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Saturday May 15th, 2021

Sri Lanka liberalizes Mattala aiport completely; what it means

COLOMBO (EconomyNext) – Government has announced the complete liberalization of Mattala Airport in a desperate attempt to make something of the inherited white elephant. The investment is sunk. Recrimination is pointless.

It is in everyone’s interest that Mattala at least covers operational costs, without dragging down other government entities such as SriLankan Airlines and the Sri Lanka Ports Authority.

According to the Civil Aviation Authority of Sri Lanka’s Annual Report, in 2014 the Mattala Airport “handled a total of 20,474 international passengers and 69 metric tons of air freight. Total aircraft movements in and out of MRIA in 2014 was 2,984. With a view to promoting MRIA the government adopted ‘open skies’ policies in regard of third, fourth and fifth freedom traffic rights out of MRIA to foreign airlines in addition to offering concessionary landing and parking charges.”

The Fifth Freedom is “the right or privilege, in respect of scheduled international air services, granted by one State to another State to put down and to take on, in the territory of the first State, traffic coming from or destined to a third State.” This is highly valued. It is what allows Emirates to pick up passengers for Singapore from Colombo. Given the economics of filling aircraft with paying passengers, the prices offered by fifth-freedom flights tend to be very low. Thus “home” airlines (e.g., SriLankan in Colombo) object to the granting of fifth-freedom rights to their competitors.

Not only were fifth-freedom rights offered to any airline that deigned to use Mattala, they were also offered discounts on landing and parking fees. Still, all it could attract were 2,984 passengers for a year, or eight passengers a day on average. Why?

Because Mattala is located far from where prospective air passengers live.

With 5.8 million people, the Western Province is the most populous and the most globally connected. There is no reason these people would want to arrive in, or depart from, distant Mattala unless the discount on the airfare is hefty. The next most populated provinces are Central (2.6 million) and Southern (2.5 million). Mattala is in the Southern Province, but in its least populated extremity. Hambantota District’s population is just over half that of the Galle District, which has only 1.1 million people. The adjacent districts of Moneragala and Ratnapura are not the most populous or nor the most globalized. Efficient transportation links are lacking.

Effect on air passenger transport

Having seen fifth-freedom rights and discounts as being inadequate, the officials have, correctly, advised the government to throw in the other rights too:

   • Sixth Freedom of The Air – the right or privilege, in respect of scheduled international air services, of transporting, via the home State of the carrier, traffic moving between two other States.

   • Seventh Freedom of The Air – the right or privilege, in respect of scheduled international air services, granted by one State to another State, of transporting traffic between the territory of the granting State and any third State with no requirement to include on such operation any point in the territory of the recipient State, i.e., the service need not connect to or be an extension of any service to/from the home State of the carrier.

   • Eighth Freedom of The Air – the right or privilege, in respect of scheduled international air services, of transporting cabotage traffic between two points in the territory of the granting State on a service which originates or terminates in the home country of the foreign carrier or (in connection with the so-called Seventh Freedom of the Air) outside the territory of the granting State.

   • Ninth Freedom of The Air – the right or privilege of transporting cabotage traffic of the granting State on a service performed entirely within the territory of the granting State.

Sri Lanka being small, cabotage is not of great significance, unless possibly for flights into India that could include a pickup/drop in Colombo and Palaly. At this point, the eighth and ninth freedoms are of academic interest only. The sixth freedom is also of little relevance. The central attraction is the seventh freedom.

This is what would enable Air Asia, without registering as an airline in Sri Lanka, to haul traffic between Sri Lanka and airports in India and elsewhere without the aircraft having to touch Malaysia. For this to be attractive to Air Asia or a similar cash-rich, entrepreneurial airline, some, if not all, of the following conditions would have to be satisfied:

   1. The non-Sri Lankan airline based in Mattala must be able to put down and take on traffic to Sri Lanka from the respective airports, most importantly those in southern India. Given it is not registered in Sri Lanka, this would require fifth-freedom rights. This must be easier than getting third and fourth freedom rights through the airline’s home country.

   2. Significant cost savings should be realized by operating from Mattala.

   3. Some revenue should be earned by taking on or setting down passengers and/or air cargo from Mattala.

In the short-term, it is unlikely that the first condition will be satisfied. Given the mindset of Indian officialdom, it may be easier to gain third and fourth freedom rights as an airline registered in Sri Lanka than gain fifth-freedom rights as a foreign airline operating out of Mattala. This will, in the final analysis, depend on the wording and interpretation of the bilateral air services agreement, as amended in 2003, and any progress made in the Comprehensive Economic Partnership Agreement with India. Distance from major population centers is likely to make satisfaction of the third condition difficult without deep discounts.

The second condition is thus likely to the deciding one. If Air Asia sees traffic from South Asia (South India, primarily, but including Sri Lanka and Bangladesh and possibly Myanmar) to West Asia (Middle East) as a lucrative market worth attacking, the condition may be partially satisfied. There would be no need to haul passengers all the way to Malaysia in the East and then back again to the Gulf and beyond. If all ground services at Mattala are priced low, the condition may be satisfied.

Effect on freight transport by air

For the most part, air freight services are produced jointly along with air passenger services. There exists a complementarity between tourism and high-value agricultural exports, which depend on rapid transportation, preferably via direct routes, to end markets. This requires air transportation in the holds of regularly and frequently scheduled passenger aircraft rather than in cargo aircraft.

Unless tourism focused on the South East develops, volumes of passenger traffic to Mattala are unlikely to increase. Unless the volumes increase, more frequent flight schedules to the markets for high-value agriculture exports cannot be justified. Unless frequencies can be improved, the requirements of high-value agriculture exports will not be satisfied. Luckily, the Gulf and the other West Asian countries are good markets for high-value agricultural exports. So there is a possibility that this kind of air freight services will succeed in tandem with a West Asia focused passenger strategy of the type discussed above.

But there is another opportunity that has been discussed before: an air cargo hub for a company such as DHL or Fedex. Here, the seventh freedom is critically important. The cargo airline will be registered elsewhere. It will simply use Mattala to serve the region around the Bay of Bengal.

The packages will be sorted and reloaded on to long-distance flights to Europe, Japan, etc. from Mattala. Jobs will be created, export earnings will be realized. Mattala might, after all, become a valuable component in Sri Lanka’s push to become a regional logistics center.

Rohan Samarajiva, heads LirneAsia, a regional think tank. He has been a former utilities regulator and involved in liberalizing telecoms and aviation sectors in the region.

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