Samoa Airways – a brave decision or what?

By Mika Kelekolio* 18 July 2018, 12:00AM

It’s great for travellers like yours truly to compare airfares on line to find that Samoa Airways offers the cheapest fare for the Auckland to Apia route. 

Particularly for those who do not reside in Auckland. (It cost me NZ$30 more to fly from Palmesrton North to Auckland - NZ$295 one-way - than Auckland to Apia on Samoa Airways. The cheapest fare Air NZ had was around NZ$700.) 

What got me interested in this topic is the heated and sometimes emotive debate that went on in this newspaper last year about the economic merits/non-merits of having our own airline; whether such an airline with only one B-737 aircraft would survive in a highly competitive cut-throat market dominated by major airlines the size of Virgin Australia and Air New Zealand with their much bigger fleets and global networks. 

Though interesting at the start, after a while the debate turned into a forum for some commentators to suggest to the world that they were intellectually superior to the rest of us. Others, on the other hand, saw it as a chance to once again launched personal attacks on Prime Minister Tuila’epa and his Government. 

Unfortunately for those who argued against having our own airline, they inadvertently became cheerleaders for Air New Zealand who did not want its monopoly on the Apia – Auckland route broken up.

Air NZ has had its fair share of problems. The worst came in 2001 when it nearly went into receivership. The Government had to bail her out to the tune of NZ$885m as its shares fell dramatically from NZ$2.80 to just 20c almost overnight. Attacks on the Government accusing it of wasting tax-payers’ money became frequent from the media, members of the public and some sectors of the business community. 

Today, it is the airline of choice of most Kiwis as well as many international travellers; it has been voted by international travel writers as the top airline in the world for the last four years - first in 2015 and 2016, second in 2017, and first again in 2018.

You see, in the aviation business, most national airlines occasionally get doped by their respective governments with millions of dollars to ensure they stay competitive.  

The question for me however, is whether Samoa made the right decision in launching its own airline instead of continuing with the Joint Venture with Virgin Australia?

To answer that question, one needs to first look at the situation that Polynesian Airline was in before the Joint Venture. It was losing millions of dollars because of poor management. 

Such was its situation that our Government had to step in year-after-year with subsidies which in one year costs the tax-payers ST$7m. All because senior management personnel in accounts and service divisions were treating Polynesian as if it was their private ATM, helping themselves to thousands of dollars from ticket sales, according to information I received. 

At times when flights were full and you’d expect the airline to be making money, there would be passengers travelling free, or on a 10% fare (for staff) or on a ‘fly-now-pay-later basis’. Says one ex-Polynesian employee, if a proper investigation was carried out to look into what was really happening in the company, most senior managers would have ended up in gaol. (God has His own way of repaying people like that!) 

Signing the Joint Venture Agreement (JVA) in 2005 with Virgin Australia Ltd was therefore the best decision the Government could have made given the financial mess Polynesian Airline was in. The JVA enabled Polynesian (now renamed Virgin Samoa) to continue operating as our designated carrier for the New Zealand and Australian routes without having to rely on Government subsidies anymore. 

Under the JVA, the majority shareholders-owner of Virgin Samoa was the Government of Samoa and Aggie Grey’s Hotel (49% and 2% respectively). 

My own inquiry shows that whilst things went well for the first few years of the Agreement in that the economy benefitted from increased access to Australian tourists, as owner, we basically had no say in the management of our Virgin Samoa. It was effectively controlled by Virgin Australia through a Management Agreement and Lease Agreement for B737-800 aircrafts.

Under the JVA, Virgin Samoa Board had five Directors – 2 representing Virgin Australia, 2 representing the Government of Samoa (CEO of the Ministry of Finance and the Attorney General) and a representative of the Aggie Grey’s Hotels. The JVA Board was tasked with ensuring that Virgin Samoa operated as a profitable business.

However, the Board in September 2005, chaired by the CEO of the Ministry of Finance, somehow delegated all its power to an Executive Committee appointed solely by Virgin Australia from within its management team. (No Samoan was on it). 

This Executive Committee made all policy decisions, ran the operation and determined all administration and services costs which were all borne by Virgin Samoa. One example is that of administration and service costs which at the start was NZ$200,000 a month but soon shot up to NZ$700,000 a month. Virgin Australia reaped a NZ$6m annual benefit, while the Government of Samoa and Aggie Greys, the majority shareholders, received no dividends at all for more than five years. 

As well, Government of Samoa had basically no oversight of the JVA company operations and very minimal dialogue with the JVA Executive Committee or Virgin Australia. Other than the annual accounts it received from Virgin Australia, there was also no direct reporting to the Joint Venture Board on how Virgin Samoa was operating as a business. 

So, for all the benefits that came Samoa’s way, as time passed frustration mounted among many of our stakeholders like Samoa Tourism, other SOEs and many in the broader industry as the Executive Committee Management of Virgin Australia had basically closed down all dialogue. 

