Defying gravity

Despite a long list of dead ducks, Cambodia’s new national carrier might just make the grade, and loosen Bangkok’s stranglehold over Cambodian skies

Alan Smithies
August 1, 2009

Despite a long list of dead ducks, Cambodia’s new national carrier might just make the grade, and loosen Bangkok’s stranglehold over Cambodian skies

Airline failures are not popular with the travelling public. The fact that there are no human injuries or fatalities, does not seem to outweigh the inconvenience it causes to stranded passengers in the departure lounge. For many years that has been the story in Cambodia, as successive airlines have tried and failed to balance the books making the story of Cambodian civil aviation a litany of high political hopes, unrealised promise and dashed dreams.

Cambodia Angkor Air is ready to fly from Phnom Penh International Airport (Ryan Plummer)
Cambodia Angkor Air is ready to fly from Phnom Penh International Airport (Ryan Plummer)

In nine years, six Cambodian airlines have failed to make it and three have dipped a toe in the pool, looked at the figures and pulled out at the last minute when the numbers didn’t stack up. As far back as 1999, Royal Phnom Penh Airways ran a domestic and international service but suspended operations six years later when it ran into financial difficulties. In 2001, Royal Air Cambodge announced it was bankrupt with losses of a reported $20m. A year later Hainan Airlines from China agreed to buy 49% of the stricken carrier, but ducked out when other airlines were granted international operating rights.

The two most recent failures have been Angkor Airways which, with its partner Far Eastern Air Transport, ceased operations in 2008 over financial difficulties, including charges of embezzlement by senior management, and Siem Reap Airlines, which suspended operations in the same year when it was listed as a prohibited carrier by the European Union.

It is against this backdrop that industry experts are watching closely as Cambodian Angkor Air – a joint venture with Vietnam Airlines – becomes a regular feature on Phnom Penh International Airport’s tarmac. Before its first flight Hun Sen, the prime minister, said he believed it will “actively contribute to the improvement in the areas of transportation, trade and tourism as well as directly contributing to job creation . . . which is the basis for socio-economic development in Cambodia”.

Given the history of Cambodian airlines, this seemed like a lot to ask, but the new carrier might be in a better position to deliver than many observers expect.

The biggest player in Cambodia’s air transport game is the SSCA (state secretariat for civil aviation), the current regulator. Formed in 1996 it oversees, among other things, all aspects of running an airline, operates several domestic airports and is in charge of development and policy planning. Its importance in high places is underlined by the fact that it reports directly to Cambodia’s council of ministers.

A wing and prayer: monks bless CAA’s aircraft at the airline’s official launch at Phnom Penh’s airport on July 27, which was presided over by Prime Minister Hun Sen and his wife Bun Rany (first and second from the right)
A wing and prayer: monks bless CAA’s aircraft at the airline’s official launch at Phnom Penh’s airport on July 27, which was presided over by Prime Minister Hun Sen and his wife Bun Rany (first and second from the right)

The kingdom has three international airports (Phnom Penh, Siem Reap and Sihanoukville) and several others around the country including Rattanakirri, Kampong Chhang and Koh Kong. The government’s open-sky policy enacted a few years ago has encouraged private airlines to increase traffic and as of last year 18 international airlines provided scheduled flights into Cambodia with an even greater number providing charter services.

In terms of passenger numbers, Vietnam Airlines knows more than a thing or two about the market’s potential. It carried significantly more passengers into and out of Cambodia than any other airline and partnering a new carrier out of Phnom Penh strengthens its hand. Similarly, AirAsia has descended like a red mist on the airways with cut-price special deals into and out of Phnom Penh and aggressive marketing linking the Cambodian capital indirectly with the rest of the world.

Vietnam Airlines must have thought it was its birthday and Christmas rolled into one when Siem Reap Airways was blacklisted by the EU and as a result suspended operations from Bangkok to Siem Reap.It remains to be seen how short-lived the ban will be. Ekkaphon Nanta O’Sot of Bangkok Airways stressed that the concerns had been addressed and procedures were being followed to have the ban rescinded.On July 16, 2009, The Phnom Penh Post reported Mao Havannal, secretary of state for civil aviation, stating: “We will meet the standards of the International Civil Aviation Organisation… we will reopen [Siem Reap Airways].” But with nothing happening so far, the window of opportunity has opened for a new carrier with international aspirations.

