Whenever an air travel market embraces open competition, incumbent airlines are given extended opportunities albeit new challenges. The labour government has already rubber stamped the open skies policy and in doing so we have to anticipate changes in our airline industry. Our flag carrier has for aeon served Mauritius and the few foreign airlines established in our country have had a modest contribution, namely, the sad demise of Singapore Airlines. Nonetheless, Emirates has excelled in extracting some strategic routes served by Air Mauritius and this has brought about a price war only beneficial to us the customers. Their use of SSR airport as their spoke and their major flights serving the hub and spoke network should have been an eye opener for our flag flyer in terms of cabotage (better known as the eighth freedom) and the level of competition of this booming industry. On one hand, with the new Member States of the EU embracing market reforms and expanding the landscape of ?une Europe sans frontières?, we have the best opportunity to exploit that sector. Whilst at the other spectrum, the Asian aviation sector, which has also deregulated since the late 1990s is proving to be a fierce competitor. Optimistically, the decision of embracing the open skies policy has been approved (shush), but at what expense? In Mauritius, we already have the nine-air freedom and flying from one country to the other could not have been easier. With the invitation of other airlines to brace our soil, it will be a big boost for our tourist industry. As residents we will be able to see more of the world at competitive rates; reduce search, and, switching costs. But can Air Mauritius survive the pressure?

Bilateral agreements

On the economic panorama, we need to appreciate that globalisation has reshaped the world economy and in line with the navigation system in place with ?Galileo?, the system of reservations has merged as one. Galileo is important for the European technology sector as it consists of 38 satellites. Moreover, the development of CRS (Computer Reservation System) has led to logistical economies of scale, which stems from the ability to use specialised system, leading to marketing advantages. All these positive enticements have to be considered with great deal of caution as competition in this sector is at its highest.

With the open skies policy, Air Mauritius will be under increasing competitive pressure and should only accept profitable bilateral agreements between the countries concerned in the negotiations. The company needs to be armed with our logos and aggressive marketing in a booming sector where dog eats dog. By this I mean that some of the low cost airlines have gone out of business because of the number of airlines vying for customers and in doing so, undercutting their rivals. Tim Clark, president of Emirates, reflected on the recent trend and commented that ?the short-haul low-cost model migrated into long haul? and this is precisely what we should worry about. All the cross-continents mergers and other well-established companies will be competing for access and slots allocation at the airport. It is viable to talk about the economic benefits of such open skies policy but we should also accept that Air Mauritius will face enormous competition and if Emirates have already smothered it, it will struggle even harder under competitive pressures. Corporate restructuring is vital for a healthy economy but could be counter productive if competition is unsustainable by the perpetual elimination of the weakest companies. It becomes no longer a matter of prosperity but survival. It is not a matter of costs cutting but profit maximisation. The gloomy picture looks even bleaker when we think about the impact on the employees of the company if our flag carrier cannot compete successfully: workers safeguards could be eliminated overnight.

Many major airlines have gone into bankruptcy due to this global competition. This should be our prime concern and we need to be aware that bilateral negotiations need to be assessed with caution. Whilst we do not as a non-member state have same privileges, we need to ensure that our contract, with European air transport industries, is lucrative and not means to flatter the governments of certain countries. We need to assess whether entry should be completely deregulated and research should be carried out, on public interests. Will standards create markets or markets create standards?

There is a wide range of literature available on market structure and competition but any open skies policies need to analyse the effects of the timing of entry: pre-emptive, immediate and long-term effects of entry licenses on the diffusion of innovation. The distinction between simultaneous versus sequential entry is another important consideration. We need to know more about the decision taken by the government.

As travellers, we will see competitive prices on offer, exotic places to visit and our tourist industry will benefit a great deal as a result of this aperture to the rest of the world. All the same, we also need to safeguard ourselves against social costs, namely environmental factors: imported viruses (remember Chikungunya).

The opportunity given to Emirates to achieve and sustain its success has been remarkable. Many have switched to flying cheap on Emirates because of the level of in flight service, connecting flights, baggage handling, seating comfort and the repute of the company. Air Mauritius has its long-standing reputation as the only flag carrier but that reputation has sadly been eroded by laxity. It is dim to see that their financial position has plummeted and there were several occasions, where they could have bounced back, if their route planning was a bit more proactive and adventurous and if they have kept up with world affairs a bit more closely. The opportunities of open skies policies will allow airlines to optimise their route networks, something which takes time and planning. For example, services from unprofitable routes can be withdrawn and transferred to developing markets. Another advantage is that airlines can add capacity to a route as soon as increasing demand justifies it.

Product versus geographical market

In the meanwhile, we need to cushion ourselves against competitive pressure whilst exploiting the potential advantages, outside the aviation sector. This will provide us with the necessary boost to revisit our language skills and additional languages may be considered vice the oriental ones. We need to be aware of the changes in world consumption and cater for the needs of our economy. The president of Emirates has illustrated his ideals of the upcoming airbus A380, in Airline Business magazine, of a super-jumbo capable of carrying up to 720 passengers with in-flight self-service counters and even entertainment. Under such innovative steps of the major players in the aviation industry, the Mauritian government should think carefully about the decision of ?open skies? policy.

Of crucial importance is the need to understand that air transport market is analysed in terms of the homogeneity of the product. We need to identify the different markets, the product versus the geographical market. In short, adaptation to any deregulated market requires airlines to compete successfully and at the same time, minimise the openings, which others have to compete against them. Let us hope that we shall see our flag flying high and not sinking low in the skies.

For those who are interested in reading more about the airline industry and the deregulation in European aviation, consult Deregulation of the airline industry in Europe by Rubina Doobory.

Rubina DOOBORY Source: Economist, October 29th 2005