Governments should allow 100 per cent foreign ownership of airlines to spur growth in global aviation and tourism industries, the World Economic Forum (WEF) said Wednesday.
The Swiss non-profit foundation called for the elimination of the “nationality rule” that prohibits foreign ownership of airlines.
“This rule limits airlines’ potential investors, thereby increasing the cost of capital,” it said at the opening of the two-day WEF-ASEAN conference being held in Kuala Lumpur.
“It also denies airlines the opportunity to use transnational mergers or foreign subsidiaries to achieve efficiencies of size and scope, to fully integrate their networks in order to offer passengers expanded route selections, and to benefit from knowledge transfer between management groups,” it said.
The rule, generally written into national law with variations between countries, usually limits foreign ownership of airlines to about 49 per cent of shares. The majority of shares should be owned by nationals of the country where the airline is based.
Unlike airlines, airports in many countries have been successfully liberalized, allowing foreign ownership, the WEF said.
“Over the past few decades, countries have increasingly allowed their airports to be transformed from cash-starved, state-owned monopolies to privatized entities open to global investors,” it said.
“The change has brought in much-needed capital for infrastructure investments and allowed airports to reap the benefits of world-class management expertise and efficiencies of scale, resulting in improved financial performance,” it added.
Tony Fernandes, chief executive officer of Asia’s largest budget airline AirAsia, said that allowing 100 per cent foreign ownership of airlines would boost global travel and tourism.
Strict ownership regulations have led to AirAsia's complicated business structures. The airline operates separate units for AirAsia-Thailand, AirAsia-Philippines and AirAsia-Japan.
The European Union has already taken the lead in liberalizing airline ownership, Fernandes said.