The Independent makes me mad

Each week I read The Independent, and each week some articles in it make me mad. This week I’m writing about it. Sadly none of the articles are online yet.

Air New Zealand and the Commerce Commisson

The News

The Commerce Commission is bringing criminal charges against Air New Zealand for price fixing. It all started with a raid on Air New Zealand in 2006, and a case in 2008. and the new news is that some information was released in a recent judgement by Justice Judith Potter.

What made me mad

Air NZ CEO Rob Fyfe has a great point – the ComCom has “always refused to provide Air New Zealand with details of the charges.” That’s shonky – to be accused of something without evidence being presented, especially for that long. Meanwhile Air New Zealand’s internal investigations turned up nothing, and they have been dragged through the press. The good news is that Justice Potter has ordered the ComCom to give that detailed information to Air New Zealand by February 9th. In the meantime this sordid exercise has dragged on for years, and  Air New Zealand is not bothering to provision for any liability relating to the case. A good article by Denise McNabb.

Power Companies and their margins

The News

Power companies are “redoubling efforts to recoup lost margins.” Whatever

What made me mad

Contact’s year on year tariffs dropped 0.5% in 2009-10 financial year writer Pattrick Smellie found. (Good – remember that electricity company tariffs have been increasing sharply for years.) However “the additional costs of defending its customer base from competitors has added costs equivalent to 1.5 to 2% drop in average net retail tariffs”

It’s unclear whether those costs of defending the customer base were increased sales activities or discounts or bonuses applied to retain customers. I can say that I’ve heard many stories about people being offered incredibly sweet deals, and that the best way to get a retention phone call is to switch to Powershop. (You can do so and get $20 of free power by clicking on the flower above.)

But what makes me upset is that the 1.5 to 2% could have been used to drop tariffs, rather than on marketing activities. People are switching because they can get a better deal elsewhere – so why not offer them the best deal in the first place? If a business can afford to offer these sorts of incentives to stay, then clearly they are making fat margins, and customers are right to switch.

Auckland International Airport bought stakes in 2 other airports

The News

AIA purchased 25% of NQA – operators of Cairns and Mackay airports in Queensland, spending $166m to do so.

What made me mad

The pointlessness of this purchase – there is no synergy between the airports and a lack of control means that this is a financial investment not a strategic one. Airlines chose to fly to particular airports for the customers not the airport ownership. The AIA board would be far better off giving the money back to the shareholders and letting them make their own investment decisions. This smacks of agency cost – where the people that run AIA want to expand their empire for no worthy reason. So if you own AIA shares then sell them, they are not making good decisions.

Is it any surprise that the chap running AIA was the COO of Telecom when they made ill advised investments in Sky and INL in 2001? A well spotted coincidence by writer Jenny Ruth.

About Lance Wiggs

@lancewiggs
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2 Responses to The Independent makes me mad

  1. The Cairns/Mackay investment is relatively modest (around 5%) as a proportion of Auckland Airport’s total assets. The reason they’re doing it is to get more tourists from Asia. And more tourists from Queensland so there is “synergy”.

    And it was a strategic decision. A strategy being a plan of action designed to achieve a particular goal – was it a smart one? will it achieve the end goal? only time will tell.

    Quote Simon Moutter CEO AIA “New Zealand has underperformed against Australia in gaining a share of Asian tourism, so we have decided to take a position in the Australian market in an effort to get better connected and lift our market share. While our primary focus remains direct Asian connections with Auckland, an important stepping-stone is to strengthen connections with other strategically located airports.”

    Some facts and figures:
    Asia is forecast to be the fastest growing region for air travel over the next 20 years

    Tourism Australia has forecast growth of Asian visitors to Australia from 2009-2014 to be 7.0% per annum as opposed to Tourism New Zealand forecasting 3.8% per annum for Asian visitors to New Zealand

    Particularly strong tourism growth is predicted from India, China, Indonesia, and Malaysia

    More than 16 international airlines fly to the east coast of Australia that don’t fly to New Zealand

    Tropical North Queensland

    Tourism accounts for 47% of the region’s export-based economy

    Tropical North Queensland tourism is dominated by international leisure travel

    Tropical North Queensland has two world-heritage listed attractions, the Great Barrier Reef and the Wet Tropics Rainforests (including Daintree)

    Other attractions include Port Douglas, Tropical Islands and the Whitsundays

    Cairns and Mackay Airports

    Cairns and Mackay Airports were privatised by the Queensland State Government approximately 12 months ago, with their ownership restructured to form NQA

    Cairns is a medium-haul destination from many Asian markets (e.g. approximately 7 hours flying time from Hong Kong, 6 hours from Singapore)

    Auckland is approximately 4-5 hours flying time from Cairns Airport

    Cairns Airport has direct flights to all Australian capital cities with the exception of Hobart

    Jetstar has just announced 18 new domestic flights per week from Cairns to other cities in Australia

    Pacific Blue has just announced it will commence twice weekly direct flights between Cairns and Auckland from March 2010

    Cairns is the 4th most visited tourism region in Australia for holiday visitors

    Cairns Airport is located approximately 1600km north of Brisbane and is the primary gateway to Tropical North Queensland

    Cairns Airport is the 7th busiest airport in Australia. It is currently serviced by Qantas, Jetstar, Virgin Blue, Cathay Pacific, Air New Zealand, Continental Airlines, Airlines PNG and Air Niugini

    Mackay Airport is located approximately 900km north of Brisbane and is the primary gateway to the Bowen Basin coal-mining region

    Mackay Airport passenger numbers have more than trebled since 2002.

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  2. James says:

    I’m with Lance on this one.

    What AIA is saying that by owning a stake in NQA’s they can convince an airline, lets pick the most likely one, Air Asia to fly from Kuala Lumper to Cairns and onto Auckland.

    What’s stopping Air Asia from doing that now if they want to?

    AIA can package up some stats for Air Asia about travel between Auckland and Cairns and SE Asia and give them discounted landing fees for a couple of years. Thus hopefully proving the route would be profitable to them. Its not rocket science, I could do it in a couple of days and certainly doesn’t require you to own a minority stake in Cairn’s airport to do.

    Management is obviously bored which isn’t a good sign.

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