Ep 54: The Complexities of Airline & Aviation Regulations in ASEAN & Asia Pacific, with Michelle Dy, AirAsia

The aviation industry continues to face immense challenges caused by the pandemic. This week, Gary and Hannah address the current state of aviation policy and regulation with Michelle Dy, Manager, Global Affairs & Policy at AirAsia.

This broad-ranging chat looks at the history of aviation development in globally and in South East Asia and Asia Pacific. A long-standing objective has been to establish an ASEAN Single Aviation Market - so what progress has been made, and what could a Single Aviation Market mean for airlines, airports and consumers? And how does the scale and scope of Chinese airlines impact this strategic objective?

We also discuss how COVID-19 will impact the regional aviation landscape in 2021 and beyond, the challenges for domestic air travel and ongoing border closures across the region. With COVID-19 vaccines rollouts commencing, should airline staff be treated as essential workers, and will all air travellers require inoculation?

Show notes

00:00:00 Gary

Hello, it’s Wednesday, the 3rd of February. I’m Gary Bowerman from Check-in Asia. On this week’s show, we’re super excited to be talking all things aviation and airlines in ASEAN with Michelle Dy, Manager, Global Affairs and Policy at AirAsia. So let’s get started. This is The South East Asia Travel Show.

00:00:24 Hannah

Hello, where you are in the world and thanks for listening in.

Hi Michelle, I welcome to The South East Asia Travel Show. How are you and where are you today?

00:00:32 Michelle

Hi Gary and Hannah, good morning, I’m here in KL.

00:00:48 Hannah

By looking at your career Michelle, it looks like you were born in the Philippines.

You studied law there, as well as in Singapore and New York. Now you’re living and working in Malaysia. Is that right?

00:01:02 Michelle

Yes, I’m Filipino, and then I started there in the Philippines first and then took my Masters in Singapore and New York. And yeah, now I live in Malaysia.

00:01:15 Hannah

So, at what point did you decide that law travel and aviation would become your life?

00:01:22 Michelle

I guess I got motivated because there wasn’t any lawyer in my family except my uncle, so I felt like ‘Why shouldn’t I be the first one in my family?’ In the Philippines, you can’t really go straight to law right away, so I had to take my undergraduate, which is political science.

And then I worked for a year in a think tank before going to law school.

I fell in love with travel when I moved to Singapore to do my Masters degree in law. Before that I had only flown to Singapore internationally – and I could probably count on my 10 fingers the number of times I had flown domestically in the Philippines.

So I think low-cost airlines really made travel possible for struggling graduate students like me at that time. I just like waited for weekend sales and booked trips to Bangkok, Phuket and Yangon

That was my first brush with travel and I have to say I really fell in love with the ease of like flying in and out from Singapore.

00:02:33 Michelle

And then Aviation Law. Believe it or not, I didn’t know that such a subject existed until I moved to Singapore to do my Masters.

I took an elective called Aviation Law with this wonderful professor named Alan Tan, and I found the subject very fascinating, not only because it was the first I’ve heard of it. I thought his teaching style was super effective. The way he taught the subject, he really made it interesting.

So much so that before graduating, I actually wrote a paper on the side on the role of aviation in the US young my spare time and had an opportunity to present it in a conference in Australia. That also started my journey in terms of writing papers on aviation because I met a PhD student also in USA in Aviation law and he wanted us to collaborate on the paper together and I would say that collaboration and partnership is still ongoing until now.

00:03:34 Michelle

So even after I graduated and moved back to work in the financial services sector, I kept writing papers and divisions on the side during my spare time.

00:03:47 Hannah

So what made you make the move to New York?

00:03:53 Michelle

It was part of a dual degree programme, a collaboration between the National University of Singapore and New York University. So I did 2 Masters in one year, so I only moved to New York to do my bar exam.

00:04:26 Gary

You are admitted to the bar in both the Philippines and New York?

00:04:29 Michelle

Yes, that’s correct.

00:04:32 Gary

That’s some achievement.

00:04:34 Michelle

Thanks.

00:04:35 Gary

So how did your position as Manager of Global Affairs and Policy with AirAsia Group come about?

00:04:41 Michelle

Actually it was weird, because as I said earlier, I moved back to the financial services sector for work after I finished my contract in NUS because I returned to the University to work as a researcher.

AirAsia at that time actually contacted my old professor Alan Tan asking for referrals for this new role they just created to help them push the ASEAN Single Aviation Market agenda forward, and he recommended me. So here I am.

00:05:20 Gary

When was that?

