The low-cost, long-haul model will come to Asia, says AirAsia's Tony Fernandes, if customers are willing to pay for it. Fernandes isn't shy about saying he's jealous about some of the moves Norwegian Air has made.
Gulf carriers such as Emirates should be allowed to benefit from Open Skies agreements and not be stifled by protectionist measures, according to AirAsia Group CEO Tony Fernandes.
Fernandes, speaking with Gary Chapman, president of group services at Emirates Group at the World Travel & Tourism Council Global Summit in Bangkok on April 27, said he’s a big fan of Open Skies, noting that low-cost carrier AirAsia is set to start flying from Kuala Lumpur to Hawaii on June 28. “I’ve defended Emirates and I think they’ve done an amazing job and they should be allowed to do more,” said Fernandes.
“We’re about to start flying to America, to Hawaii, and I think the more liberalization the better,” he said. “Let the market decide who it wants. Tourism is about open access and making it easier. I think it’d be a step backward if protectionism comes in.”
If Emirates can do a better job, governments or other airlines shouldn’t stand in the way, said Fernandes. “[Emirates is] bringing lots of economic development, what’s wrong with that?” he said. “Hopefully Emirates will get what it wants. People will lose jobs with what the U.S. is doing,” referring to the push by Delta, American and United to rewrite Open Skies agreements to combat gulf carriers.
Letting the Market Decide Open Skies
With Open Skies, Chapman said the big three U.S. carriers of American Airlines, United Airlines and Delta Air Lines have done very well with changing their models. “The big three in the U.S. saw us as a threat but to be fair, they’ve changed their models too,” said Chapman.
“Things are changing from a political and economic perspective,” he said. “[Emirates President CEO] Tim Clark recently announced changes to our network. Then there’s concern of long-haul, low-cost carriers. And Qantas just announced they’ll operate a non-stop Perth-London route, as one example.”
In the U.S., the Open Skies debate seems at a standstill as airlines wonder how — or if — the new Trump administration will address it. “Trump has done many U-turns over the past 100 days and he does those because of advice he’s been given from business leaders more than anything,” said Fernandes.
Some 60 percent of AirAsia’s routes didn’t exist before they were launched, for example. “Obviously, we’re jealous of Norwegian Air,” said Fernandes. “We will fly to Europe, it’s only a matter of time. I’d like to fly to New York as well. I’m looking for places where there would be three or four reasons to go. But it’s very important to get the cost structure right.”
Open Skies in Asia
With AirAsia, it took seven years after it was founded in 2001 to get a route between its hub at Kuala Lumpur and Singapore, said Fernandes. “Now we’re one of the largest airlines in Singapore,” he said. “I think increasing connectivity far outweighs protectionist issues. Over the last 16 years, I’ve seen more open travel between two countries and more liberalizations.”
Asia has Open Skies pacts and has come a long way, said Fernandes, but it still pales in comparison to Europe. “Easyjet and Ryanair will have their own issues but I stand by the fact that Asia and Southeast Asian countries have made huge improvements, he said.
The region’s next move related to Open Skies is tackling the issue of airline ownership, said Fernandes. “It’s crazy in this day and age that we can only own 49 percent of airlines,” he said.
Current airline ownership regulations are a waste of capital, said Fernandes. “I think the next stage for the region is that you can have 100 percent of ownership in airlines,” he said.
Further west in Dubai, FlyDubai was originally intended to serve less popular, regional routes, said Chapman. “We thought FlyDubai wouldn’t be direct competitor to Emirates and would work shorter distances and smaller cities,” he said. “But getting some of these routes became problematic because of politics. FlyDubai then tended to overlay some of its network on top of Emirates.”
FlyDubai, which like Emirates is also owned by the UAE government, became a major competitor. “The Chinese walls that exist between [Emirates and FlyDubai] are quite solvent and quite strong,” said Chapman. “It takes changing times and difficult times to focus attention.”
AirAsia’s Low-Cost, Long-Haul Ambitions and Challenges
Chapman said that, in time, FlyDubai’s originally intended model will be better integrated with Emirates’ long-haul markets.
Fernandes said that as an entrepreneur founding AirAsia he learned a lot from Emirates and its global ambitions. “I remember the first time I arrived in Dubai and saw a map on the terminal wall that showed where Emirates flies and I said, ‘Jeez, these guys go anywhere,'” he said. “[AirAsia] can’t do what Emirates does because they’re geographically in the center of the world, but we’re perfect for Asia.”
But expanding AirAsia’s long-haul routes goes beyond politics — the airline hadn’t been as aggressive in purchasing necessary aircraft to fly such routes. “I’ve always said the airline industry is kind of unique in that it’s tried to do everything itself and now many airlines have a premium economy as well,” said Fernandes.
“I’ve always said in time I think you’ll have two different models. You’ll have predominantly low-cost carriers doing an economy product and long-haul carriers like Emirates, for example, doing business and first class products,” said Fernades. “It’s evolving into that process. In some ways we’re a traditional network carrier already.”
AirAsia isn’t debating whether passenger demand in Asia and Southeast Asia will call for more long-haul routes. “The question is whether they’re prepared to pay for it,” said Fernandes. “Point-to-point low-cost model will definitely happen in the long-haul market. AirAsia has been very successful in going to metro cities but also secondary cities. That’s going to start happening in the long-haul market.”
But Fernandes might already have his answer with the price point on long-haul routes. Southeast Asian travelers are projected to be a $76 billion online travel market by 2025 and last year Chinese travelers spent $261 billion on foreign travel (12 percent more than 2015), a global record for tourism spending.
Photo credit: Asia has Open Skies agreements but they are not as liberal as in Europe, said Tony Fernandes, CEO of AirAsia Group. Fernandes (left) is pictured with World Travel & Tourism Council CEO David Scowsill during a press conference in Bangkok on April 27, 2017. Dan Peltier / Skift