And worse, despite Virgin Samoa being our flag bearer, there was no local customer service office other than that for ticketing. Not even a customer service telephone number that people could call directly for help, for example, when flights were cancelled without warning especially at night or early morning. (It happened to me twice.) For travellers needing assistance, they had to either ring Virgin Australia’s office in Brisbane which can be expensive or jump on the Facebook and embarrass them, which of course worked for those who knew how to play the ‘travel game’.

As it stood, the Joint Venture provided very little transparency in regard to the operation of Virgin Samoa. Resolutions before the Board were passed, not by a simple majority vote but by 75% of the Directors. That resulted in some policy recommendations, deemed to be in Samoa’s national interest, not being pushed through.

Samoa therefore, in my view, was very brave in not reviewing the JVA and instead, setting up Samoa Airways as a stand-alone independent airline. It was a high risk decision as millions of dollars was needed in start-up capital to launch it. Management also knew that by going at it alone, Samoa Airways would no longer have the network and connectivity that it had under the JVA which enabled it to codeshare, access their distribution channels and share operational costs. Competing against bigger players like Virgin Australia and Air New Zealand with large-size fleets and international networks makes it that much more difficult.

Moreover, according to the best forecast Samoa Airways received during its formative stage, it would take 18 months at least before its first flight would take off, provided they had satisfactorily met all the legal, technical and safety requirements imposed by international aviation authorities as well as New Zealand and Australia. But even that timeframe was highly optimistic. Samoa Airways was also warned that the airline would experience a lengthy post-launch period before it would be able to fill its flights completely. That means operating at a loss for quite some time. 

The airline’s Board took a gamble by placing its faith in our people’s pride and loyalty to support them. That Samoa Airways took to the air only 6 months after it was given the green light to go-ahead is nothing short of an aviation miracle. Using its own (Polynesian Airline) money and not even a sene from Government except for an understanding that it could seek up to ST$25m funding from Unit Trust of Samoa (UTOS) as start-up capital, the company just went ahead and do what it was set up to do – fly people to New Zealand and Australia.

Samoa Airways flights, according to my information, are now 95-98% full and more Samoans, like last week’s participants at the Methodist Conference, are making it their airline of choice. It is testament to Government and the airline leadership’s tenacity that despite many obstacles placed before them by big aviation players, they were still able to launch the airline well ahead of forecast. 

And it has now given the Government close to ST$2m from profits. 

Virgin Australia did not leave quietly. For example, it knew that the JVA which allowed Virgin Samoa to fly the Apia to Auckland and Apia to Brisbane route would end in November 2017. Yet, they continued to take bookings to beyond December 2017. People got upset when they found out later that Virgin Samoa on which they booked was no longer flying and started attacking the Samoan Government. Virgin Australia’s intention, it appears, was to embarrass the Samoan Government for terminating the JVA which they arrogantly believed was going to just continue on as normal.

The Australian Government became involved also but fortunately, Samoa stood its ground and even moved Samoa Airways’ launching to November instead of December as planned thereby minimising the damage to the Government and Samoa Airways. 

Air NZ too did not just sit idly by and admire Samoa Airways successfully taking to the sky. It subtly replaced its smaller planes with A-30 airbuses to entice travellers away from Samoa Airways. Funnily, its A-30 fleet are now grounded due to faults with their Rolls-Royce engines. It reminds me of the days when Air NZ here would remit all its profits to its parent company in New Zealand at the end of the year which at one time reached NZ$15m. That almost strangled local businesses because the cash flow got drained almost dry. They didn’t really care what damage that would do to the local economy as long as things worked to their benefit.

Even the travel industry, perhaps unconsciously, joined in the ‘stop-Samoa Airways-taking-off” campaign when travel agents in the main centres in New Zealand would not take bookings for Samoa Airways right up to the time of launching.

Now that it is up and running, and by keeping its fares reasonable, not only will the patronage of Samoa Airways by our people here and abroad continue to climb. Other airlines like Air NZ will be forced to bring their fares down. 

I just hope that the practice that virtually bankrupted Polynesian Airline will not recur. I’m sure it won’t if we adopt Air NZ’s practice in New Zealand and Australia of devolving all ticket sales to travel agents or by encouraging clients to book online. That way, the temptation for management staff to help themselves to takings from ticket-sale will be totally eliminated. (Kleptomania is the biggest problem facing every employer here.)

It will also stop politicians and others from putting pressure on airline staff for free travel or fly-now-pay-later requests despite’s its current policy of not permitting anyone from the Head of State, Prime Minister and his Ministers, and Board Members down to travel without having first paid. But we know what our politicians are like; they will end up abusing the poor airline staff if they don’t get what they want.

So devolving all ticketing to travel agents will also eliminate this problem as agents will most likely say no to such requests. They would not want to risk IATA deducting the fares from their bond and closing their agency should the travellers fail to pay. 


*The views and opinions expressed in this article are those of the writer and may not necessarily reflect those of this newspaper’s management.

By Mika Kelekolio* 18 July 2018, 12:00AM

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