00:05:21 Michelle

That was way back in 2018.

00:05:23 Gary

And has the scope of your role changed in that time?

00:05:27 Michelle

Oh yeah, definitely. When I first started, I was just asked to lead the project to push the ASEAN Single Aviation Market. But now it has evolved to such a big scope, because now I deal with like a variety of policy issues, not just on the airline side of the business for Asia.

So I also now handle our logistics business, which you know is Teleport up to the financial services, which is Big Pay So my typical day-to-day work now Involves monitoring regulatory developments that could affect any of our businesses, and also devising and implementing lobbying strategies in support of causes that are important to the company.

00:06:10 Hannah

That sounds super involved. I imagine you must have to survey lots and lots of countries - presumably every country that AirAsia flies to?

00:06:20 Michelle

Yeah, I definitely have to be a multitasker, so right now I’m actually juggling three major projects. So things are very hectic but I love it. I like being engaged all the time and you know not expanding my horizons.

Aviation is still my first love, but I do like that, you know, I’m given the opportunity to also be involved in the other side of the business as well.

00:06:45 Hannah

So prior to the pandemic, then were you having to travel a lot? Were you constantly on AirAsia planes?

00:06:53 Michelle

Oh yes, it’s crazy. My friends actually thought it was a very glamorous job because I would fly at least twice a month until I told them there’s no business class on AirAsia. Because we are not paying passengers, we get the unsold seats - which are mostly are the middle seats.

Before 2020 I was based in Manila because I preferred to stay with my family so it was always a challenge for me to fly to our other markets because everywhere else is four hours away by flight.

There was a point that it really took a toll on my body because I was so exhausted all the time. That’s when you know I proposed to my boss that maybe it’s better if I Located in Kuala Lumpur. It’s only like 2 hours to Jakarta into Bangkok

00:08:09 Gary

So when was your last business flight?

00:08:11 Michelle

Oh my God, it’s almost a year from now. So my last work trip was Jakarta in February 2020, but that wasn’t my last trip. Two weeks before Malaysia declared a lockdown. I was actually in Singapore for a personal trip.

00:08:36 Gary

So let’s talk about aviation policy because it’s such a huge topic, Michelle. It’s often remarked that there are no Googles or Amazons of the of the aviation world, no MNCs in their scope or appeal. Why is that?

00:08:51 Michelle

So please bear with me, so this goes actually way back. Believe it or not, in 1944, right before the end of the Second World War. So the world played a very instrumental role in advancing airplane technology and 55 countries led by the US were already thinking about transitioning the vast network of passenger and freight carriage facilities that they built to civilian use at that time.

So this led to negotiation of the Chicago Convention, which basically sets out the core principles, which makes possible international air transport to this day. And one of these core principles was that states have sovereignty over its own airspace.

This means that every state is entitled to regulate the entry of foreign aircraft into their own airspace. This was right before the end of the war, so of course national security was going to be one of the top concerns for all the countries, most especially like, you know concerns about the safety of their airspace from enemy airplanes and to ensure that this will not happen, two things were agreed upon in 1944.

First, they agreed that an airline cannot operate international services to another country if its government does not have an agreement, which we now call bilateral Air Services Agreement with the destination country.

And second that the airline has to be substantially owned and effectively controlled by nationals of that country where the airline has been established, so commonly now substantial ownership means that you know nationals should own at least 51% of an airline. That’s a general rule.

But we have situations in other countries where it’s much stricter, like for example in the Philippines they actually require Filipinos to at least 60% of an airline ,or in the US it’s 75%. So it’s quite strict, and this restriction, believe it or not, continues to apply to almost all airlines up to this day save a very few exceptions.

00:11:13 Hannah

Commercial aviation is just so complex and so politically charged, like you said. What are the challenges right now in trying to understand different government requirements and standpoints regarding air travel globally and regionally?

00:11:29 Michelle

I think now the rules of the game have definitely changed, hopefully temporarily. We are seeing authorities outside the air transportation space getting to decide as well whether we can fly or not, such as the Ministry of Health, the National Security Commission? Or maybe the COVID-19 task force of the country.

I’m not saying that’s a bad thing, it’s absolutely vital in the pandemic we’re facing right now, but it just makes our jobs harder to do because our stakeholder base has grown so much. So now we have to monitor a lot more things than we used to.

00:12:09 Hannah

When you look at the Philippines, when they restarted travel, what was it back in May or June? Then you had the whole issues of local government units making decisions and the central government making decisions and that must be really hard to handle?

