Dialogue: Air NZ's future too crucial

Vested interests should not decide an issue vital to our economy, writes JIM SCOTT*.

The future of Air New Zealand as our national carrier and a crucial part of our tourism strategy is too important to be left to the mercy of foreign vested interests, which have been haggling behind closed doors over the past few days.

What is needed is a major review of New Zealand's aviation policy, conducted in the open and with the assistance of independent experts, to identify the course that will most benefit our economy.

The aviation industry throughout Australasia has been going through enormous change over the past few months.

But the recent demise of Qantas New Zealand, followed by the near-collapse of low-cost Australian carrier Impulse and its subsequent takeover by Qantas, were minor issues in comparison with the threat to the future of Air New Zealand posed by the present struggles for its ownership.

We in New Zealand should remind ourselves that it is little more than a decade ago that, as a result of Government privatisation policies, Air New Zealand was delivered a huge strategic setback.

The airline was unfortunate enough to end up having its main international competitor, Qantas, and New Zealand's most aggressive asset-stripper, BIL, as its new owners.

Although it can be said that these new owners greatly assisted the cultural transformation from a state-owned enterprise to a standalone and privatised business, in other areas they were a serious threat to the airline.

The implications of the Qantas chairman and chief executive sitting at the Air New Zealand board table in my day, 10 years ago, was bad enough.

But today, when Qantas is a key part of the worldwide global alliance Oneworld while Air New Zealand is an integral member of the rival Star Alliance, it would be impossible.

Strategy has to receive 100 per cent board support and this is not possible if your main global competitor sits at your board table.

As for BIL, after 10 years of waiting, its desire to get out at a profit has reached ravenous proportions, and the best interests of the airline will not be the first consideration.

New Zealand, as an island country, needs a strong, locally based domestic and international airline (and, as the Tasmanian experience shows, that would be true even if we were to become a state of Australia).

All New Zealanders should welcome the presence of Qantas, as a strong competitor, in our skies. In the same way, all Australians should welcome Air New Zealand into their skies as part of the competitive aviation market.

But political, economic and market commonsense says there should never again be a cross-shareholding or common principal shareholder for these two strong, nationally based airlines.

The future ownership of Air Zealand must be decided on the basis of what is best for the airline as the national carrier and not what is best for someone else.

Over the past decade British Airways has taken a strong shareholding in Qantas and they form part of Oneworld.

We have also seen Singapore Airlines take a big stake in Air NZ and both are in Star Alliance.

These were positive and progressive ownership moves that offered long-term security and confidence for southwestern Pacific tourism as well as providing benefits to residents of this region and their international travel needs.

Singapore Airlines and the independent Air NZ directors seem headed in much the same direction, which is encouraging. Now it is up to the Government.

A lift in the foreign airline ownership limit here will also require the same concessions from Australia or the international rights of the 100 per cent-owned Ansett will be useless and this would give yet another shoe up to Qantas.

Singapore Airlines and Air NZ should also take this chance to lock in unlimited beyond rights for Air NZ out of Australia, thus finally clearing up this vital issue for the airline and for tourism. Now is the time to move to a true equal-opportunity market from which, I predict, both economies would gain considerable immediate benefit.

But if all that sounds hopeful, the approval by the Australian competition authorities for Qantas to take over Impulse is a setback for the region's aviation market.

The differences in the competitive performance characteristics of low-cost carriers and full-service airlines probably means that Impulse in Australia will simply be used as a marginal competitive operation. Air New Zealand has applied a similar strategy here with its low-cost subsidiary, Freedom Air.

We need to do all we can to facilitate the establishment of Virgin Blue as a long-term, low-cost competitor to Qantas and Air New Zealand both domestically and across the Tasman.

In aviation terms, we are at the end of the routing structures of the world and this is a good enough reason for our Government to take special precautions when dealing with these issues.

The Commerce Commission, when addressing the Ansett vs Air New Zealand issue in 1996, showed its inability to come up with the appropriate answer on the key global and regional aviation issues that were at stake. When dealing with the merging of the two big dairy companies recently, the Government chose to bypass the commission.

Neither of these processes dealt adequately with the key industry strategies. For major strategic disputes in the telecommunications, aviation and other cross-border economic areas, smaller economies such as New Zealand need expert panels and expert witnesses to advise Governments on the implications.

Relying on Government officials or highly questionable submissions from vested-interest participants will never provide the critical balance that is essential if we want to make good and long-lasting decisions.

In view of the changes happening in the aviation industry, I believe a major review of the economic consequences of New Zealand aviation policy in the southwest Pacific is well overdue.

This process, with the appropriate terms of reference, should help to enlighten the Government and the wider public as to the threats and opportunities that exist in this critical economic area.

If New Zealand tourism is to become just another add-on to Australian tourism or a pawn in some global game, then this should occur only through a fully informed decision-making process and not as a consequence of the tactical plays of foreign vested interests.

* Jim Scott was chief executive of Air New Zealand from 1988 to 1991, during which time the airline was privatised. He is now the governing director of private investment firm Aquiline Holdings.