the ASEAN transport ministers meeting to suggest that that might finally be realized, that we might finally have a real 5th freedom capacity in the region, which will be entirely 7th freedom, if AirAsia is to be believed. Juergen, you've got anything to add on that development? Maybe a couple more points.

Juergen Keitel:I think everyone has to realize, I first of all completely disagree that the ASEAN single aviation market had zero impact. Otherwise, we wouldn't be there today where we are with those opportunities and actually with the regulators and governments working together within the ASEAN Economic Community to actually strengthen the ASEAN market and actually over the last 10, 15, 20 years working on such a market. However, it is slow, it is moving slowly, and you have to go through the different mechanisms and you also have to go through the different phases. So obviously, we would really welcome a complete ASEAN aviation market, single aviation market. And after going to the sort of third and fourth freedoms, some stumbling blocks were hit, were sort of faced with the fifth freedoms, and probably that's also why they're not really used right now. Obviously, that is the path to potentially discussions on seventh freedom. The moment you discuss seventh freedom, you're really opening up the market. at least from an international point of view between the different member states. We are also aware because one of the titles is the ASEAN Community Carrier. There are provisions basically for the ASEAN Community Carrier already in the ASEAN framework, and obviously with restrictions and with certain caveats where it's still difficult to sort of implement these fully. However, Even the liberalization of Europe, or sort of even the first U.S. liberalizations in the '70s, didn't happen overnight. And I think, as everyone heard earlier, there are other obstacles which regulators and governments have to take into account so that everything sort of moves in parallel forward. So I think, first of all, we from AirAsia hope that this sort of 5th freedom rights discussion will be resolved at some point. We don't know when, but we're confident it will be resolved, that that will lead to a broader discussion, and that the opportunities within ASEAN, that means moving together as a community, as an economic community, and as a single market, when we talk about do we really need JVs in future, if we can actually have a sort of—

Alan Tan:Let's unpack the idea of a community carrier. Right, as Juergen mentioned, the ASEAN agreements actually have enshrined the idea of a community carrier, which is essentially borrowed from the EU rulebook. You could set up an airline today in Myanmar, you know, and have the Thais own 20%, the Malaysians own 20%, the Myanmar locals owning a minority stake of 11%, and the remaining 49% could be sold to just about anyone in the world. Japanese investors, American, European, as long as the majority ownership resides within ASEAN as a region, that takes over the concept of national majority ownership. The concept is there, but interestingly, it's been there for more than 5 years. We don't see a single airline that's been established in Southeast Asia using the community carrier model. Every new airline, those entities that I showed you just now on the first screen, all of them subscribe to the traditional 51-49 model. Nobody has come up and gone out there to make use of the community carrier model yet.

Alan Polivnick:Why?

Alan Tan:One reason could be, and I'll get your comments on this, the agreement actually says subject to the consent of each destination state. So if you set up something like that in Myanmar tonight, If AirAsia does that, you're going to have to go to every single destination state in the region to say, can we fly? And there is actually a right of veto among the member states, which sounds ludicrous if you want to talk about the idea of an ASEAN single aviation market. Gentlemen, do you want to jump in on the prospects of a community carrier?

Alan Polivnick:Well, without commenting on that directly, I think one of the things we need to think about is when we talk about the EU model, for example, example, we need to bear in mind that we're talking about 2 very different structures. The EU model has a supranational entity that enforces all the laws and no member state can opt out. I mean, we're seeing issues now with Poland and Hungary, for example, and Brexit is obviously the most visible example of that. In ASEAN, the model is different. It's an opt-in, and as long as that is the case and there is no ASEAN institution to enforce it, that isn't— the community carrier isn't going to And I think that's fundamentally, when we look at this, and I think what Juergen says is right. When the US started deregulation in the '70s, it took a long time. This model here is going to take a long time because rather than being— it's a consensual model. And as long as countries think that they have to protect a national carrier or a market or a route, and they don't have to opt in, they won't. And that's where we're not going to get there.

Alan Tan:There's also another problem, which is the internal domestic laws of the You need each individual country to allow for majority foreign ownership. And there are some rumblings of movement in Myanmar, coming back to Myanmar, and in the Philippines as well, long thought to be the most nationalistic and illiberal. There's actually talk of loosening up foreign ownership of airlines. Juergen?

Juergen Keitel:So I think, coming back, this is where the industry sort moves together, and I want to go away again, or want to go back to this has zero impact. I think, I think it has impact, and it has an impact step by step. We know with ASEAN, there are other frameworks where all 10 member states have agreed. The ASEAN framework for agreement for services where aviation is part of it, except airlines. We say, why are not airlines part of that, where you actually have an agreement to say that companies can be owned up to 70% by ASEAN nationals and up to 30% by the nationals. There are other models in the banking industry where it already occurred in ASEAN, where you have an ASEAN banking integration framework, and on a bilateral basis, the industries can actually exchange sort of the ownership rules. We have the baseline for the ASEAN community carrier. So, and I think because it's a very sensitive topic and it's a It's not an easy topic. All these topics, the different subjects have to go hand in hand. The traffic rights, the opening up, the ownership rules, the laws, the domestic laws have to be sort of changed. And that means you have to have sort of the buy-in of the governments and have to have the approval of the governments. Now from a bigger scale, I think that's, I think, the point where the aviation industry as such and the airline industry ourselves has to actually make a point to the governments to say, why are we actually still operating on antiquated ownership rules? It's a highly capital-intensive industry. It's— the cross-feed of capital is actually necessary to actually keep the tourism and keep the economies going. We're talking around, in the ASEAN Economic Community, also around e-commerce.