00:12:23 Michelle

Yeah, exactly. From an operational standpoint, it’s really a bit challenging now to plan our network in advance because you know, like as you said, like we have situations where you know it’s not just the national government that imposes restrictions on where we can or we cannot fly.

Sometimes it’s also local governments that have a say If they will allow travelers into their jurisdiction, or what type of testing they will require for these travellers.

So now it’s probably making our jobs more challenging.

00:13:02 Gary

From right now in 2021, the beginning in January, the whole travel landscape has just become so complex and so overlapping. There are so many issues that people didn’t really consider before now coming to the fore. Michelle, you recently contributed to a book called Aviation Law and Policy in Asia, Smart Regulation in Liberalised Markets and I was reading through some of the abstracts of that yesterday. It’s a fascinating book because it covers the whole region North East Asia, Southeast Asia, and South Asia as well.

So as we look forward from this current point, what are the key issues that are facing the aviation market her In ASEAN and Asia Pacific?

00:13:44 Michelle

Yeah, so we actually wrote that book way back in 2019, even before at the time of COVID. So I guess at the time one of the main concerns facing the vision industry was, As I explained earlier, the airlines inability to efficiently expand into the other countries the way that you know companies in other industries can, due to the foreign ownership restrictions imposed on airlines.

It’s unfortunate to say, but it doesn’t look like COVID-19, and the challenges being faced by airlines right now, will do anything to change that ownership regime anytime soon.

00:14:30 Hannah

So let’s have a look at the ASEAN Single Aviation Market now, and you talked about this a lot in the past and you have written papers on it. This is a really big topic so what does the Single Aviation Market mean and what would be the benefits for airlines and for consumers?

00:14:51 Michelle

Yeah, so I will try to be as simple as possible, so I think in order for me to answer that question I have to answer it in two-fold.

So first, what does the Single Aviation Market mean right now, and second is what do you want it to mean in the future?

So first right now the Single Aviation Market is still incomplete. It has introduced some liberalized supervising aspects and has brought a lot of growth into the region by allowing countries to designate as many airlines as they want to fly within Asian.

Because previously most bilateral air services agreements even limit you know the carriers or the airlines that can fly from, say, Malaysia.

They could limit it to one or just one airline, but now they’ve opened it up to as many designations as countries want.

So that’s the first part. Then second, the agreements also removed the limitations on capacity, frequency and aircraft type. So now for example Philippine Airlines could actually fly an Airbus 380, which can carry 500 passengers from Manila to Kuala Lumpur, provided that KLIA can accommodate such a jumbo plane. Previously there was even a restriction on that.

And I think lastly, and most importantly, it also opened up what we call the Freedom Rights but limited only to the 3rd, 4th and 5th freedom traffic rights.

00:16:28 Gary

That’s such a complicated thing, as there are 9 freedom rights - is that correct?

00:16:32 Michelle

Yes, that’s correct. So 3rd and 4th traffic rights actually refer to an airline flying to another country. You see a route from Jakarta to Singapore and the 3rd freedom for Garuda, and then going back from Singapore to Jakarta is actually the 4th freedom. So that’s straightforward enough, and it’s unlimited.

But 5th freedom is trickier. It involves an airline, say again, using the example for Garuda flying to one country. So Jakarta to Singapore, and then find another country, say Singapore too Yangon, can before flying back to Jakarta. So that’s the 5th freedom right, and it’s now unlimited only within ASEAN – and airlines can exercise this right to go to a third country as long as all the routes are within ASEAN.

00:17:25 Gary

I read your paper, Michelle, Opening ASEAN Skies and the ASEAN Way, and this was written a few years ago. But one of the things that you mentioned was the fact that open skies might actually benefit other countries’ airlines - and you mentioned China - more than it would benefit ASEAN airlines. Has that been ironed out?

00:17:45 Michelle

Unfortunately, no. That’s key to the second part of my answer, because right now the ASEAN governments still haven’t lifted the ownership and control restrictions in the different countries. So it means like for example AirAsia in Malaysia can only launch flights from any Malaysian point, from KL or Kota Kinabalu etc, to any point in China.

Whereas, Chinese flights can fly from, you know any point from China and go to any point in the ASEAN countries. So in terms of like you know, having the flexibility or having more points opened up, you can see that Chinese Airlines have an advantage because they can fly to so much more points from their own country to ASEAN compared to ASEAN airlines to China.

00:18:47 Gary

And you also mentioned another point that financing – and the restriction in terms of financing coming from within one country for an airline. You made a good point that in some countries of ASEAN you have limited access to financing, whereas Chinese airlines have huge access to financing and so that’s kind of an imbalanced playing field?

