Tony Fernandes: “It’s time we kill monopolies – before monopolies kill us”

“If governments and other stakeholders are serious about safeguarding mobility, it’s time to kill monopolies.” Those were the words of respected low-cost airline guru Tony Fernandes, founder and group chief executive officer of AirAsia in a paper presented to the World Economic Forum earlier this quarter.

“Mobility – the movement of people and goods – is both a fundamental right and a linchpin of the global economy. But without air travel, it can’t happen. Making air travel accessible to all is therefore crucial, and airlines, airports, regulators, governments and relevant stakeholders have a duty to work together to make this a reality,” he explains.

But how do we facilitate this? Well, Fernandes says the solution is simple… make it affordable. The arrival of low-cost airlines across the globe has helped stimulate passenger demand and opened up mobility to a new market of consumers. “Airlines have led the way in this, reducing the price of air fares by close to 40% since 2000 by being more efficient,” says the airline boss. In fact, within ASEAN, where AirAsia mainly operates, budget airlines now account for more than half of total capacity, allowing many people to fly for the first time.

“Monopolistic airlines do not work, neither do monopolistic airports. It’s time we stopped pretending that a lack of competition delivers anything but monopoly profit, let alone any sort of real cost reduction. Only competition has the power to reduce inefficiencies and deliver what the market needs at the right price.” Tony Fernandes, Founder and Group CEO, AirAsia   

But not everyone is playing their part, though, notes Fernandes. “Airports remain islands of resistance in a sea of change,” he says, noting that while airlines and aircraft manufacturers have worked hard over the past decade to get air fares down, airport cost per passenger rose by more than 30% in the same period. “Too many airports have also failed to realise that LCCs have different requirements from full-service carriers (FSCs). No-frills airlines need no-frills terminals for simple, fast and low-cost operations,” he argues.

Yet operators approach airport design with a one size fits all mentality. “They fail to understand that not every hotel is the Ritz and not every car is a Rolls-Royce,” says Fernandes. “There’s room for brands built on a volume proposition, such as Wal-Mart, Carrefour, and indeed LCCs. Designing for volume not only lowers cost but can also stimulate growth, increasing throughput for airports and allowing them to secure higher returns on capital.”

The airline boss argues that in most environments airports enjoy a monopoly position as such there is little to no pressure on them to change their views or to charge competitive rates and leads to higher charges and taxes that burden airlines with more costs, ultimately pushing up the price they charge consumers for tickets.

“This lack of competition creates an environment where the airport operator can dictate charges for airlines and influence how much airport tax travellers have to pay,” says Fernandes. “This mentality makes air travel less accessible for most people. This in turn negatively impacts passenger traffic at monopoly airports, potentially lowering total airport tax and commercial revenues. It also hurts tourism and the aviation industry, which has an enormous knock-on effect on the economy more broadly.”

A less obvious but equally significant outcome is reduced connectivity. Competitive airports attract airlines and encourage additional capacity and routes, while those that are not deter airlines. Better connectivity is good for attracting global companies, and countries with monopolistic airports stand to lose out to those with market-driven ones that can offer more destinations and higher frequencies.

Some have argued that monopolies are necessary for airport operators to better leverage economies of scale and allocate resources. “In practice, the opposite is usually the case,” says Fernandes. The net effect of this is to “hobble the economy”, he notes, especially for trading nations that rely heavily on air linkages for tourism and trade.

Fernandes suggests governments have two options. dismantle monopolies and promote competition among airport operators or pursue policies that incentivise airport monopolies to operate more efficiently according to the needs of their clients, the airlines.

“Monopolistic airlines do not work, neither do monopolistic airports. It’s time we stopped pretending that a lack of competition delivers anything but monopoly profit, let alone any sort of real cost reduction. Only competition has the power to reduce inefficiencies and deliver what the market needs at the right price,” he says.

“If governments and other aviation stakeholders are serious about safeguarding mobility, it’s time we kill monopolies – before monopolies kill us,” he adds.

The travel and tourism sector in many countries around the world remains a bright spot in economic and job growth, but technological and sustainability challenges are growing. Spain, France and Germany continue to top the travel and tourism rankings in the recently revealed World Economic Forum’s Travel and Tourism Competitiveness Report 2017, but Asia steals the show as the region’s largest economies show the greatest rise in tourism-friendliness. The report ranks 136 countries across 14 separate dimensions, revealing how well countries could deliver sustainable economic and societal benefits through their travel and tourism sector.

Apart from the ranking, the report also shows how the industry is a force for good in an otherwise largely stagnant global economy. The global travel and tourism sector accounts for 10% of global GDP, grows faster than other sectors and provides one in 10 jobs. Underpinning this growth is the increasing accessibility and affordability of travel, although environmental challenges remain and many countries underperform in making technological strides.

The top three in the ranking – Spain, France and Germany – have secured their position thanks to world-class natural and cultural resources, outstanding infrastructure and hospitality services. Traditional strong travel and tourism destinations, including Japan (fourth), the United Kingdom (fifth), the United States (sixth, down two places), Australia (seventh), Italy (eighth), Canada (ninth) and Switzerland (10th), have also made it in the top 10. Switzerland, however, made a steep fall from sixth to 10th place, while Japan (fourth, up five) gained most places.

While advanced economies still hold the top spots in the ranking, 12 of the top 15 most improved countries are emerging markets, with Asia’s as exponents. Asia’s largest markets are not only becoming larger source markets but also more attractive destinations. Almost all of the region’s countries improved their ranking. Except for Japan, Hong Kong (11th, up two), China (15th, up two), Republic of Korea (19th, up 10) and Malaysia (26th) also made it to the top 30, while India made the largest leap in the top 50 (up 12 places) to land in 40th place.