Keith Rankin, 22 August 2002
Will the Queensland and Northern Territory Air Service be allowed to buy into Air New Zealand, thus in effect creating a virtual airline monopoly in Australasia? We could call the resulting airline the Queensland and New Zealand Air Service, and paint the kangaroo teal.
It would be a backward step for the whole of Australasia. The industry is changing. Catching a plane these days is much like riding a bus. The new approach could be called the "sky-bus model" of commercial aviation. (For air freight, aeroplanes would become sky-trucks.)
We see the accelerated growth of the sky buslines today in Europe and the USA in the wake of the post-911 shake-up. The old airlines with their inflated costs are becoming history in the northern hemisphere. They die if they don't reinvent themselves. It's obvious in Europe (eg Swissair and Sabena) but more obvious when we consider the fate of the US airlines that have flown here: Pan American, Continental and now United.
Air New Zealand played a leading role in establishing the new airline model, although Qantas, with its huge political influence in Australia, has always so far been able to ensure that mercantilist protectionism prevails in this part of the world.
(Mercantilism - or "the mercantile or commercial system" - was the main target of Adam Smith's 1776 polemic, The Wealth of Nations, the book that is usually seen as the founding document of modern economic thought. Mercantilism represents a coalition of power between the government and the business oligarchy. Under mercantilism, governments and privileged corporations worked for the mutual interest of each other. The age of high mercantilism is usually considered to be the 17th century, epitomised by the VOC, the Dutch East India Company which this country can thank for one thing, its name.)
The airline industry is the one industry more than any other that perpetuated the age of mercantilism into the late 20th century. But old dogs eventually die. Qantas survives, not by competing with its competitors, but by eating them when it can, and lobbying the Australian government when it cannot. The combined forces of Qantas and the Federal Government came within a whisker last September of destroying the New Zealand airline that was, from the early 1990s, pioneering the alternative low-cost path.
Air New Zealand cannot reinvent itself as a southern equivalent of EasyJet, RyanAir or Virgin. Rather, its pursuit of the best of the sky-bus model and the full-service model means that it remains the most potent competitor to Qantas in this part of the world. Air New Zealand competes on cost. Qantas blatantly adopts below-cost predatory pricing - bully boy tactics - whenever its interests are threatened by more efficient competitors.
Qantas is as doomed as Pan American, Swissair and United, whether or not it finally removes the Air New Zealand threat to its dominance of the Oceanic skies. It's simply that, by dint of favourable historical and geographical circumstances, it will probably, like the Dutch East India Company, be the last of its type of dinosaur to die.
If Qantas wins this particular war, the whole Oceanic region will suffer economically as the sky buslines take over in America and Europe. If Air New Zealand resists, the death of Qantas will be hastened (though still slow and protracted).
The key player in this mercantilist game is now the majority shareholder of Air New Zealand, namely the New Zealand Government. This is most worrying. We have a fiscally conservative government without the stomach to face an expensive price war with Qantas.
The New Zealand Government is now faced with having to find extra money on many fronts, not least for the secondary, primary and kindergarten teachers. An obvious solution is to milk the cash cow that I have called QANZAS. As a monopoly, QANZAS, with Qantas as the active partner, will be able to set high prices, especially on the Tasman and on the New Zealand domestic market. The Government, as the majority though passive partner, will happily accept the 'economic rents' that will come its way.
In other words, a Qantas buy-in of Air New Zealand will be the equivalent of a new tax on the people of New Zealand. Having pledged to neither raise existing taxes nor to introduce new taxes, this revenue windfall will most likely be just too tempting for Labour to resist. Only the United-Future Party, on whose vote Labour will depend, stands in the way of a Qantas buy in.
This is the issue that may make or break United-Future, just as the Clyde dam was the issue that broke Social Credit. As it stands, Clark and Cullen will probably have the political nous to eat Peter Dunne and spit him out, much as Sir Robert Muldoon did to Bruce Beetham.
Air New Zealand is well placed to lead Australasian aviation into the 2nd decade of the 21st century. Safe, low-cost aviation in this part of the world will in the long run prove to be more important for New Zealand's economic future than whether or not this government runs a budget deficit for a few years.
Qantas will not survive, even if it finally sees off its major threat. Its costs are too high and its predatory culture will prevent it from converting itself into an aerial bus company. United failed to strike the deal with its own workers that would enable it to survive. Ansett of course died for the same reason. Qantas is no more likely than Ansett or United to avoid the resistance from stakeholders who believe that their industry is fundamentally different from other transport modes.
Death is the major agent of evolution, in economics as well as in biology. Evolution becomes regressive when the overweight outlive the healthy. The New Zealand government should be resisting Qantas's blatant dumping and threats. Instead it is courting Qantas, for its immediate fiscal benefit. If QANZAS is consummated, the ensuing 'deadweight costs' will compromise the competitiveness of both New Zealand and Australia.
QANZAS, or whatever the ugly duck may be called, is a no-brainer.