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Save Air NZ Commerce Commission Presentation- 25/8

Note: Scoop's Editors are supporters of the Save Air New Zealand campaign...

Air New Zealand /Qantas Alliance Proposal

A presentation made to the Air New Zealand Commerce Commission on behalf of Save Air New Zealand

Update #5 Of The Save Air New Zealand Campaign
http://www.saveairnz.org.nz

25 August 2003

Presentation made by:
Dr Ian Prior – Convenor Save Air New Zealand
Assisted by Robin Halliday - Secretary
and Alastair Thompson Communications Advisor

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Dr Ian Prior – Convenor Save Air New Zealand
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On behalf of Save Air New Zealand I would like to say that we are very pleased to be taking part in the process that the Commerce Commission has put in place.

The Commissioners will be aware from our submissions that our organisation developed out of an organisation called Debate Air New Zealand which initially sought to promote debate and discussion about the proposed alliance.

We changed direction to become Save Air New Zealand after 18 December when the proposal was announced and passed on to the Commerce Commissions.

Save Air New Zealand has sought to find out from a wide range of New Zealanders their views on the proposal and its long term implications.

Most were aware that our New Zealand Government injected more than $800 million on behalf of the people.

We asked people – do you believe the Air New Zealand/Qantas merger should go ahead?

An almost universal answer was NO. Opinion polls found 90% of NZers were against the proposal. We believe that is because New Zealanders well understand the shortcomings of monopolies having experienced a fair few in the past.

Rt Hon Michael Cullen's response to these polls was to call this was an hysterical anti Australian answer.

This seems on its face to be an irrational conclusion to make without further research into why NZers are against the deal.

New Zealanders are already taking advantage in droves of Air New Zealand's move towards the VBA model in the NZ market. We expect they will be equally receptive of the recently announced Tasman-Express service.

In short New Zealanders are benefiting from, and highly supportive of the benefits of a competitive market in aviation now. So why take that away?

In our view Air New Zealand has the trust and support of the New Zealand public in its current form. This is good for their business. Meanwhile the public do not support this proposed alliance and it seems likely that in the event it goes ahead this would impact negatively on the airlines business.

On setting up Save Air New Zealand it was clear from letters we received and contact with politicians that there was considerable opposition among business leaders and members of the political parties - excluding, the Government- to the proposal.

Unfortunately the swift move from negotiations to Commerce Commission application thwarted any opportunity for Select Committee assessment or Parliamentary debate of this deal.

Here at Save Air New Zealand we adopted a range of strategies to pursue the goal of enlightening people about the proposal. These included.

Development of a Web site:

Around a 700 people – many of them in the travel industry - expressed opposition to the proposed merger and a desire to debate it in more detail. (See.. Appendix One and Two at the conclusion of this document for a list of names.)

Closely monitoring media coverage of the proposal:

We noted that most coverage has consisted of arguments against the proposal. These have been made available to the Commerce Commission with our submissions..

Reviewing the formal submissions made to the Commission:

This identified a number of people with considerable Airline experience who were very critical of the proposal.

To quote but one example: " I am of the clear view that the arrangements as proposed are unnecessary and against the long-term development of Air New Zealand; the Tourism industry of New Zealand , the traveling public, and the national interest. Air New Zealand has in the past been a very successful Airline. In my view it can once again be successful without entering into what is an unacceptable series of transactions with Qantas which would seriously compromise the future of the company."

Norman Geary
Former CEO Air NZ
Former Chair NZ Tourism Board

Representation at the Commerce Commission Conference:

One key objective of our organisation has been to provide "man in the street" representation in this Commerce Commission process. This process is inherently rather threatening to the ordinary citizen. Complex economic arguments and lawyers do not create an encouraging environment for the general public. And so Save Air NZ believes it has a responsibility to present their point of view.

It is important also that the Consumers Institute is presenting today and we expect they too will make an important contribution. It is perhaps indicative a little of the process that both us and the Consumers Institute have been given relatively short slots near the conclusion of this process.

