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Air New Zealand: flog it off

Import News from the Importers Institute
21 August 2002 - Air New Zealand: flog it off

Politicians are wondering what to do with this failed airline. The Importers Institute has some helpful advice for them: flog it off to the highest bidder, fast.

That financial genius from Otago University's History Department, Michael Cullen, has sunk hundreds of millions of taxpayers' dollars keeping Air New Zealand afloat. The move was applauded by people like Nandor Tanczos and Matt Robson, who claimed some political credit for keeping this 'asset' in public ownership.

The airline has responded by going from blunder to blunder. First, it decided to keep a fuel surcharge on freight (see http://www.silva.co.nz/Institute/Article.asp?Ref=129). Next, it decided to alienate those who retail their product, the travel agents. Now, it decided to start a little price war against Qantas, a much stronger competitor. Duh?

Prime Minister Helen Clark said last year, "The bottom line is Air NZ as the national airline has to be kept flying. Life without Air NZ is unthinkable." We wonder why. Life remains quite bearable in Switzerland, even though the local politicians refused to bail out Swiss Air.

Miss Clark has been persuaded by the facile argument that we need to have our own airline for tourists to come here. Yet, when Miss Clark wants to see the Pyramids in Egypt, she does not have to fly with Egypt Air; when she wants to climb Mount Kilimanjaro, it is unlikely that she uses Air Zanzibar to get there.

The Importers Institute has a helpful hint for Miss Clark and her fellow academics in Cabinet: for as long as people are willing to pay to be flown into and out of New Zealand, there will be no shortage of airlines willing to undercut each other for the privilege of gaining their custom. The same goes for freight.

Miss Clark and Dr Cullen have sent a message to the management of Air New Zealand: this airline will not be allowed to fail. Management is secure in the knowledge that there will always be another billion where the last one came from. Or, at least, that is what they seem to be thinking - they are certainly acting as if they believe it.

However, this Government has an insatiable appetite to fund things like the arts and Jim Anderton's corporate welfare cronies. After all, that's where the votes are. The problem is, the government may not be able to afford such largesse, while it continues to sink large dollops of money into a failed airline.

Dr Cullen thinks that he has a nice quick solution to this problem: sell a 25% share to Qantas. For this to make commercial sense to Qantas, the Government would have to guarantee it some form of ongoing protection against other competitors by, for example, making it more difficult for them to enter this market. Likewise, small local airlines like Origin Pacific must be discouraged from becoming the next ValueJet.

Keeping the competition out for the benefit of Qantas may require our politicians to renege on open skies agreements, but they can always rely on the services of former Australian Prime Minister Paul Keating to act as their consultant on these matters.

Another problem is that we actually have some anti-trust legislation in our books, just like first-world countries. The Commerce Act could well get in the way of Qantas extracting monopoly profits out of New Zealanders. However, these things are not insurmountable. This government has already once suspended the Commerce Act to allow Fonterra, the Dairy monopoly, to go and clock a whopping $50 million loss in its first year of operation.

The Importers Institute favours the idea of selling the whole of Air New Zealand to Qantas, Singapore Airlines, Mr Branson, or whoever else is interested. The government simply needs to ensure that our market stays as open and welcoming to foreign and local competitors as possible. Monopolies like airports need to be leaned on to ensure that they accommodate all comers and the Commerce Commission needs to be left alone to do its job.

If the politicians follow our advice, they will find that there will be plenty of money left for them to spend on their favourite opera, ballet, fashion industry shows, e-commerce talkfests or whatever else takes their fancy. Travellers, importers and exporters will find that several airlines will compete with each other to get their custom. Some of those airlines will even do it at a loss, if they come from countries where their governments are so stupid as to subsidise them from taxes.

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