People stand to lose from airline monopoly
29 September 2011
BY MARTYN NAMORONG
THE PNG GOVERNMENT recently announced its approval in principle for the merger of state owned airline Air Niugini with the privately owned Airlines PNG. A merger between the two airline sets to create the largest airline in Papua New Guinea.
Airlines PNG is Air Niugini’s only real competitor on certain national and international routes.
Nationally they both compete on the Mount Hagen, Lae, Tabubil and Bulolo routes. Internationally they compete on the lucrative Australian market. In fact, the increased competition as a result of Airlines PNG expanding its routes has seen a decline in prices.
Many pundits are therefore wary of the proposed merger. The matter has been subject to much discussion on blogs and social networking sites. On Facebook, for instance, a post by ‘Essential Meri PNG’on Sharp Talk racked up over 120 responses. ‘Cuma PNG’ summarised the general sentiment saying, “Lack of competition will never benefit the people.”
Perhaps the most well reasoned arguments against the merger come from former Minister Arthur Somare. In 2010 when Airlines PNG wanted to merge with Air Niugini, Mr. Somare immediately ruled out talks. Here are his reasons as reported by the Post Courier on the 23 August 2010:
1. Airlines PNG suffered big losses in its two years as a company listed on the Port Moresby Stock Exchange and, if it is now enjoying robust growth, that is good for future competition;
2. Publicly available information suggests APNG’s improved performance is due to charters with the PNG LNG Project and others, but this has little benefit to the wider travelling public;
3. The then Transport and Works Minister Don Polye said the Government’s “open sky” policy could lead to more competition and he cited the case of Virgin Air. This argument does not hold now since an Air Niugini merger with APNG would kill off Virgin’s code share arrangement with APNG,”
4. Air Niugini has enjoyed an accident-free history since its formation in 1974; a merger with APNG would ruin this reputation and result in payment of much higher insurance premiums;
5. The higher insurance premiums would result in higher costs and higher airfares;
6. The APNG air crash in Kokoda in August last year could result in expensive litigation once official reports are concluded. There is no reason for this burden to be passed on to Air Niugini.
7. Rising inflation is one of the biggest concerns of Bank of Papua New Guinea and the National Government. Do we want to take a backward step and allow airfares and airfreight charges to rise again?
8. Air Niugini was able to reduce international airfares by 20 per cent to 50 per cent to different international destinations in recent years and domestic fares had fallen by an average of 20 per cent.
9. The practical implication of the merger is that a single individual, John Ralston Wild, will become the biggest private shareholder in Air Niugini with a stake five times bigger than Nasfund, APNG’s second largest shareholder.
Unfortunately, if one looks at the media release on the merger by the Prime Ministers Department, there’s very little of substance. The release does not address any of the substantive matters highlighted by Mr Somare.
Prime minister O’Neill’s biggest blunder in that press release was to state:
The proposed merger of the two airlines provides a solution to this problem. It is an example of Public Private Partnership in practice, not the flowery words of the former Minister Arthur Somare...
Actually Mr O’Neil’s press statement was itself full of ‘flowery words.’ The prime minister said that the major result of the merger would be a significant expansion of services. Well we all know what Bank South Pacific did in Kerema. Private businesses will not be bound by cabinets or prime minister’s wishes.
Furthermore, this isn’t a public private partnership as defined under the government’s own public private partnership policy, a copy of which is available on the IPBC website.
The prime minister’s press statement is full of speculation about what could result from the merger. However, business decisions are made based on value to shareholders
The critical question here is, “Why does APNG want to merge with ANG?”
Why merge with Air Niugini instead of another airline, based locally or overseas? Well if Airlines PNG were to partner with another airline, completion would make it less profitable.
But by merging with Air Niugini, there is consolidation of the airline industry and increased profitability due to the existence of a monopoly in PNG. The shareholders of Airlines PNG stand to gain more out of this merger while the shareholders of Air Niugini [the people of Papua New Guinea] stand to lose by having to deal with a monopoly.
Once again, just look at the contempt with which BSP treats its clients with. Making them stand in endless queues and overcharging stupid fees. Who’s to say that the people won’t have to deal with another corporate monster? It’s not just about the price we pay for tickets but the hidden costs associated
Not everyone think it’s a bad idea though. Some see the wisdom of getting these State assets like Air Niugini out of the sticky fingers of politicians. Many Papua New Guineans loathed the use of the infamous Falcon jet like a private family car, costing taxpayers millions.
I would like to see Air Niugini taken out of political influence – privatised. However,
merging it with Airlines PNG, a company with a terrible safety record, is plain stupidity.
That is apart from the fact that a monopoly is clearly not in the best interest of most Papua New Guineans but of the corporate fat cats who own shares in Airlines PNG.
Sir Mek, sell Air Niugini to someone else instead of going to bed with Airlines PNG.
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