BusinessMirror
Philippine Airlines (PAL) and Cebu Pacific will be flying in red ink should the government decide to impose an “open-skies” policy. When that happens, the government may just kiss the fledgling aviation industry good-bye and lay to waste the country’s distinction of having the oldest airline in Asia with PAL and prevent the takeoff of Cebu Pacific, which is about to do an initial public offering (IPO).
And to think that the country’s aviation industry just got hit by a US Federal Aviation Authority (FAA) downgrade from Category I to Category II, making it impossible for PAL to use its newly bought Boeing airplanes and expand its route offerings.
PAL and Cebu Pac’s woes arise from the government’s predilection to shoot itself in the foot, starting with the FAA downgrade that was self-inflicted. The downgrade, which raised safety concerns on the Philippines’ handling of its aviation assets, brings to mind the catastrophic result of the government’s embrace of the globalization buzzword without putting in the necessary safety nets to protect local industries. As a result, many of the country’s industries have been reduced to just being trading posts as their competitive advantage got lost in the ensuing opening of the country’s trade frontiers.
The open-skies policy, boldly enunciated by President Aquino, ostensibly as a counterfoil to a brewing labor problem involving the country’s flag carrier, is another globalization deja vu in the making, as it would lay open to foreign airlines the existing client base of the two local airlines. With open skies, the country’s aviation corridor will be cramped by the entry of foreign airliners that can offer cut-throat prices that would ease out both PAL and Cebu Pacific and possibly cause their financial collapse. That possibility is not remote, given the toehold of existing foreign carriers that poach on the local market of PAL and Cebu Pacific.
The financial stakes are immense and the government cannot just adopt, without so much as a public hearing, the “open-skies” policy for it could lead to the eventual demise of PAL and Cebu Pacific. PAL has been financially hemorrhaging, with losses amounting to $350 million for the past two years, while Cebu Pacific may find itself wallowing in red ink should it be unable to compete with the entry of foreign airlines with their lower-price offerings. In a sense, the open skies could do to PAL what the huge losses through the years, US FAA downgrade, the labor problem and even the hostage fiasco, failed to accomplish.
That would be very bad for the economy since PAL, for instance, services so-called missionary routes or those that do not result in operating gains. The same is true of Cebu Pacific, which is now in the midst of a fleet-expansion program to service more foreign destinations that now include Osaka, Seoul, Brunei, Shanghai, Taipei, Macau and Kota Kinabalu. The open skies will ultimately hurt the country’s tourism industry, for the foreign sightseers will find there is no local carrier to bring them to famed destinations around the country. That said, what happens to the tourism industry, which is one of the big employers, especially in the countryside?
What the government should do is to look at the globalization paradigm that it embraced and which resulted in a corporate wasteland for big firms, such as the garment industry. Employing about 400,000, the garment industry is just a tenth of its previous industrial might, thanks to an all-encompassing embrace of globalization that is now being pointed as the culprit for the loss of jobs even among the developed economies. The open skies can be considered an adjunct of the globalization mindset where trade frontiers are opened to other players without regard for a quid-pro-quo.
We understand that the local airlines are receptive to an open-skies policy provided there is reciprocity, meaning that PAL and Cebu Pacific can also similarly enter the markets from where the foreign airlines originate. Thus, what is envisioned is a two-way street, not a one-way street stacked against the locals. By having this caveat, the Philippine government will only subscribe to an open-skies policy when its local airlines can service the market; when it cannot, then the government will not pursue an open- skies policy relative to the country it is dealing with. This is what fairness is all about and Tourism Secretary Alberto Lim, formerly of the powerful Makati Business Club, should pay heed to this prospect of poaching.
It is somehow coincidental but the hostage crisis, which is tourism-related, may lead to another tourism-
related debacle, the open-skies policy, that could further fan the seed of discontent in the fledgling Aquino administration. For almost a month now, the August 23 hostage-taking has not ceded its front-page status, resulting in missed opportunities for the country. The public has been quietly following the goings-on in the tragic-comedy and the Aquino administration, elected with a huge mandate, is not yet 100 days into office. So, after the hostage case, will the open-skies policy be next?
We believe there is still much room for improvement in the handling of the affairs of the state and we just hope that the people will not turn into skeptics (much like the pundits at the Tuesday Club) at the turn of events in the unfolding telenovela that is the hostage crisis. For there are still silver linings in the horizon, beginning with the renewed vigor of the stock market where trading value has reached more than P10 billion, five times the size of trading in so-called bullish sessions before. The inflation outlook also looked great and fiscal restraint has become a norm that foreign investors, usually skittish at emerging markets, have come full force.
But the silver lining may be blown away, especially with a shoulder-shrugging attitude of government potentates who only look at the day-to-day events and with mock disregard for the long term. The open-skies policy is a dangerous precedent not just for the country’s aviation industry as it would lay open (The Filipino term is much more descriptive, buyangyang) the country’s own market to the foreign airlines. When that happens, even Cebu Pacific may find its IPO having anemic reception in the market and, by extension, the stock market may turn south. In short, the open skies will put a close to the country’s aviation future.
Stopping cigarette smuggling
There is a need for the government to adopt a system to curb the rampant smuggling of cigarettes that defrauds the Bureau of Internal Revenue of its tax collections. Smuggling cigarettes, after all, means skirting the revenue dragnet of the government. One such method that is available is the use of a secure, encoded tobacco-tax stamp similar to that in Canada. This method involves the use of stamps with overt and covert security features that provide instant information on the supply chain of tobacco products. Many countries have adopted this setup aimed at combating the illicit tobacco trade that has resulted in increased tax revenues that fund the building of schoolhouses and roads.
We understand that this Canadian-designed stamp cannot be forged and has never been compromised. It is a superior way of stopping the smuggling of cigarettes, unlike the one that is being proposed: a printable mark—either human readable or machine readable—that can easily be copied, especially with high-end jet printers that are available at specialist retail outlets. This version being pushed to stop the illicit tobacco trade would only negate the government’s efforts to stop cigarette smuggling.
On top of the use of the Canada-inspired tax stamp, another fail-safe mechanism to curb the cigarette smuggling is the hiring of a third-party supplier of the stamps, one not connected to the tobacco industry. In this way, any conflict of interest can be avoided. It is high time the government made full use of its authority to combat tobacco smuggling so as not to sacrifice its worthy projects.
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