Conclusion

Concluding this introduction I would like to make clear to the commission that Save Air New Zealand does not believe its task ends at this point. We intend to continue to perform the functions we have performed to date until this debate has finally concluded, and from the demeanor of the circling lawyers that may be some time yet.

I will now pass the torch to Robin Halliday, secretary of Save Air New Zealand. She will make a few observations about the deal, again from the point of view of the man in the street. Alastair Thompson from Scoop Media, who has supported the communications effort of our organisation will conclude our presentation. Please feel free to ask any questions you have either during or at the end of our presentation.

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Robin Halliday – Secretary Save Air New Zealand
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Save Air New Zealand agrees with Air New Zealand’s CEO that the future of this airline is critical to the future of New Zealand’s tourism industry and therefore to the future well being of New Zealand.

Indeed it is our National carrier and with its Koru branding and Kiri Te Kanawa connections has long been a National icon.


New Zealanders see this role as including promoting New Zealand as a prime destination. They want too a reliable service for exporters, many of whom are in the regions, and so we also need a competitive market in domestic aviation.


We know of the peony growers of Otago - but there are many others especially in the niche markets in primary products and specialist small manufacturers - who need guaranteed capacity, reliable networking facilities and competitive pricing.


In short, Air New Zealand is critical to keeping New Zealanders working and the economy functioning.

New Zealanders views of Qantas are more equivocal. Qantas CEO Geoff Dixon paints a very gloomy picture of the airline industry. At a Future Conference in Australia in June he spoke of Qantas being in a, "race to the bottom”.

Does he now believe Air NZ can rescue Qantas from this race or is it to be a mutual suicide pact?

If so it would seem a huge shame. Qantas has been far slower to adapt to circumstances than Air New Zealand. It is only now moving to compete in the VBA market , and it is in the process of laying off 9000 staff. Air New Zealand meanwhile is thriving, notwithstanding the fact that their management spend as much time running down their prospects as they do promoting their new strategies.

New Zealanders want choice. The much vaunted war of attrition between Qantas and Air New Zealand has become you might note, by their own admission, an annoying drip.

So cut out the fat, the lawyers with threats of High Court action, the spin doctors the overseas economists. Air NZ doesn’t need Qantas and Qantas doesn’t need Air NZ.

New Zealand does need an airline to focus on its needs; kept efficient by healthy competition.

We have a simple message for Air New Zealand, " believe in yourself"

I thank you for allowing us to present to you today.

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Alastair Thompson
Communications Advisor Save Air New Zealand
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Some of you may be wondering why a news person like me is involved in a lobby group such as Save Air New Zealand?

The answer to this question illuminates one of the aspects of this process. As Dr Prior said, the pace with which this proposal moved from a twinkle in the Minister of Finance's eye to a full-blown proposal before this commission was breathtaking.

Dr Prior asked me to assist him, and then as time went on it became apparent that unless our group opposed this deal on behalf of the public, nobody would.

The nature of this process means that the Commerce Commission is very much being relied on to represent the public interest. And we thank you for doing so. Your initial finding in particular was a victory for common sense.

We at Save Air New Zealand are not comfortable with the extensive use of computer models because of uncertainty as to how or why the models come up with their outputs.

There is no justice being seen to be done if common sense can be subsumed by the output of a computer based model. Computer based models are particularly poor at reckoning the attitudes, prejudices and biases of consumers.

Real consumers are strongly influenced by support for an airline that they feel is theirs, and which by virtue of a Government shareholding, is in fact theirs. How is this factored into the computer model?

The Commission has heard quite extensive presentations from a range of people who would be impacted by this proposal, but there are a great many more people that are going to be impacted and have not turned up to present to you. But please don't assume that this is because of apathy or indifference.

The comments we have received from people over past months indicate that this process is very intimidating. Moreover our experience in Save Air New Zealand indicates that for people involved in businesses impacted on by Air New Zealand the intimidation has at times been more direct. This in our view is a huge shame. And the fact that Air New Zealand has sought to stifle debate over its proposal through such means tends in my mind to indicate that they may not be altogether confident in the merits of their proposal.