Alan Tan:Yeah.

Juergen Keitel:A great e-commerce platform for logistics. And especially sort of carriers who have sort of the essential network with affiliate carriers and OLCCs who go into second and third-tier carriers. So I think it's a bigger topic than just saying, here's one traffic right, here's an airline, and how can we move on?

Alan Tan:Yeah, you're absolutely right. I think the problem with the community carrier concept is even if you realize it and even if you set it up tomorrow, say, in Myanmar, with the blessings of the Myanmar government, with all 10 ASEAN states saying we'll take away our veto to say you can fly. The problem is you don't have 7 freedom rights, and you're still limited to AirAsia Myanmar or Lion Air Myanmar flying only 3rd and 4th freedom routes from Myanmar and not being able to conquer the whole region.

Siva Kannan:Actually, to give you an analogy of what I've personally experienced is I won't say which regulator, but this is the conversation that we've had. There was a person with EASA certification standards operating in one of the ASEAN countries, and when he approached the local regulators, to say this is based on the EASA standards. The regulator said, I don't care what the EASA standards are. You are operating in my country. This is my regulation. So I think where we are stuck is we have, within ASEAN, we have the political will at the leadership level. That political will is there. At the transport minister level, that will is there. But scaling it, coming one step lower, at the regulator level, as Juergen pointed out, we are still stuck with a single country, AOC, all those sovereignty issues.

Alan Tan:You've opened up a can of worms, which is technical harmonization.

Siva Kannan:Correct.

Alan Tan:It goes beyond economic liberalization. Even if we settle the community carrier and 7th freedom problems, and even throwing in domestic traffic rights. You've got the problem of technical harmonisation. How do you have a mutual recognition or equivalence between pilot training standards, ramp inspections, air traffic control, which is much further down the road? But simple matters like all that. We have ICAO rules, but at the moment, the individual countries still subscribe to their own national standards. Brendan, I'll let you have the last word on this. Where do we go for technical harmonization?

Brendan Sobie:I mean, so we don't have one regulator here. So assuming that it's going to be impossible for all these countries to agree to one regulator, there's so much that can be done that will have a lot more impact than community carrier. Because the thing is, with the community carrier and these traffic rights, you have to realize the market is quite saturated. Any new entrant coming in has a very difficult position given the overcapacity in this region, huge barriers to entry and hard to succeed. So the real opportunities are not with traffic rights and community carrier, in my opinion. It's actually with more on the regulatory side, which is where you can have cost reductions by the airline groups if there's more regulatory harmonization, not necessarily single regulator status because that's almost impossible to achieve given the issues here, but licensing, you know—

Alan Tan:Recognition of equivalence.

Brendan Sobie:Air traffic management, certainly a lot of opportunities there. Just moving airplanes around, moving pilots around, because now if an airline group wants to move an airplane between 2 ASEAN countries because, you know, the regulations are—

Alan Tan:That would be a joint venture problem, peculiarly.

Brendan Sobie:It takes months. I mean, actually, I mean, Malindo has this example where they moved, you know, an airplane back in Thailand as well. They moved an airplane back to Indonesia, and it took them months and months to move this one airplane, even though in some cases it originated in one country, went to one country, and then came back to that country, you know, because just the standards are just not the same. And then for a pilot, you have a pilot shortage generally, but some countries actually have excess pilots. Like, actually Malaysia has a pretty good pilot situation, you know, compared to other countries, but you can't just so easily move that Malaysian pilot to another airline where there's a pilot shortage, even though we're one region. That's really where the opportunities are.

Alan Tan:And that's really the next frontier.

Brendan Sobie:Yeah, and there's so much there, and there has been— it's not like there's been zero impact of ASEAN. Open skies, there's been a lot of knock-on positive effect. For example, Laos opening up because they finally, you know, had to sign on to this agreement. Luang Prabang now has LCCs. That would have never happened without ASEAN Single Aviation Market. However, when you look at the specifics of what happened finally 2 years ago, that's where I say there's been no impact.

Alan Tan:Okay, in the remaining time that we have, very quickly, ASEAN-EU. Let's zero in on the big elephant in the room, which is 5th freedoms. The Europeans are the request to have 5th freedoms beyond Europe to the United States in particular, and that's been the sticking point in the negotiations. Gentlemen, any comments on how that's going to pan out? Juergen, you've been following, have you? Siva?

