From this week's FI. In summary, governments should either be honest and run their airlines directly or let the market decide what is best. The current hypocrisy helps no-one.
New Zealand's decision on the future of ANZ will show whether noises made about liberalisation of air transport are any more than that
As New Zealand's Cabinet begins its final debate this week on the ownership of Air New Zealand (ANZ) it will not only decide the future of a national airline. It will also demonstrate whether the world community is truly acting on liberalisation pledges.
New Zealand is arguably the most broad-minded when it comes to negotiating air services agreements (ASAs), claiming liberalisation is the only way forward to protect consumers and offer more choice. It has aggressively sought open-skies accords with its bilateral partners, signed a five-party multilateral pact, and even given airlines from Australia, Brunei, Ireland and Singapore the unusual right to operate domestically in the country, albeit with restrictions.
But is New Zealand practising all that it preaches? It says it wants to remove ownership restrictions from ASAs, such as outdated rules that require carriers to be "effectively owned and controlled" by their nationals. In Singapore's case, for example, it proudly announced in signing an open-skies agreement with the city state in 1997 that it included "liberal airline investment provisions". How ironic, then, that the government finds it so difficult to decide whether Singapore Airlines (SIA) can increase its stake in ANZ.
By even showing that it is agonising over a decision, New Zealand has proven how hypocritical the world is about liberalisation. For while urging others to join it in dropping ownership restrictions and opening up markets, it maintains tight restrictions on ownership of ANZ. These limit an individual foreign airline to a 25% stake, multiple foreign airlines to 35% and total foreign ownership to 49%.
SIA wants to increase its holding in ANZ, which in turn owns all of Australia's Ansett, to up to 49%. ANZ, badly in need of cash, supports the bid. New Zealand has given mixed signals on whether it will change the rules. It has promised a decision by 4 September. Without more SIA investment and a related cash-raising exercise, ANZ may be in serious trouble. With it, concerns will be expressed that cash-rich, government-controlled SIA will become the dominant force in Australasia.
Concerns over SIA's motives may be valid, as the carrier is open about wanting to expand overseas because of the limited growth prospects at home. Valid also are concerns by New Zealand that a weaker or foreign-controlled ANZ could lead to a loss of national identity and decline in air links. But the validity of concerns does not conceal the hypocrisy. When liberalisation is in a government's favour, it will argue all for it, but when it may threaten to affect voting patterns, tunes change.
Take Australia. Last year its deputy prime minister and transport minister John Anderson called for an end to the bilateral system governing air services, saying it restricts the growth of airlines and imposes higher costs on travellers. "The system of bilateral treaties encourages negotiators to focus narrowly on advancing the business interests of flag carriers, sometimes at the expense of consumers and the industries that rely on air travel," he said. "It helps to create and maintain a pool of under-capitalised, debt-dependent airlines in an industry that is notoriously cyclical."
Bold words, but Anderson has hardly stepped away from working to advance the interests of flag carriers in the ANZ-SIA-Qantas-Ansett ownership debate. He has indicated his government supports a rival proposal from Qantas to buy into ANZ, which would see SIA sell its stake and buying Ansett. If Anderson truly believes what he says, he will let market forces decide the fates of ANZ and Qantas and allow real competition, instead of being concerned about SIA expanding in a market long-dominated by Qantas.
Yes, his government has liberalised and allows foreign companies to have 100% ownership of domestic airlines. And yes, Australia is taking a more relaxed view on granting traffic rights, sometimes to the disadvantage of home carriers. But it has not worked to get rid of restrictions on international airline ownership, which cannot be separated from liberalisation promises. Qantas faces the same restrictions on its ownership as ANZ.
Australia and New Zealand have much to be proud of, and can rightly argue that the USA is the real hypocrite when it boasts about leading the way in liberalising while maintaining some of the most archaic rules on carrier ownership. But before New Zealand's ministers enter their Cabinet meetings this week, they should take a long, hard look in the mirror. Their decision will show whether countries claiming to support liberalisation are bold enough to act on their words.