Airlines and economics

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Dear Editor,

 

In relation to the airlines issue, I want to address some of the paper economics raised rather then trying to response to every issue to justify having an airline, in that I don’t have time, if you don’t mind.

Let’s leave the government and politics on the side. We all agreed in the past that there’s a lot of corruption in our government and accountability and transparency is just a word to them.

I don’t like politicians in that all of them uses God’s name in vain to sell the politics of fear and emotions to justify their reasoning when we all know they’re in there for their own selfish greed. 

That been said, let talk about our airline and economics. Competition is a very sound argument in bringing competitive prices and one need not to have any tertiary schooling to figure that out. In the airline business the opposite is more truer then true. The market is manipulated through control and with the ANZ and Virgin alliance there is no market price. It’s all fixed on an agreed strategy. 

Old folks may have recalled 15-20 years ago when we use to have our own airline, come Christmas Poly would put up a mealofa fare treat for our people to and fro NZ. Poly doesn’t have the capacity so we lease 747s from other operators to handled the demand. 

That’s been slowly squeezed out through controlled drip feeding of the market through the scheduled services with perhaps an extra wide body flight to ease the load in NZ by ANZ and Virgin.

That is only possible when Virgin and ANZ goes into an agreement on how they’re going to service the market. Before this partnership, if you need to buy a ticket online to Auckland for example, the price varies with the demand on that particular flight through a build in algorithm in the program that accesses the sales an alter the prices accordingly. It can go up or down.

It came down at one stage a few years to NZ$139 one way from Auckland. I waited a day to see if it’ll come down some more but it didn’t it went to NZ$290 the next day and I think I had to settled for $340 because I haven’t finalized my dates. That is an example of free market where the cost of a commodity varies with demand.

In a controlled manipulated market, a floor price is already set because the share of the market is already been agreed. Businesses do this to guarantee survival. The more the market is controlled the more their survival is assured. It has nothing to do with competitive pricing and a better product for the consumer.

Earlier this year in the Farnborough airshow in England, Virgin announces that it’s still to finalized a decision for 40 or more new 737 max aeroplanes at 100 million a piece.

Businesses don’t go into these billions of US dollars spending without having to do their homework and work out how they will fare in the future climate of their businesses.

This is possible through a projected cost analysis study which can be vastly unreliable unless an element of revenue is estimated with reasonable accuracy. This is why these companies will spent millions to control the markets and thus controlling the long term viable of their business. 

With the ANZ/ Virgin alliance the market is as high as 100% controlled. This can be ascertained by the assets comparison and the players involved. 

There is no competition when a conglomerates of principle partners have already decided on the prices of their taro. It’s the survival of the fittest and we don’t have legs long enough to make a statement in what’s in our best interest.

The only way to be counted in this transaction is to be a principle partner, and we have every right to do that. By eliminating the unnecessary variable the result of this transaction is now solely at our responsibility.

If we screw it up, there’s no one to blame but us. Competition economics is only true if all variable are independent. This is not true in this market, so the paper economics of more competition equals reasonable prices is not true in this case. This is the whole philosophy behind WTO agenda, the control on who profits and who has delayed profits if there is such a term.

All this manipulation in trading going on, the end product is the strong economies survive and the weaker entity is just a book entry. We are at the mercy of the powerful players. 

Most of the critics of this venture are either personality or politically excited, and arguments to justify are of the face value and generalizations with zero hands on knowledge of the business. 

There is no such thing as rumours in this business. Rumours are expensive and cannot be a carrying concern as Virgin has found out. They started rumours when we started making noises about braking away. They didn’t carry on with the rumours because they were waiting to see if we had the stomach to go through with it. 

Those are not rumours, they are calculated maneuvers like trying to bait a sardine without having to spent much on bait.

We cannot compete with ANZ with the vast array of assets at their disposal, let alone Fiji airways but a fairer competition would be the equal shares of the market and let us punch it out to see who blinks first.

I cannot speak intelligently on the partnership arrangement with Fiji so that could biased my point, but we need a parent airline who is already an established operator so we can piggy bank on his back on other issues of operations, engineering, bookings etc. Virgin was not prepared to do that for us, ANZ as well. 

Human nature always has an itch to try and try again especially in areas we’ve failed before. It’s the human in us. No one can tell us that we cannot do this because we’ve stunk at it before.

I cannot tell you that either. Call me irresponsible but I cannot be satisfy with the notion that we cannot win because we didn’t win before. Sitting idly by in what I’ve termed an eat, eat, eat culture is the same as saying whatever.

 

Steve R.

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