Tony Fernandes: One World, One Currency

Image: Vikas Khot; Illustration: Minal Shetty; Imaging: Sushil Mhatre

TONY FERNANDES, Group CEO, AirAsia

Tony Fernandes is the CEO of Air Asia Berhad. He bought this ailing airline in 2001 on an advice from the then Malaysian Prime Minister Mahathir Mohamad. In nine years, Air Asia has become one of the lowest-cost airlines in the world. Fernandes studied at London School of Economics and trained to be an accountant but found his calling as an entrepreneur, first in the area of music, then in aviation and his latest venture is in hospitality through the Tune Chain of budget hotels.

Banks have a lot to answer for. The global financial markets have destroyed so many good businesses for no reason. Many entrepreneurs have found it difficult to cope with the wild swings in oil and currency markets. Large banks dominate and speculate in these markets without being actual users.

The volatility affects everyone. What is the rationale for oil moving from $40 a barrel to $150? Was there such a huge jump in demand? Of course not. Recently, I was meeting someone at (French oil company) Total who said they are struggling to sell oil. The fundamental demand rarely moves up or down more than 5 percent either way, but the price movement is way too high. Every time a small pipeline bursts somewhere, prices move up significantly. Is there such a big impact in supplies? It is entirely disproportionate. And there is so much at stake in these activities.

Speculation in the markets is today distorting the prices of several commodities. The financial industry has created complex derivative instruments for all sorts of things. You can even buy derivatives on concert ticket sales. The power of the banking lobby is so strong that the system is unchanged even after the last financial crisis. I believe a change can be brought about if everyone stands up to this.

Look at the big players in the oil markets for instance. They are not the producers or users of oil. Most of the large traders in oil are the big banks, which for the most part, keep trading paper among themselves.

I am a great believer in the free market, but in this case, the free market failed and for years to come we will all pay for it. Speculation is evil and I hope in future there is a better regulation of it. The trouble is that too much money has gone into trading and not on building real value and now we are all are going to pay.

I have had a strong distaste for financial traders, ever since the pound was forced out of the ERM (European Exchange Rate Mechanism) in the late 1980’s by George Soros. I saw it once again in 1997 when all of us were affected, but till this day, I cannot understand how the Malaysian Rupiah went from 2,500 per US dollar to 20,000 at one point.
Taking out speculation from the financial market will be an uphill task. But one starting point could be the move to one single currency. We did well with gold as a unified currency for so many years and I don’t see why we wcannot do this again. Or a single UN currency unit. Or even the dollar, which we all follow in any case.

Unfortunately, there have been very few lessons learnt from the financial crisis. At the Paris Air Show last year, someone asked me about the impact of Swine Flu on airlines and I said, “The only swines now are bankers.” It made headlines, but look all around you. Former bankers who are now in government are handing out bailouts to banks that went under
because of over-leverage.

Build real value; don’t get involved in a business that is trading on paper. If I could, I would stop all speculation. If you want to hedge oil, that’s fine but it must be backed by the purchase of the physical commodity. You have to make sure that there is a buyer and a seller and no intermediary. The same is true for currency and interest rates. The other problem is too much leverage. You have to make sure that you get capital into value creating business. The world of finance seems a much more dangerous place now than ever before. We should also look at a ban on short selling. You should have the stock to sell; if you don’t, you can’t sell.

It is simple really, banks have to lend to real businesses, not to people playing with paper. If someone tells me this is price discovery, I would say that’s bullshit. The banking industry is one big boys club. The question is whether governments around the world have the willpower to take them on. It probably needs another phenomenal crash to wake people up. Most would rather bury their heads in the sand.