Siva Kannan:I think that's still miles or eons away for us as a single-aisle operator. At this moment, I think our vision is still very much restricted within ASEAN and not beyond that.

Alan Tan:One strand of proposals coming out from the ASEAN-EU negotiations, which I'm privy to, is the proposal to have limited fifth freedoms to the tune of 7 weekly flights per country pair. In other words, when this agreement comes into into place, Singapore will have 7 fifth freedoms through each European Union country to beyond destinations. That wouldn't change the situation with Germany, for instance, because bilaterally we are already exercising the Singapore Airlines flight to New York via Frankfurt. But it would mean opportunities, say, from Paris, from Madrid, from Warsaw, from various points in Europe, 7 times a week, to beyond destinations in the United States. That's one proposal, but I think the Europeans have enough sufficient numbers of heart attacks dealing with that.

Juergen Keitel:I think just one comment, because there are these agreements with dialogue partners from ASEAN, and there was the sort of ASEAN-China agreement, now just about the ASEAN-EU agreement. And one of the biggest issues is actually what we just discussed the last 20 minutes. You have Europe as a homogeneous market, and you have ASEAN not yet as a homogeneous market. So we from Macaria say it's great to liberalize, it's great to open up, but how can that be a fair agreement if you actually don't have the same internal market conditions? It doesn't matter if we talk about for freedom, it doesn't talk about for freedom beyond, or for freedom. It doesn't matter if it's five times or seven times weekly. If the Europeans come with one set and they come with their European community carrier and ASEAN doesn't have that yet, how can it be actually an equals agreement? So I think this is the only comment we made about that.

Alan Tan:That's a big problem as well. We have time for questions. So let me open up the panel to the floor. Are there any questions? I think we have time for 2. So if I see 2 hands, Please let us know your questions. Anyone?

Siva Kannan:No?

Alan Tan:Going once, twice. I thought I would use the remaining time for comments or questions. Do I see any questions? Otherwise, back to the panel. Gentlemen, any last final thoughts on the community carrier joint ventures?

Siva Kannan:I mean, going back to the same theme, what I'd say is I think there has to be more work done in terms of harmonization of regulation.

Brendan Sobie:Of technology.

Siva Kannan:Even, for example, with— in some of the ASEAN countries now, we've got a dual regulator. The regulators, the commercial regulators and the safety security regulators, Those technical regulators need to start talking more often. So that seems to be— there's a lot of room.

Alan Tan:Like in Malaysia, for instance, the Aviation Commission and the Civil Aviation Department. Brendan?

Brendan Sobie:Yeah, I just want to make one point on EU. When I look at these things, you have to look at the market conditions and demands. So there's going to be a lot of people excited when this thing is finally done. It's been, you know, we talked about this 3 years ago at the summit already in Singapore when the EU had a summit with ASEAN. But the reality is that who is going to operate under these rights? I mean, who's going to enter, even if you get transatlantic rights, it's such a competitive market. Will any Asian carrier or Southeast Asian carrier actually operate them? And then how about between Southeast Asia and Europe? It's so competitive with the Gulf carriers. You just had Garuda pulling out of London, for example. It's going in that direction. So it doesn't excite me in terms of the impact, and you always have to look at market conditions and demand, and with the whole ASEAN Open Skies, so that's always, you know, it's nice talking about these things, but let's look at the actual market and demand.

Alan Tan:Juergen and Alan?

Juergen Keitel:So firstly, fully agree with the harmonization of standards on the technical area, and we're fully supporting that throughout the region, and because it is making the region far more efficient or would make it far more efficient to operate. And secondly, I think on a global level for aviation, let's look at the sort of ownership requirements globally. It is a topic globally. How can actually— what's the new airline model in the future? So because it's a capital-intensive region, we have the high fuel prices, very volatile. How can, how can that be handled better globally? And Lastly, let's push the ASEAN single aviation market forward, and we fully believe in it.

Alan Tan:Make it truly single.

Juergen Keitel:Yes.

Alan Tan:Alan?

Alan Polivnick:I would say on the joint ventures issue, airlines will use them as long as they are— they provide a business case. AirAsia and Malindo are not wedded to them. If there was a better structure, they would change their structure. On the ASEAN-EU agreement, I agree with Brendan. I think the transatlantic fifth freedoms is actually, quite frankly, a waste of time, because even if you got it, where are you going to get a slot at Heathrow? And that there should be more focus on making sure that it's a fair deal for both EU and ASEAN carriers, given the market differentials.

Alan Tan:I think the Europeans are quite sanguine about the fact that they're only really concerned about 2 airlines from the region, and that's Thai and Singapore Airlines exercising fifth freedom across the Atlantic. But they're also watching for low-cost, long-haul, they're looking at Scoot, and they're looking at Scoot potentially going beyond Europe. They're already in Berlin and Athens, going beyond Europe across the pond to the United States. That day might come, and I think they're just trying to preempt any bright ideas coming out from the region. With that, ladies and gentlemen, let me draw the panel to a close. Would you all please join me in thanking my panelists? Thank you.

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