Ms Rebstock noted last week that it helped to have interested parties turn up and have their say. We want to make the point that merely because a lot of interested parties are not here, does not mean they are not interested and should not be represented in the Commission's final decision.

The reason they are not here is because it is hard to understand the workings of all this. The Commission's publication on the Commerce Act notes that "The purpose of the Commerce Act is to promote competition in markets for the long-term benefit of consumers". The publication then goes on to say

"If readers have concerns about their position in relation to the Commerce Act, they should seek professional advice and not rely on this publication." Professional advisers may well be unavoidable in complex areas such as this, but in its deliberation the Commission should be aware that a lot of people not here are interested. They are not here because of the nature of the process.

# # # # # # #

We understand the heart of the Commission's deliberation is over whether the travellers loss is outweighed by the airlines' gain - a point we would strongly disagree with.

Firstly there is the question of gain for the airlines. Perhaps Qantas has something to gain out of a relationship with Air New Zealand - reduced competitive pressures and costs in New Zealand, more profit on the Trans Tasman routes. But it is difficult in the extreme to see what is in it for Air New Zealand. Though Air New Zealand claims it will be impacted by new competitors these are at present merely proposals, and with the express class in place it is hard to see Qantas's war of attrition having a significant negative affect.

Regarding the extent of "travellers loss" needed to provide this chimerous benefit the question is begged why should travellers incur any losses.

In our view this is also a wrong-headed way to approach the question.

In the alternative the argument in favour of this deal stems around several propositions for which there is no evidence.

These are:

1. That Air New Zealand is doomed without an alliance;

All available evidence suggests that Air New Zealand is doing extremely well at present.

2. That there will be a war of attrition if the deal is rejected;

Whether this is the case or not is entirely within the power of the applicants. This argument is a little like them saying, unless we get what we want we will shoot each other. There is no reason for this to happen save pure stubborness.

3. That the deal will help NZ tourism and the economy as a whole;

NZ tourism has been growing much faster than Australian tourism. Meanwhile the end of Air NZ's involvement in the Star Alliance, it is conceded, will have a negative affect. Any positive effect through Qantas financed promotion is purely speculative and as other submissions of have pointed out flies in the face of common sense.

4. That consumers will not be negatively impacted by a lessening of competition because efficiency gains will enable lower prices.

If this were the case then why does the Commission look askance at any monopolies. Respectfully, this argument is a little like saying down is up. Or that black is white.

# # # # # # #

Finally there are a number of specific points that SaveAir New Zealand would like to reiterate.

- The users of airlines are what matters. Airlines are not altruistic and they can only be relied on to focus attention on users when competitors oblige them to do so. Just look at what has happened to Qantas's short-hop domestic in flight meals since Air New Zealand's Express class was introduced.

- Virgin, Emirates and others may or may not fly in and fly out. The long history of NZ aviation is that new entrants are a scarce commodity. Some of the historic barriers to entry may no longer be prevalent, but until Virgin et al are really up and running – and have significant market share - it would be a brave commission who would act as though they were in situ already.

- The NZ Government has backed Air New Zealand because it saw it as a company that was too important to fail. The Government should not be relied on to always be there, but the reality is that Government stands behind Air New Zealand. That is a real provable fact. Not a hypothesis or forecast. All decisions made by Commerce Commission should reflect Governmental support of Air New Zealand as the main provider of air travel in and to and from NZ.

- Qantas's Geoff Dixon said that Asian airlines have Government support and he effectively said that the NZ government should further support Air New Zealand by granting it a virtual monopoly. That should not happen, if Government wants to support Air New Zealand because of what it does it should do so directly and transparently via funding, not by allowing it to extract monopoly rents from the NZ aviation consumers. (I would add that Mr Dixon's remark reveals a lot about what his real motives may be at this forum.)

- This deal is not good for Air New Zealand as a business. It is the easy way out of doing what any real business ought to do – compete - and it is not a route to long term strength and growth.

- An important factor to Qantas feeling it should maintain an independent NZ presence is that it will be obliged to really work on this market. It will have to be innovative, develop support, and generally try very hard. That sounds great for New Zealand and it certainly isn't something that should be given away.

