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Saving Air NZ: An Open Letter To Helen Clark

Note: Scoop is a supporter of the Save Air New Zealand campaign...

An Open Letter To Helen Clark

Update #7 Of The Save Air New Zealand Campaign

PO Box 2947

13 October 2003

The Rt Honourable Helen Clark

Dear Prime Minister


The delay by the Commerce Commission in releasing its final decision on the airlines’ two applications is puzzling given the small amount of new information provided by the airlines since the Commission’s draft decision back on 10 April.

Delay may enable the Commerce Commission to dot all the “i”s, but it also makes a mockery of the statutory process. The whole purpose of having a statutory timeline for such approvals is to ensure that everyone quickly knows whether or not a "marriage" is going to go ahead and be consummated. The longer the waiting period, the more uncertainty for everyone - the happy couple, disappointed suitors and everyone left waiting in the church in expectation. Similarly with the Air New Zealand - Qantas alliance. They are seeking authorisation for price fixing and market sharing. In most circumstances at least the former would be unlawful. The longer the authorisation process takes, the longer the parties can act as if what is unlawful is going to be permitted. During this wait employees, suppliers and other stake holders are obliged to ignore the inherent unlawfulness of it all.

SaveAirNZ contends that it is time for Government in its roles as shareholder, regulator and guardian of the public good to say “enough, time to move on”. While we wait for this, take the opportunity to mull over what has unfolded and where it leads.

A year ago Air New Zealand negotiated a deal with its main competitor Qantas. The deal involved:

- Qantas to invest $550million to acquire 22.5% of Air New Zealand at a price of $0.445 cents per share, about 15% less than the market price of Air New Zealand shares.

- Qantas and Air New Zealand to form a joint venture over all Air New Zealand’s services, and to preclude Air New Zealand flying within Australia. The joint venture to be jointly managed and result in Qantas receiving approximately 20% of Air New Zealand’s income by not flying in New Zealand.

In sum, Qantas stops Air New Zealand competing on its turf and vice versa. Qantas gets about 42% of Air New Zealand’s profit with a 22% shareholding. Qantas buys its shares at a 15% discount to the market value. Qantas gets control of Air New Zealand’s offshore marketing via Qantas Holidays. Qantas gets comprehensive information on all Air New Zealand’s operations, plus a say, if not control, on most of Air New Zealand’s operations and decisions.

A year ago, Air New Zealand’s board and management seemed to think this was the best they could achieve with the airline in which New Zealand had just invested $850million. The SaveAirNZ group was formed to oppose this poor transaction by encouraging public debate before Government exercised its Kiwi-share rights. Initially we failed as there was no public input to Government’s exercise of its Kiwi-share rights.

Why have Kiwi-share rights when they are side-lined by insiders with vested interest?

Subsequent to the non-exercise of the Kiwi-share rights the airlines approached the Australian Competition and Consumer Commission and the New Zealand Commerce Commission for approval.

The ACCC said “no” in its draft determination, and then said “no” again in its final determination of 9 September, noting that “The proposed alliance would be highly anti-competitive and offer little benefit to the Australian public… ‘national interest’ would seem better served by continued competition between Qantas and Air New Zealand than an alliance. Both parties have indicated publicly that neither airline is realistically in danger of failure even in the medium term… The proposed alliance is highly anti-competitive and its benefits are small. The overall anti-competitive nature of the proposed alliance is reflected in the range and complexity of the undertakings offered by the applicants. The ACCC does not believe that undertakings can redress the identified anti-competitive detriment associated with the proposed alliance to the extent that authorisation could be granted.”

In its draft determination of 10 April the Commerce Commission noted “In the Commission’s preliminary view, the overall detriment expected to result from the proposed Alliance would clearly outweigh the expected benefits.” The Commission calculated that net detriments would be in the range of $195 million to $467 million per annum.

Has anything happened to change anyone’s opinions on the disadvantages of this deal since then?

- For the year to 30 June 2003 Air New Zealand has reported a pre tax profit of $220 million and positive cashflow from operations of $523 million.

- The Australian government has entered into a new agreement with Singapore which continues to exclude Singapore Airlines from flying between North America and Australia and maintains Qantas near monopoly on this route.

- Virgin Blue and Qantas have established a $30million joint venture to maintain jet engines.

- Virgin Blue’s much anticipated Tasman/New Zealand expansion materialised as a daily link between Christchurch and Brisbane which Christchurch City seems to have underwritten.

- Qantas Holidays are reported to be under investigation by the ACCC for alleged misuse of market power, not a good portent given its desire to become the major marketer of New Zealand offshore if the airline alliance is approved.

- Air New Zealand took delivery of the first Airbus that it is to use to replace its 737s and flew several journalists who have been following the airline alliance to Toulouse for the launch. Some of those journalist noted their receipt of Air New Zealand largess in their subsequent reports.

- Air New Zealand has launched a number of predatory actions against Origin Pacific that has resulted in Origin requesting that the Commerce Commission investigate Air New Zealand.

- Ralph Norris confirmed that Air New Zealand was only talking to Qantas as other airlines “weren’t right then and they’re not right now.”

Air New Zealand is 85% owned by the public. It is making good profits. It claims to need protection from Virgin Blue and Qantas in order to increase profitability from New Zealand and Tasman operations. It sees only Qantas as an attractive partner, because while other airlines can offer international links only Qantas and Air New Zealand can form a domestic monopoly and near control of the Tasman. Market dominance is the single reason the airlines want this alliance and is precisely why everyone else with an interest in a viable New Zealand air travel industry is opposed to it.

How responsive are the Air New Zealand board and senior management to their shareholders’ interests? By their behaviour it is clear they are indifferent.

If Qantas were to get board representation on Air New Zealand who would call the shots? Certainly not the New Zealand Government.

SaveAirNZ was established and is supported by a group of people keen to see Air New Zealand fly the Koru around the globe and to provide good, cheap, frequent services within, to and from New Zealand. It must now be time for Government in its role as shareholder, regulator and guardian of the public good to say “enough, time to move on”, and to perhaps revisit some of the people they have charged with setting Air New Zealand’s directions thus far.

Yours sincerely
Ian Prior ONZM


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