Flying people, building houses

If there is one executive that is so passionate about and committed to his company’s corporate social responsibility program, it is Marnix H. Fruitema, Air France/KLM SVP for Asia Pacific.

In 2009, they put up an AF/KLM Village in Gawad Kalinga, Bagong Silang, and they hope to finish their commitment in February 2011.

“KLM is the oldest airline in the world and we have been in the Philippines for 59 years,” says Fruitema. “Next year, on Dec. 5, 2011, we hope to celebrate our 60th year in the country.”

The Dow Jones’ Sustainability Index has cited AF/KLM as the number one in CSR program of multinational companies worldwide.

“In Europe, youths ages 18 to 25 are traveling all around the world looking for humanitarian programs they can join. We have a program for the youth to join us in helping to build our village,” says Fruitema.

Cees Ursem, AF/KLM general manager for South China Sea and member of the Board of Airlines Representatives (BAR), explains that the European volunteers live in the GK Village and experience living like the locals while helping to build houses.

In 2009, AF/KLM transported approximately 125,000 passengers to the Philippines; 70 percent were Filipinos and 30 percent Europeans. There are approximately nine million OFWs all over the globe and at least 300,000 are in ship crewing while the rest are in healthcare, IT, and hospitality industries. The airlines are providing seamless travel connections for customers and suppliers of service exporters that require direct access and easy entry and exit from the Philippines. 

The tourism industry in the Philippines is highly dependent on the country’s access provided by international airlines operating to and from the Philippines. But the exit of international carriers from the Philippines where foreign carriers are taxed has been a stark contrast to the growth in services experienced by neighboring Asian countries that give a lot of incentives and do not tax foreign carriers. In contrast, flights between the Philippines and Europe have declined significantly from 22 flights weekly in 2001 to seven in 2009. US carriers operate only 16 flights per week compared to 24 in 2001. The Philippines is served only by 360 incoming flights per week by foreign carriers versus other ASEAN countries like Cambodia, 342; Vietnam, 433; Indonesia, 652; Malaysia, 734; Thailand, 1,194; and Singapore, 1,385. The Philippines connection with global markets in tourism and trade is poor compared to its neighboring countries.

In 1997, the government created the Common Carriers Tax (CCT), which is three percent of the gross turnover and the Gross Philippine Billings (GPB) which is 2.5 percent of the gross turnover. The airline industry margins are marginal. No other country in the world is imposing these taxes on foreign airlines. Both CCT and GBP are levied on all revenues, passenger cargo and excess baggage for air transportation. Even tickets sold outside the Philippines are subject to CCT and GPB. These taxes and their pertinent regulation do not conform with the international standards and practices. The IATA (International Air Transportation Association) considers these taxes a violation of the relevant ICAO (International Civil Aviation Organization) resolution regarding the waiver of taxation on international air transportation to which the Philippines is a signatory. These taxes are also considered in violation of the non discrimination principle of the World Trade Organization (WTO), which stipulates that a member state should not discriminate its own and foreign products, services and nationals. To date, four countries have taken reciprocal actions against Philippines carriers, and there is a possibility that more countries will follow. This will greatly impact their ability to offer the current levels of air services.

The Philippine Senate agreed in 2007 to allow foreign air carriers to choose between CCT and VAT. Implementation of this choice has been denied by the BIR, based on a disputed interpretation of Sections 118 and 236(H) of the National Internal Revenue Code (NIRC), as amended. The VAT option for foreign carriers would resolve in them paying the 0% VAT, similar to Philippine air carriers. The VAT option for Philippine air carriers exempts them from the CCT and GPB.

Without a healthy airline industry, Philippine tourism will never flourish. All the incentives granted under the Tourism Act of 2009 to increase the country’s capacity to generate investments, employment and reduce poverty will simply be rendered worthless.

International tourists contribute at least US$ 2.3 billion in export receipts (2009 data). Potential tourists avoid the Philippines due to the lack of nonstop connection from the USA and Europe. Every missing tourist translates into lost job opportunities and revenues.

Ursem states wistfully, “If the government really wants to improve the economy, fight corruption, maintain integrity, generate jobs, increase income, the elimination of these taxes will attract European and American carriers back to this country, thus opening the market for tourism and making the Open Skies Policy really effective.”

Fruitema reiterates, “We have full confidence that the new administration will correct the present airline tax policy to enable the airline industry to move into better economic conditions, otherwise we have to reconsider our operations in the Philippines.”