- In respect of the airline proposal and the support it received from miscellaneous professors and other airline CEOs etc: we note that much of the supporting evidence was aimed at drawing analogies between things that happened in the US and Europe and/or are considered likely to happen in those places. The commission should be very careful about putting weight on attenuated inferences. For a start the European and United States markets involve large numbers of players and a latticework of routes. New Zealand is an isolated market and has only two players. The commission should also note as I stated at the beginning of this presentation that Air New Zealand is a company that New Zealanders like and support. This may not be something you can easily factor into a computer model but it is undoubtedly out there and should be recognised in the commissions final decision.

Thankyou.


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APPENDIX ONE


Current list of names indicating support for Save Air New Zealand from the http://www.saveairnz.org.nz website.

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Rod Watson, Aircraft Engineer of Melbourne
Mr. Jazz J. Salcedo, Retired Cargo Worker of Fort Lauderdale, FL; USA
Christian Jara, Website Administrator of Wellington
Margaret A. Baltimore, Retired/Student of Phildelphia, USA
Azzy, Pilot of Indonesia
Mat Carter, Commerce Student of Dunedin
Lyndon Hope, Company Director of Dunedin
Jasper Bryant-Greene, Student of Nelson
Glenn Robertson, Student/Young Nationals Wellington Membership Officer of Wellington
Andrew Shouksmith, Health Professional of Adelaide, South Australia
Dave Maslin, Consultant of Singapore
ahmad, jl peta no.70 of bandung
Jaden Matena Whiunui, Civil Engineer of Balclutha
Juliet Tay-Morrison, health professional of Auckland
Mike Tay-Morrison, health professional of Auckland
Andrew L. Beath, Student - John F. Kennedy School of Government, Harvard University of Cambridge, Mass., USA
Monica Walker, Nurse & member of MADENZ of Mt Maunganui
Mike Williamson, Account Manager of Sydney
Wendy Cooper, Lawyer of Wellington
Trevor Crosbie, Gen. Sec. NZ Democratic Party (Inc) of Hamilton
John Nichol, Company Director of Christchurch
jeremy laurenson, olive grower of blenheim
John Morrison, Consultant of Wellington
Deepak Gupta, Director of Wellington
Chris Hill, Computer consultant of Christchurch
Simon McArley, Corporate Lawyer of Auckland
david obrien, TRAVEL AGENT of AUCKLAND
Tricia Cutforth, Public sector Manager of Whangarei
Allan Boyer, Tour Escort & Company Director of Gore
Tony Reeves, Consultant of Christchurch
Jarrod Holter, Registered Electrician of Wellington
Alastair Rivers, Bank officer of Paraparaumu Beach, Kapiti Coast
Mark Norman, Software Consultant of London, UK
sean gourley, student of oxford, UK
Reece Palmer, Student teacher, voter, taxpayer of Auckland
Andrew Talley, Fishing Company Executive of Motueka
Manjula, Policy Analyst of Lower Hutt
Michael McCallum, Software Engineer of Auckland
Barry Murphy, Analyst Programmer of Wellington
Natalie Sisson, Marketing Coordinator of Wellington
Peter East, Ordained Church Minister of Paraparaumu
Chris Liddell, Former CEO Carter Holt Harvey of Connecticut, USA
Peter Talley, Fisherman of Motueka
David Inch, Electrical Contractor of Nelson
wayne and phillip, managers of Auckland
Chris Schnack, Musician of Brisbane
Anthony Howard, Company Director of Auckland
Paul Davenport, Company director of Wellington
Kevan Peryer, sales exec of Wellington
Susan Clifford, office worker of Wellington
Philip Cooper, Broker of Christchurch
Ross Goodwin, Real Estate Sales Person of Tauranga
Mara Goodwin, Student of Tauranga
