Queenstown Aiport Case: Air New Zealand VS Auckland Airport

On news that Auckland Airport Ltd [AIA.NZX] have secured a deal for China Southern Airlines to begin flights between Guangzhou and Auckland starting in March because of Auckland Airport's deal with Queenstown Airport at the end of 2010, we must revisit Air New Zealand Ltd [AIR.NZX] opposition to the marriage between Queenstown and Auckland Airports, especially in the light of the recent purchase by AIR of nearly 15% of Virgin Blue Holdings Ltd [VBA.ASX] last week.

Air New Zealand's Rob Fyfe and Bruce Parton last year indicated his airlines opposition to the AIA/Queenstown merger was because of their monopoly status and the "anti-competitive" nature of the company the port already had and the purchase of 27.7% of Queenstown Airport would cement that monopoly.

There are also several businessmen in Queenstown in opposition to the merger and factions within the Queenstown Council, who own the majority of the Queenstown port.

Apart from the clear benefits that the Chinese Airline will have on the New Zealand economy, benefits that I initially was dubious about last year when the deal was announced, the added revenue for AIA is going to be good for shareholders, especially as this route looks like it will develop further over the long term.

For Air New Zealand to continue their case in the Christchurch High Court is to be guilty of hypocrisy of the highest order.

While you may agree that Auckland Airport has a monopoly - it indeed does and that is why I am a shareholder, AIA's purchase of Virgin Blue is pretty much the same deal as engineered by AIA/Queenstown and also cements, for AIR, a history of anti competitive behavior in the Airline business in this part of the world and specifically the stranglehold they have on flights into the booming Queenstown tourism sector.

For them it is about protectionism of their near monopoly in Queentown and the benefits this has on their routes out of that port and Auckland Airport as well.

In effect they are attempting to do the same as Auckland Airport.

Don't expect AIA to take a court case against AIR though.

You wouldn't expect less from a quasi Govt Department though with taxpayer dollars bankrolling them.


Disclosure I own AIA shares in the Share Investor Portfolio


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AIR @ Share Investor

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THINK BIGGER: HOW TO RAISE YOUR EXPECTATIONS AND ACHIEVE EVERYTHING
BY MICHAEL HILL





c Share Investor 2011

Reality needs to Bite

In 2002 Air New Zealand Ltd [AIR.NZX] was at one of its lowest points in years, although like most airlines it had lost billions in the past, this time its predicament meant the New Zealand taxpayer bailed it out via the present Labour Government, to the tune of more than $NZ 1 Billion.

The alternative would have been the entire collapse of the airline, New Zealand's national carrier.

Since then it has done comparatively well, posting acceptable profits and attracting large shareholders.

Its profits since 2002 though have barely got close to the cool billion that the taxpayer forked out to rescue it and on opportunity cost alone has lost a minimum of $250 million on top of that.

Shareholders, taxpayers and voluntary ones alike, need to remember that the airline biz is an extremely fickle one. One that is littered with bankruptcy, failure and many broken dreams, especially in New Zealand.

Long-term, Air New Zealand, like every other airline that there ever has been, with a few notable exceptions, has never made any money.

Air New Zealand's advantage has always been its highly profitable domestic airline monopoly that has propped up its less competitive international division.

While in the past this domestic near monopoly and at present duopoly has had a handful of half serious challenges by competitor airlines that have all failed, the latest drive to compete against the large bully incumbent by Virgin Blue looks set to be the most serious challenge to the big Koru yet.

Virgin has large amounts cash to fund their push, larger than any other prospective airline has had in the past. Virgin has challenged the dominant incumbent airline in all the markets that it has entered. They are in New Zealand for the long haul and will make it hard for Air New Zealand in the most profitable part of their business.

Air New Zealand will fight back hard though but will risk a backlash by the Kiwi flying public when they lower their fares to match Virgin's low prices. Realizing that they have been gouged for generations could be a bitter pill for Kiwis to swallow.

Air New Zealand's small International division, while making acceptable profits by airline standards, is still struggling with meager returns on capital and would be losing money if the cash they were using to operate was borrowed(see taxpayer funded bailout)like most other airlines.

The current profit isn't likely to continue for much longer as the pressures of international and domestic competition start to bite. Being such a small airline Air New Zealand is already struggling hard to compete with the lower costs associated with being a larger player or a traditional low cost operator like Virgin or Virgin Blue.

Investors in airlines seem to get wrapped up in the perceived "glamour" of the airline biz while at the same time forgetting that rather than eagles soaring their investment is more likely to be a spruce goose or an albatross.


AIR @ Share Investor

Share Price Alert: Air New Zealand Ltd
Queenstown Aiport Case: Air New Zealand VS Auckland
Queenstown Airport: Loud Voices & Loyalty
Long Term View: Air New Zealand Ltd
John Palmer Tipples on the Shareholder
Mike Pero and Air New Zealand: Capitalism vs Socialism
Rob Fyfe's "Environmental Extremism"
Reality Needs to Bite
Air New Zealand wants another taxpayer bailout

Discuss this stock at Share Investor Forum - Register free
Download AIR Company Reports

From Fishpond.co.nz



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c Share Investor 2007