The business case against the Qantas/Air NZ proposal

By Gordon Copeland, MP,

finance spokesman for United Future New Zealand

I am a somewhat unusual breed amongst New Zealand politicians in that I have a strong business background. I am opposed to the Air NZ/Qantas proposal as both a businessman and a politician. Some of the issues which concern me as a United Future MP, for example our emphasis on the family, are clearly non-commercial but from my point of view, in the case of the Air NZ/Qantas proposal, my business and political interests strongly converge. I want to set out here the business case which convinces me, as a politician, that the proposal should not proceed.

There is no need for Air NZ to become a global airline to survive. If it concentrates on the Pacific Rim and its strong bilaterals into New Zealand, Australia, and the Pacific Islands, then it can continue to be a successful airline. Globally, tourism is the fastest growing business sector and within that sector the Asia Pacific region is the fastest growing. Accordingly our national flag carrier, so long as it sticks with the Pacific Rim market, is strongly positioned moving forward.

Within that sector a strong Air NZ is vital to the national interest particularly with regard to inbound tourism. Air NZ does not market seats on aeroplanes. Rather it markets a unique, safe and beautiful destination: the islands of New Zealand – Godzone.

When it comes to promoting New Zealand as a tourism destination it also needs to be borne in mind that Qantas and the Australian Government have both consistently over many years, resisted the idea of marketing Australia and New Zealand as a joint destination. They have made it abundantly clear that we are on our own. That is no bad position to be in. I have met many international tourists who have visited both countries and tell me that whilst they intend to come back to New Zealand they found that Australia had nothing to offer but large cities and great stretches of red dirt – hardly an attraction to people from the crowded cities of Asia, North America and Europe.

A shareholding by Qantas in Air NZ or vice versa is no longer a necessary feature of the international aviation business. That in fact is what the Star Alliance arrangements are all about. In that arrangement members assist each other by working together in a way which relegates the needs for cross-shareholding arrangements to the past. In any event, let’s remember that whilst this proposal has Qantas taking a shareholding in Air NZ, Air NZ will not be taking a reciprocal shareholding in Qantas!

This is an extremely important point from the point of view of its business rationale. Ask yourself the basic question, if you owned one company 100 percent and the other only 22.5 percent where would you be putting your effort? Which company would you direct your customers to? That fundamental business reality seems to have been overlooked in the media discussion up until now.

Let’s then turn to the competition issues. The whole point of our competition laws is to prevent the companies colluding to fix prices; but that is exactly what this proposal amounts to with regard to NZ domestic and trans-Tasman flights. Indeed it goes beyond that to actually allowing Air NZ itself to make the necessary operational and pricing arrangements.

These are exactly the kind of arrangements which our anti-competitive laws were framed to avoid in the first place! (Antitrust and anti-competition laws evolved historically from the total dominance of the market which was achieved by John D Rockefeller’s Standard Oil Company – the history of which I know only too well because of my 14 years in the NZ and international oil industry.)

There is no way the Commerce Commission should even contemplate such arrangements and I think they could do both our nation and our airline a favour by ruling this whole arrangement out, simply on the grounds of its anti-competitive features, from day one.

And please let us take some recent lessons both in the airline and the rugby world to heart, namely Australians play hardball and we are naïve if we believe that there is a goodwill factor involved. As with rugby, so in the airline business, the only way to straighten this out is for Air NZ to continue to be smarter and more business-savvy than Qantas.

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