Back in 2007, I had this fantasy of Virgin perhaps buying a stake in Airlines PNG to create a company that could be called ‘Virgin New Guinea’. I then became more excited when Virgin did come to PNG but through a code sharing arrangement with Airlines PNG.
Competition in PNG’s airline industry since 2008 has played out quite well and we can all see the benefits of it today. However the code sharing arrangement fell abit short for me in terms of another airline taking on the domestic routes as well. Now with the possible Air Niugini and Airlines PNG merger in the mix we are faced with perhaps going two steps backwards before making any steps forward again.
The reasons against the merger are perhaps obvious and you can see a good round up of this here at Martyn Namorong’s blog.
It must be noted that this is the second time the merger has been proposed, the last being in August, 2010 so it appears that the management of both companies have on some level decided that this is the best strategy for both companies.
I for one actually support the merger but on two conditions, firstly that the government ensures that before it happens another sizable airline must be ready to commence operations in PNG and/or secondly, that some consolidation of the third level airline sector is achieved.
We already have several options if the will and right conditions are there:
2. Virgin or Tiger Airways or whoever could buy into Travel Air to take on the domestic market as well
3. The superfunds could consolidate existing third level airlines like MAF, Tropic Air and so on. For example PNG Sustainable Development Program bought an aircraft as a donation for MAF several years ago. Why couldn’t they just buy the whole airline?
4. If Tiensten as the former Planning Minister was able to give K10 million to Travel Air, then all third level airlines should have access to such assistance.
We only have to look at the timing of Virgin in Australia after Ansett’s nose dive to see what was possible after Ansett’s departure from 40% of the Australian market. Ansett like Airlines PNG had been around for a while but they simply could not make enough money after Virgin and Impulse entered the market, (QANTAS eventually acquired Impulse as well). Which seems to point to the analogy in PNG that Airlines PNG was perhaps never financially secure and that any new competition like Travel Air would have only crippled it further.
So it appears the merger is the only way to keep Airlines PNG alive or it will just have to be put into receivership. The lesser evil is perhaps to have it bought out by Air Niugini so that jobs and services are secured but again in the long run the merger needs to happen at the same time as the rest of the industry is changed.
The above steps are what the government could possibly do to in light of the merger and how if done correctly a vilable market can evolve like what happened in Australia.
Within Air Niugini itself there are further steps they could take as well to prevent a jump in operational costs should the merger go ahead, some that come to mind are:
1. Air Nuigini taking only major international and major domestic routes (and the aircraft and resources to do that), while the government or superfunds buy the smaller aircraft and its staff to use as equity to invest in existing third level airlines.
2. Air Niugini creates an aviation and avionics service company as a subsidiary with the additional staff from Airlines PNG. This is due to the fact that most of Airlines PNG’s aircraft, even their Australian fleet were all serviced by PNG engineers in PNG. PNG could virtually become a service hub for aircraft in the region.
3. Like what QANTAS did by creating Jet Star to compete in the low cost airline market with Virgin, Air Niugini could also create another subsidiary for low cost travel on short trips around PNG or the region. Like no frills flights from Daru to Cairns maybe? Or a stripped down bus like service back and forth between Lae and POM or Lae and Hagen?
Put simply a merger does not have to spell the end of competition in our skies, but allot of detail needs to be explained as to what will happen not just with Air Niugini but also the rest of the industry for real competition to emerge from what could hopefully be a larger industry.