Deregulating land transportation

PHILIPPINE STAR/ WALTER BOLLOZOS

In 1992, under the administration of then President Fidel Ramos, we were appointed as a member of the Civil Aeronautics Board (CAB), the government agency tasked with regulating the airline industry.

Under the CAB regulatory framework at that time, we noted that CAB was micro-managing the airline industry, determining the routes to be served, the frequencies of the flights, and the fares to be charged. CAB even went to the extent of selecting the types of aircraft to be used.

Under the policy of deregulation espoused by President Ramos, we sought to transfer these functions to those who have the financial resources, the managerial expertise, and the economic interest, namely the airlines.

Paraphrasing Adam Smith, we believed that these airlines, in pursuit of their profit objectives, would also be serving the interest of their passengers, the among tunay (true boss) of the Civil Aeronautics Board.

But a pre-condition for such policy reform is the existence of competition. For if there was only one airline, that airline would be tempted to use its monopoly power to extract the maximum profit at the expense of the passengers. Thus, with respect to international air travel, we could immediately deregulate as several airlines were already serving the Philippines. Our task was simply to invite more international airlines to fly to the Philippines.

With respect to domestic air travel, Philippine Air Lines was then the sole airline. We therefore had to wait for the entry of Cebu Pacific before we could deregulate domestic air travel. Once we deregulated domestic air travel, several other airlines entered the market, thus providing competition. This resulted in better service and lower fares for passengers.

So deregulation was also implemented in sea transport. But unfortunately, not for land transport.

Our Land Transportation and Franchising Regulatory Board (LTFRB) is still operating under the regulatory framework discarded by the CAB more than 30 years ago. The LTFRB still determines the routes to be served, the number and type of vehicles for each route, and the fares to be charged. Moreover, they are even involved in selecting the types of vehicles to be used.

The argument for retaining this policy is that the present franchise holders, i.e., the jeepney drivers/owners/operators, are too numerous and fragmented and thus lacking in financial resources and managerial expertise to perform the role the airlines performed in air transport.

For this reason, the Department of Transportation (DoTr) has adopted the policy of requiring jeepney operators to join cooperatives with the penalty of losing their franchise if they fail to do so. The hope is that cooperatives, with their pooled resources, could achieve financial stability and afford professional managers, especially given the full support of the department.

Promising as this reform initiative maybe, prudence dictates that other policy reforms be considered and pursued so as not to place the success of land transport deregulation reform in one “basket.”

We suggest that other baskets of reform be pursued:

1. Immediately deregulate those land transport sectors where the operators are in the best position to integrate all aspects of transport logistics and can compete on a level playing field. We refer to provincial bus operators, as well as motorcycle taxi groups Angkas and Joyride who have demonstrated their ability to operate viably in an area where competition exists.

2. Encourage the entry of competitors to Grab, presently a monopoly in car transport services. We understand several potential competitors have indicated an interest in entering this field. They should be encouraged and their applications fast-tracked. Once viable competitors arise, this sector of land transport can be deregulated.

3. Uber has shown that through a digital aggregator application platform, it is possible to efficiently connect passengers who need a ride to drivers that are willing to serve them. Uber does this without owning a single vehicle, all that is needed is the application platform. The DoTr must encourage organizations that have the capability to operate such a platform to enter into a partnership with the jeepney cooperatives and local bus companies.

4. In the airline industry, airlines usually have two divisions, domestic destinations and international destinations. In the land transport industry, provincial buses have no local operations. Bus companies should be encouraged to set up local operations, either by buying into the local bus companies and jeepney cooperatives or entering into partnerships with them. One benefit from such partnerships or mergers is that many bus operators in Metro Manila who still operate buses that are not suitable for city bus operation (because they are “high floor” and are designed for provincial bus operations due to the many steps they have to enter the bus) will be able to shift their old buses to new provincial bus routes of their choice. For this and other economies of scale and scope opportunities, many provincial and city bus operators will be open to this reform initiative.

5. Devolve the regulatory functions of the LTFRB to local government units. Under this framework, the LTFRB regulates the national or interprovincial operators, the provincial governments handle those within-province operators, and the municipal or city government the within-municipality or city operators.

6. In case of market failure where no operator for a route exists or when where a market is controlled by a monopoly or cartel of operators, local governments may in this special instance be both regulator and operator, alone or in partnership with the private sector, or as a countervailing force with respect to the other operators. Local government units must be delegated the authority to operate local transport services to be exercised at their discretion.

Such is the case now in Quezon City as the local government has launched the City Bus Augmentation Program. The program is set to provide additional means of transportation to commuters and help to ease traffic congestion. And yet, to launch the program, the city needed a Certificate to operate from the LTFRB. Under the proposed devolution, Quezon City, by its own authority, could operate city buses, run on routes, and charges fares.

By the way, local governments in other countries act as both regulator and operator. In London, Transport for London is the integrated transport authority responsible for meeting the London mayor’s strategy and commitments on transport in London. The agency runs the day-to-day operation of the capital’s public transport network and manages London’s main roads by operating their own buses as well as awarding contracts to private companies to operate on certain routes.

The end result of all these policy reform initiatives is the deregulation of land transport and the significant improvement in service to the passengers, our among tunay.

Dr. Victor S. Limlingan is a retired professor of the AIM and a fellow of the Foundation for Economic Freedom. He is presently chairman of the Cristina Research Foundation, a public policy adviser of Regina Capital Development Corp., and a member of the Philippine Stock Exchange.