00:19:09 Michelle

Yeah, because you know the majority requirement or having an ownership requirement is very limiting. If you require foreign investors to only own say 49% or 40% of an airline, that’s really not enough right? Especially for example, if the domestic capital markets of a particular country cannot, or not are not able to, raise capital to pay for 51% of the equity fund airline.

So that actually limits the development of airlines in the domestic market here in ASEAN

just to give you guys an example, so a region that we always compare ourselves to in terms of the aviation market is the EU.

And there they have a more solid Single Aviation Market, where they have lifted the ownership and control restrictions already. So there we can see airline subsidiaries popping up around the EU.

Just an example is Lufthansa, a German airline.

They actually also own subsidiary airlines. In other countries in the EU, such as SwissAir in Switzerland and Brussels Airlines in Belgium. And that is simply not possible in ASEAN today.

00:20:21 Gary

Yeah, you mentioned again in your paper that one of the reasons for that is the EU has these supranational institutions, like the European Court of Justice, the European Commission and European Parliament, which ASEAN doesn’t have and, I think you said in your paper, will probably never will have?

00:20:37 Michelle

Yeah, that’s absolutely correct, so even before the EU got to this point, of course, a lot of countries resisted at first, but since they have this like supranational authorities as you mentioned, they were able to impose or require the countries to abide by the Single Aviation Market agenda. Whereas here in ASEAN, we have the ASEAN Secretariat which doesn’t have supernatural powers. In fact it’s just a secretariat, so it’s just meant to, you know, make sure that the house is in order, but they cannot actually require ASEAN Member States to go further.

00:21:17 Hannah

So let’s leave the Single Aviation Market aside and let’s just look generally at the outlook for Aviation in 2021. What do you think? Are we going to see travel bubbles coming? Are we going to see an ASEAN travel bubble? What? How do you think this is going to play out this year? A BIG question, I know.

00:21:37 Michelle

Yeah, I’ve been talking about this with our teams a lot because obviously this is a big concern of ours as well. I think now the uphill challenge is first to get governments comfortable with travel again, full stop - even domestically.

Because even in South East Asia as we know, domestic travel and tourism remains a challenge in some countries. For example, here in Malaysia the MCO 2.0 is extended until 18 February, and intrastate travel will not be possible until the end of the MCO hopefully. And also in the Philippines where, as we mentioned earlier, different local governments have different requirements for tourists- and it’s only to limited destinations.

We think that will be the first priority of governments to establish some normalcy within their borders first, even before they can be comfortable with opening up for general travel again.

And in terms of travel bubbles, we are quite optimistic that in between those periods, like travel bubble negotiations will still continue to be in play, especially for business an essential travel.

So you mentioned earlier an ASEAN Travel Bubble, so right now it is being conceived. They actually only meant to cover business and essential travel, although we would want it to be extended to you know some form of leisure travel bubbles as well.

Maybe perhaps starting with naturally isolated places first, like you know, similar to what Maldives is currently doing right now.

00:23:13 Gary

That brings us to the big debate in travel right now, which is vaccinations and you recently posted on LinkedIn about the case of aircrew being considered for early vaccination, and this refers to Cathay Pacific in Hong Kong, where the Hong Kong government was considering making aircrew from long-haul destinations undergo a quarantine. Do you think that the airline sector will lobby for aircrew to be considered as a frontline at workers?

00:23:38 Michelle

You know, as early as last year, I think December 2020, we have already seen the aviation sector lobbying for this particularly or primarily through industry organizations like IATA and ACI. I was just looking yesterday that even in the US there’s a strong lobby led by flight attendants and pilots’ unions for them to be considered as essential workers as well.

So yeah, I hope that you know the issue would gain more traction in governments here in ASEAN would start considering aircrew and ground staff as priority workers as well for vaccination.

00:24:20 Hannah

Yeah, I mean, I hope so. We’ve certainly seen that in Singapore, haven’t we, with the government saying that they want to position Singapore Airlines to be one of the first airlines that have been vaccinated. So hopefully some other South East Asian governments will take inspiration from that, I suppose.

So another question linked to vaccination, and this is probably even more controversial. Of course Qantas came out last year and said, you know, maybe later on all of their international passengers will have to be vaccinated. Do you think that’s going to happen?