Ian Ferguson, Retired Aviator of Paraparaumu/Wellington
adrian van schie, lawyer of new york
Colin Curtis, Microbiologist of Hamilton
Wilson Lattey, Land Developer of Paraparaumu
DJ Macfarlane, Retailer of Whangarei
Paul Ryan, O of Auckland
David Sharp, Manager of London
Margaret Morrison, Housewife of Palmerston North
Lib Petagna, Company Director of Wellington
Ross Hendy, Music Publisher of Wellington
Rod Donald , Member of Parliament of Christchurch
G. D. Henderson, Retired. of Levin.
Philip Wilkie, Company Director of Wellington
Roger Tweddell, Company Director of Auckland
Sebastian Wilk, university student of Hamburg, Germany
William Smith, Retired of Christchurch
Murray Rosser, Insurance Broker of Wellington
John Parker, Director of Wellington
Richard Hall, Consultant of Auckland
Janet Gudmun, Interactive Designer of Wellington
peter brown, Comp Director of hamilton
Shawn Beck, Venture Capitalist of Wellington
John Kershaw, Company Director of Auckland
Boyd Kenna, Timber worker of Wellington
Sheila Brown, Advertising & Marketing of Wellington
John Gow, Gallery Director of Auckland
Chris Fox, Finance Manager of Wellington
Ian Mc Innes, Director of Christchurch
Hamish MacEwan, IT Consultant of Wellington
David A S Brewis, Financial Controller of Auckland
Quentin Findlay, Policy Analyst of Wellington
David Speight, Banker of Wellington
William Stevens, Stockbroker of Auckland
Matt McCarten, President, Alliance Party of Auckland
Paul Abbot, Marketing Manager of Auckland
Brian Plimmer, Coy Director/Gen Manager of Auckland
Gerald Lynch, Retired (Ex Air NZ) of Lower Hutt
Nancy Luther Jara, musician of Wellington
Gordon Reynolds, Business Risk Manager of Dhaka, Bangladesh
Kevin Sparrow, Student of Auckland
rosanne byrne, parent/librarian of wellington
Prue Hyman, Semi retired feminist economist of Paekakariki
Anne Hare, Investment Advisor of Wellington
Carol McKnight, Lecturer of Manukau City
Max Minnis, Retired Chartered Accountant of Manukau City
Scott Creighton, Technician of Auckland
Gareth Farr, Composer of Wellington
Morgan Read, Lecturer of Auckland
Gordon Copeland, Member of Parliament of Wellington
Stephen Tindall-the woman, Mother/Founder of MADENZ of Mt Maunganui
Ed Rinsma, Airline Pilot of Illinois, USA
Noel Josephson, Company Director of Auckland
Tony Cox , Managing Director of Wellington
Amanda Duncan, Commercial Analyst of Wellington
mark blumsky , former mayor of wellington
Mark Cubey, Consultant of Wellington
Chris Morrison, Beverage Manufacturer of Auckland
Ian Clarke, Manager of Wellington
Jed Horner , Student of Rotorua
Chris O'Hara, Retail GM, TrustPower of Tauranga
Ian Prior, Public Health Physician of Wellington
Jay McINtyre, Aircraft Engineer of Blenheim
Richard Innes, Stirrer of North Shore City
Martin Snell, Professional Singer of Basel, Switzerland
Bettina Bradbury, Professor of Toronto, Ontario
Hamish Morrison, Gallery Director of Berlin
Geoffrey Miller, Librarian of Dunedin
G.M.Waring, Retired Airline Pilot/deerfarmer of Richmond. Nelson
Dr Bruce Harker, Director of Wellington
Julie Nevett, Mother of Wellington
Claire Breen, Sec. School Teacher of Auckland
Jared Ball, Satellite Engineer of Los Angeles (formerly Dunedin)
Roger m Thomas, Travel company Managing director of christchurch
Basil Charles, Musician of Wellington
Sean Trengrove, Consultant of Nelson
Geiri Petursson, Company Director of Nelson
Dugald Morrison, Investment Consultant of Texas
Nick Kelly, Cleaner of Upper Hutt
Blanche Charles, Musician of Wellington
Tracey Weir, Chef of Christchurch
Doug Weir, Student of Christchurch
Roger , Investor of Sydney
Jeffrey Paparoa Holman, Writer of Christchurch
Martin Glesti-Drayton, Practi