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Once Were Lecturers

Import News from the Importers Institute

8 December 2002 - Once Were Lecturers

Qantas wants to create a monopoly to extract more money from New Zealand travellers, importers and exporters by becoming a cornerstone shareholder in Air New Zealand. Somewhat surprisingly, the government of New Zealand nurtured this plan while barefacedly telling New Zealanders that it knew nothing about it during the recent election campaign. How did we get to this sorry state of affairs?

Air New Zealand made some bad commercial decisions, like trying to buy into Ansett, an Australian domestic carrier that has since disappeared (with a little help from the Australian government). The usual outcome of such decisions is commercial failure. There is always someone else ready to pick up the pieces and have another go. For example Singapore Airlines offered to recapitalise the company in exchange for equity. However, our government did not, for some reason, want the Singaporeans in Air New Zealand and exercised its regulatory powers to block them. It decided instead to spend $850 million of taxpayers' money to keep Air New Zealand afloat and started secretly courting the Australians.

Prime Minister Helen Clark, a former lecturer in political science, justified that decision by saying "life without Air New Zealand is unthinkable." Miss Clark must have imagined that, without Air New Zealand, no airline would want to carry passengers or freight to, from, or within this country. The same dumb argument was last raised before we got rid of a loss-making shipping company some years ago. "Without the Shipping Corporation of New Zealand, who would carry our exports?", the political cronies who ran the Corporation used to ask plaintively. They are not missed.

Minister of Finance Dr Michael Cullen, a former history lecturer, appeared to be somewhat more aware of commercial realities when he noted, "If we decide to compete head on with Qantas in full competition, why do we assume that Air NZ is going to win that competition, and how deep do you think the public pockets should be to keep that competition moving along?" Pity he didn't see this before deciding to spend hundreds of millions of our dollars on a non-viable airline.

The deal, as currently structured, has no show of passing the anti-competitive tests applied in both countries. No doubt, the airlines will modify their proposals to make them look slightly less anti-competitive. If the deal succeeds, Qantas will have protected its flank, Air New Zealand managers will have held on to their jobs and New Zealanders will be paying through the nose to travel.

It is not too late to use some plain old commercial common sense. Air New Zealand cannot withstand competition from Qantas and others, even in its domestic market, and is losing hundreds of millions in its long-haul routes. It is not commercially viable, without the ability to extract monopoly profits.

The government should put its share of the airline up for sale to the highest bidder. If Qantas is that keen, let them come up with the cash to keep Singapore Airlines, Virgin Blue and all other competitors at bay. The sale ought to satisfy also those nationalists in our business community who would have an opportunity to put their own money where their patriotic mouths are, by buying Air New Zealand shares (as if!). At the same time, the government should do everything necessary to open our skies to all-comers and ensure that they have access to terminals on a reasonable basis. Then, sit back and wait for competition to improve quality and reduce prices, as it invariably does.

One final piece of advice to the former lecturers: when your careers advisers told you that you should go into the humanities because you didn't have a head for business, they were probably right.


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