Agreement seeks to open the skies

By CHRIS DANIELS aviation writer

A move to liberalise the Pacific aviation market and give its airlines more freedom has been unveiled at the Pacific Islands Forum meeting in Auckland.

The Pacific Islands Air Services Agreement, which has been developed over more than five years, will be open for signatures when the forum ends this weekend.

Robert Guild, the economic infrastructure adviser for the forum secretariat, said the agreement would make it easier for airlines in the region to get much needed international capital to develop.

The agreement covers landing rights between countries that sign up to it.

Samoa, Tonga and the Cook Islands have open skies agreements with New Zealand.

These countries, particularly Samoa, are expected to become some of the first countries to adopt the full, open-skies deal.

One problem with getting the deal accepted by some countries will be a perception that their smaller airlines will be shut out of business by the combined power of Qantas and Air NZ.

The agreement had been motivated by problems with airline regulation, said Guild.

The 14 forum countries were parties to more than 60 bilateral air service agreements, a complex system which had hindered the development of new routes and which had made it more difficult for the airlines to develop.

The agreement was intended to make competition more feasible by allowing multiple airlines to co-operate through code-sharing.

That could mean rationalising services by using each other's equipment on various routes.

Guild said some countries had reservations about possible anti-competitive practices that could be adopted by big airlines, price wars and under-cutting.

The agreement will come into force gradually.

First, smaller countries without airlines would become members, followed by countries with airlines which wanted to develop new routes, then all airlines.

"We expect that airlines will be able to pursue commercial opportunities as they see fit with fewer restrictions on things like ownership and control," said Guild.

In the first three phases of the agreement, Australia and New Zealand would not be included. At the end of the third phase, which could be in 2006 or 2007, New Zealand and Australia would be invited to join.

Most bilateral agreements have clauses that say that for an airline to be "designated" by a country, it must be substantially owned and effectively controlled by nationals of that country.

Capital markets in the Pacific and Australia-New Zealand were simply not "deep enough" for airlines to develop in the current global aviation environment , said Guild.

By liberalising the ownership and control provisions, airlines could have greater proportions of shareholdings and capital infusions from outside the region.

That would give the airlines improved access to new airline alliances - and to necessary capital.