I can’t help comparing Air NZ and Telecom. They face very similar circumstances, and yet are reacting very differently.
Both are ex Government owned, now private. Air NZ is quasi-private of course.
Both have a public-good role – to provide a network to the population.Both have a profit motive, and both benefit from quasi-monopoly position in the market.
Both have ability to add essentially infinite supply.Both can price at pretty much however much they want, as their cost base is fixed.
Both have very inelastic demand for their services at high prices. Business people will take a flight or make a phone call no matter what the price, even individuals have a minimum level of phone calls and flights, no matter the price (within reason).
Both have very elastic demand curves for their services when the price is cheap. $10 txts get huge traffic, Grab-a-seat fills planes.
Both are reliant on the strength of their marketing to promote use of their services.
How the two companies reacted to these market conditions is, however, very different.
Both have tried to maintain their monopoly through a variety back-room lobbying, mergers (e.g. AirNZ & Qantas, AirNZ & Ansett). Telecom succeeded for a longer time, while AirNZ’s latest bid for a Qantas tie-up failed.
But Air NZ also worked on improving their business, to the point where they are now an excellent airline versus their international and domestic peers.
Their strategy of dropping prices and filling seats is a winner – something that will see them through tough times as well as good. Air NZ has also invested in leading-edge products – with the best business class in the world.
I would say that Air NZ has only really got going in recent years, once they shook off the Ansett debacle, and once they started to ignore the prospect of a Qantas tie-up and focus on the customer.
Meanwhile Telecom placed most of their senior executive energy into protecting their monopoly, through government lobbying, stonewalling and treating customers poorly. They continuously under-invested in the basics, and finally are getting dragged kicking and screaming by the Governemnt into belated investment.On the business side Telecom put the price of basic services like phone rentals up, sold the crown jewel Yellow Pages and launched the sad site that is Ferrit. They also doubled up on dubious Australian investments, and bought Gen-i for what was likely far too much.
Compare their marketing efforts. Go on. Which marketing do you enjoy watching? Which websites do you enjoy using? Which marketing is relevant to you?
But in the end both are making good profits.
One has a P/E of 15, and the equivilent industry in the USA has a P/E of 20 – so the market rates them as not quite as good as their US peers.
The other has a P/E of 5, and the equivilent industries in the USA have P/E’s of 24 and 32 (depending on how you define the sector) – so the market rates them as well beneath their US peers.
That second one is Air New Zealand, as they are one of the few airlines out there that makes good money. That drives their P/E down, but if that is sustainable then they are a fantastic bargain.
My take? Buy Air New Zealand, and sell US Airlines (not Southwest or JetBlue) and sell Telecom. It’s basic stuff – good businesses do better in the long run than bad ones, and you don’t need years of research to tell you that..
Then again, the new Telecom CEO has a chance to turn things around. The first 6 months will be telling – if long term insider heads roll and departments and companies are sold and closed then Telecom may turn around.
Both are ex Government owned, now private.
Umm, are you sure about that Lance, regarding Telecom? Telecom can’t conduct its own business with its own properties without the government interference by way of legislation. So, if Telecom is being bossed around by the state telling it of what it can or can’t do, then I think that what Telecom owns is basically owns by the state and not private properties of Telecom.
Costs and margins would expilan why you often get the feeling Vodafone put up with’ the iPhone at times, but view it as a necessary evil. Apple seems to have a huge say in final pricing, so the only way VF make money is on long haul contracts which is why you still can’t buy one outright from them some 4 months after launch. Official carrier has little credibility on those grounds. Buying outright from Apple still seems the best to me, but then where do I take it? VF has arguably the best coverage in NZ, but data is slow, and their contract call plans are still on-net only. TCNZ has arguably the fastest network but no 2G to fall back on. 2D has excellent call plans but two zone data issues. No matter what phone I end up with there’s still a compromise to be made on the carrier side for me at least.(JimmyC has made 54 comments)
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