Thank you for your feedback! As the space ship has a particular shape with clear orientation I thought players will associate the movement with the shape. So I thought controls relative to the space ship will be more easier. Anyway I uploaded a version in which the controls are relative to the observer - https://jojijoseph.itch.io/space-war-controls-relative-to-observer. 

Once this jam is over I will update this game with an option to choose the control mechanism between controls relative to character and controls relative to observer.

Edit: Game Jam is over. Merged post jam updates. Hence removing the above link.