00:24:51 Michelle

Yeah, quite Interestingly, I was actually watching Alan Joyce interview, the CEO of Qantas, he had an interview with Eurocontrol yesterday last night, and he was asked again the same question. He still maintains that he would require passengers to be vaccinated before travelling on Qantas, whereas I think of for AirAsia, for example, Tony was also asked this question the same question last year and he said that you know, it’s not really up to the airlines to decide.

It’s up to the governments, of course, to decide you know who, and as an airline, we just abide by whatever regulatory requirements that the government will impose on us.

00:25:33 Gary

That’s a good point. I saw Alan Joyce interviewed by Reuters. I think it was a couple of weeks ago and he said the same thing, more or less. He said that they would if it was if it was their choice Qantas would require people to be vaccinated, but he thought that Australia would actually make that a requirement anyway. So. like you said, it kind of takes it out of the airline’s hands.

00:25:52 Hannah

Yeah, so do you think Michelle that ASEAN governments should be a bit more like Singapore – young in terms of in Singapore is pretty aggressive in terms of pursuing green lanes and fast track travel arrangements. Do you think other Asian governments should follow something similar?

00:26:09 Michelle

Oh yeah, definitely, although I think other ASEAN countries would hate to, you know, use Singapore as benchmark. But I think we really have to start, or they have to start somewhere, you know.

And you know the Green Lane or the fast-track travel arrangements pursued by Singapore have already shown that there are enough safeguard under this type of arrangement to ensure that travellers who enter the country are COVID-free or are detected right away through on-arrival testing.

We have seen also last weekend that Singapore suspended RJL with three countries because of a high number of cases in the counterpart countries. We can see, mechanisms are actually in place to put like a stop or like maybe a circuit breaker to these type of arrangements in cases of a surge or in certain cases.

But that doesn’t mean that you know negotiations don’t or cannot resume right now, or that travel arrangements cannot be started right away.

00:27:17 Gary

Yeah, I just want to go back to one of the points you mentioned earlier, Michelle. You were saying about you know getting governments to reopen not just borders but domestic travel. The issue is, as you said here in Malaysia we have the MCO extended again for another two weeks. So there is a sort of trade off, isn’t there? There’s this prevention of domestic travel, but there’s also border closures as well. The longer this goes on, the more entrenched government positions tend to become.

00:27:41 Michelle

Yeah, I agree. And you know, my personal fear is you know the longer the borders are closed or travel will not be allowed, the harder it will be to gain back the passengers; confidence to fly. So now it’s not just on top of the concerns of safety which we try to address by saying air travel is the most is the safest one of the safest forms of travel, but also in terms of they don’t have confidence the government will not just impose restrictions overnight

So, those are the things that I guess battling against us right now as well.

I think the longer you know this goes on, the harder it will be to regain the passengers’ confidence right away. Although I do believe in ‘Revenge Travel’ and I think I’ll be one of those people who were on the plane as soon as tomorrow when the borders again.

00:28:37 Hannah

So where will you go first internationally when they open borders?

00:28:41 Michelle

So please don’t laugh at me, but I actually want to go back to the Philippines. Well, just to visit my family but I just want to go to the beach. I would give anything to take a nap on the beach right now in one of the beautiful islands in Palawan.

00:28:58 Gary

And Michelle, this is been a great chat and I think we could continue talking about this for hours and hours. It’s such a complex and fascinating subject.

But before we go. We mentioned your book earlier, Aviation Law and Policy in Asia: Smart Regulation and Liberalized Markets, and I think later this week you’re involved in a webinar. Can you tell us a little bit about that?

00:29:17 Michelle

So yeah, good thing that you mentioned it. Actually, this Friday, we’ll be presenting two chapters from that book. So I will be presenting together with my colleague, Miss Lalin. She is a Professor from Thamassat University, so we’ll be presenting our chapters.

I’ll be talking about the efforts of the Philippines to lift the ownership restrictions on airlines in the Philippines, and Professor Lin will talk about the effects of liberalization in Thailand’s domestic aviation market. I’m happy to say we have 100 plus registrants already so I’m quite excited.

So if you want to register, it’s Friday, February 5 at 9:00 AM Hong Kong time.

https://events.uvic.ca/view/event/event_id/52755

00:30:18 Hannah

And fantastic should be a really good event. So yeah, listeners go and listen to more of what Michelle has to say. So thank you so much, Michelle for taking the time to speak with Gary and I today, we really appreciate it.

00:30:30 Michelle

Yes, it was a pleasure talking to you guys.

Resources

Sign up for Michelle’s webinar on 5 Feb at 9am Singapore on Aviation Law and Policy in Asia: Smart Regulation in Liberalized Markets HERE.