Just about every nation wants a national airline, the primary role of which is only partly, if at all, commercial. That has often been subsumed by its role as a prestige symbol, a flag carrier and promoter of national interests. Narinthorn Purnagupta, Thai Airways’ general manager, said that his airline’s role in developing tourism as Thailand’s national carrier went so far as to believe its staff are akin to ambassadors of Thai culture. He considered that CAA would eventually serve a similar role, benefitting Cambodian tourism and exporting the country’s culture.

The new airline might also stave off the country’s reliance on “hubs” such as Bangkok’s Suvarnabhumi Airport, which last year was blighted by the ongoing round of pro- and anti-Thaksin Shinawatra demonstrations in Bangkok. It may also encourage development in other areas, such as the announced plans for it to link up with cruise ship passengers in Sihanoukville and take them on to Angkor Wat.

Most government initiatives and investments around the globe are treated with a toxic mixture of cynicism, caution and downright disbelief that there is any altruistic purpose behind any venture. For example, there are varying reports on how quickly CAA was established. One government official cited 30 days, a published report suggested 100 days. What we know is that the agreement establishing CAA was signed only days before it began operations and ticket sales were a shambles.

The airline’s ownership has also been the subject of close scrutiny. It is commonly reported that it is 49% owned by Vietnam Airlines and 51% by the Cambodian government. However, the sub-decree establishing the airline states that the Cambodian interest is split between the government (25%) and the Cambodian Investment Company (26%), of which little is known.

Some people argue that the CAA is merely a Vietnam Airlines subsidiary with a Cambodian flag. However, that’s an overly simplistic view that ignores the historical precedent and harsh realities of airline operation. Thailand, walked a similar tightrope when setting up Thai Airways, which benefitted hugely from foreign support.

It was originally 30% owned by Scandinavian Airline Services, which contributed operations, managerial and marketing expertise. Thai nationals were gradually trained to replace most foreign staff and the Thai government eventually bought out SAS, making Thai Airways an independent national carrier.

With this background, Narinthorn Purnagupta, general manager of Thai Airways, said he believed that the CAA structure was a good way to build an airline as quickly as possible.

There is also a strong case for Cambodia choosing Vietnam

Airlines as its partner. Aside from its experience and resources, the deal strengthens ties with Vietnam. From 2003-2006, flights to and from it showed a dramatic rate of growth and Vietnamese residents travelling to Cambodia increased by more than 67% in 2008 as compared to 2007. In 2002, trade between Vietnam and Cambodia was $240m, grew to $1.1 billion by 2007 and last year reached $1.7 billion.

Vietnam Airways’ involvement provides not only instant airline operation and marketing expertise (although during and after start-up, the marketing and communications departments at CAA were unreachable for interviews or information), but also provides access to its international networkto feed passengers to its partner. Previous Cambodian airlines lacked such access, which was perhaps a key factor in their failure.

The Cambodian government’s intention to support CAA is clear, as it has set out tax breaks and other incentives.Granting priorities in routing and landing slots are not uncommon, particularly for national carriers in their infancy, although it is not clear whether this is intended for CAA or how, if granted, such privileges would operate in the context of Cambodia’s open sky policy. Hopefully, some guidance will be provided by Sinn Chanserey Vutha, SSCA’s director of policy planning, legislation and co-operation, who observed that “competition is good for service and price”.

With Vietnam Airways a partner in CAA, it is interesting to see how the national carrier’s launch is viewed by some of its competitors. O’Sot of Bangkok Airways believes his airline will fare well against the newcomer because of what he described as his company’s superior service, newer aircraft, hot meals and access to international networks. He is also aware that competition will inevitably lead to more marketing challenges and price pressures. Not wasting any time, Bangkok Airways began a price promotion between Phnom Penh and Siem Reap on the day of CAA’s launch.

Purnagupta feels that the airline won’t challenge most of Thai Airways’ business, but he acknowledged that things might change if Ho Chi Minh City is established as an international hub into Cambodia that rivals Bangkok. With AirAsia establishing Kuala Lumpur as a stepping stone to Phnom Penh and CAA marketing HCMC as a viable alternative, the overpowering relevance of Bangkok’s international airport to Cambodia may well diminish in the future.

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