KEY POINTS:
Why doesn't Air New Zealand stop the absurd whining over its failed attempts to form a transtasman cartel, get its employees back onside and concentrate on leveraging the growth streams of its business?
The airline that professes to be "our" national flag carrier is mutating into a sulky,
somewhat recalcitrant company under the management of its new CEO Rob Fyfe - whom its unions now call "Fyfe the knife".
Fyfe expects the business community to take him seriously when he bangs on about how he has been left "frustrated and confused" by an Australian draft decision which has blown his airline's bid to reduce competition on a route which is extremely important to New Zealand business and recreational travellers.
Last week, Graeme Samuel - Australia's chief cartel-buster - delivered the coup de grace to Air NZ's proposal to form a transtasman cartel with major competitor Qantas.
Quite why Air NZ and Qantas ever thought the hard-nosed boss of the Australian Competition and Consumer Commission would approve their proposal to co-ordinate on scheduling, pricing, code-sharing, frequent-flyer programmes, processing of passengers' baggage, in-flight offerings and cargo services on any transtasman flight beggars belief.
No amount of posturing by Air NZ on this side of the ditch could disguise what was proposed was in effect yet another cartel.
The two airline's desire to get a five-year authorisation from each country for their Tasman Networks Arrangement was initially dressed up as a mere codeshare. But, as opponents of the scheme quickly found out, it was nothing of the sort. It was a much more highly integrated beast (on the Tasman) than the airlines' original plan for a strategic alliance on major routes which finally passed muster at the appeal stage on the Australian side but was roundly rejected by the High Court in New Zealand.
The ACCC's draft decision basically says Air NZ/Qantas will not be "effectively constrained" by other transtasman competitors such as Emirates and Virgin Blue - in particular in the time-sensitive periods and on certain routes where they would become sole operators: This would lead to higher prices and reduced consumer choice and also reduce competition in the freight market which could lead to higher freight charges - notes the ACCC.
Under the Australian Trade Practices Act, the competition regulator can grant immunity from legal action for anti-competitive conduct if parties apply for "authorisation".
But in this case, the ACCC considers any move to authorise the TNA will be a substantial detriment to the public. The cost savings to the applicants would be significantly lower than stated; there would be only marginal improvements in the schedule spread, marginal benefits in relation to connectivity and frequent flyer options for consumers.
The 169-page draft decision is a weighty tome. Among the highlights:
1. Profitability
* Qantas remains one of the most profitable airlines in the world; * Air NZ reported a 36 per cent profit decline in 2005/2006 - due to substantial fuel cost increases. (The recent oil price drop has sharply reversed that dynamic.)
2. The "surplus capacity" the two airlines complained about on the transtasman route is a normal feature of aviation markets. The ACCC also notes that Air NZ appears to have intentionally adopted a strategy of increasing capacity on certain transtasman routes since 2004 in order to protect or regain market share lost to competitors. It said it would be equally possible for Air NZ to reduce capacity should it become clear this strategy was not tenable in the long term. It also suggests more fuel-efficient aircraft could be used.
3. Market dynamics
* Australia recognises open skies as an aspirational goal to be sought on a case-by- case basis where it is in the national interest;
* On September 16 legislation enabling designated New Zealand airlines to operate domestically in Australia came into effect.
But instead of commercially gearing up for an even bigger competitive onslaught within the single aviation market, Fyfe is lamenting the fact that Samuel has not left a "significant invitation mat lying out there for us to re-engage".
The airline has also taken a swipe at Wellington Airport - simplistically claiming that the ACCC might have been swayed by opposition from that quarter.
It's true that at least six major submissions were put forward by Wellington-based entities. It is also true that Wellington consumers are more likely to face cutbacks by Air NZ on the number of transtasman flights and possibly also price hikes. But Air NZ would be wise to temper any desire to inflict revenge on what it perceives to be the major New Zealand antagonists to the deal.
Yesterday, Charles Finny - who is CEO of the Wellington Chamber of Commerce - openly made the point to Economic Development Minister Trevor Mallard that economic transformation was also about ensuring that policies back home are the best ones. He noted the enormous investment of time and money by Wellington Airport in fighting what the ACCC experts are confirming to be a "bad idea" for New Zealand and the Wellington economy in particular - and even for Australia.
Finny has also proposed that Air NZ work with its Wellington customers and major clients like Wellington Airport to expand business from the capital. But the Auckland business lobbies have remained unbelievably quiescent despite the obvious inference that their business constituencies could also be at risk if the proposed cartel manages to persuade Samuel to change his mind by the time of the final decision.
Air NZ and Qantas are also seeking a backdoor approval by the Minister of Transport for their cartel. This is clearly a political decision-making arena where "national interest" will take precedence over competition issues.
Right now it would seem the cartel cannot get off the ground unless the ACCC backs down or the two airlines seek and win an appeal.
The argument that is most likely to sway New Zealand politicians is the "national champion" theory. It's an argument Air NZ chairman John Palmer has been pushing hard this year as he seeks reform of New Zealand's competition laws to allow more domestic monopolies to be formed (in the Fonterra mould) to compete on the world stage.
Air NZ and Qantas basically told the ACCC one reason they needed to secure home markets (read: transtasman) by bulking up with their major competitor was so that the pair could better compete in the international arena.
Samuel's report debunks this nostrum.
"The 'national champion' argument is typically based on the premise that shielding businesses from competition helps that business in the international market. But the ACCC considers that "very often the opposite will apply".
The draft decision cites various authorities that note firms which receive competitive favours at home rarely survive on competitive world markets and that vigorous competition often represents the best policy, boosting exports, trade and jobs.
This is the guts of the decision.
Air NZ's major shareholder - the Government - should take note and request the airline to raise its game - not try to alter the competition rules.
