IS MERGING THE ANSWER?

Affordable air travel – domestic and international – has been given as one of the reasons for the proposed merger of the country’s lea­ding airline Air Niugini with the nationally-owned Airlines PNG.

Public Enterprises Minister and chairman of the Merger Implementation Committee Sir Mekere Morauta has followed his agenda of strengthening state and locally-owned companies by announcing last month that the government had endorsed an “in-principle” de­cision to combine the country’s flagship carrier with an airline company that only several years ago had offered shares in its business to the public.

Sir Mekere’s rationale is mostly geared toward cost-saving measures which he stated clearly in a full page advertisement taken out in The National yesterday. Ma­king the air travel relatively inexpensive and spreading the service out to more destinations is a key point in the government’s plan.

Not surprisingly, however, there have been concerns raised by Public Employees Association president Mi­chael Malabag about the risk of significant job shedding if such a merger were to take place. Thankfully unlike the Telikom saga of a decade ago where the government of the day had initiated plans for the privatisation of the state-owned telecommunications provider, both Air Niugini and Airlines PNG are business enterprises which follow a commercial model. 

Therefore, the argument that there is a danger of jobs being culled in either of the companies, although relevant, is unlikely to be a factor when the opposition is raised – it is an accepted part of mergers in the business world. Nevertheless, conscious of this fact, Sir Mekere in his advertorial stated explicitly the merger would incur “no job losses”. 

A rallying point of the move to join carriers is the planned increase in the num­ber of locations that will be served. The government believes that a merger will in fact create employment opportunities both within the merged airlines and from increased business activity in rural areas that will be inclu­ded on new scheduled routes.

The airline industry can be a lucrative business in a country like Papua New Guinea where the road networks are nowhere near adequate to link the majority of the population.
In many instances, air travel is the fastest, safest and most convenient form of travel for the majority of the travelling public. Until road links are established connecting even the nation’s capital with ano­ther urban centre, air travel remains the mode of choice for the paying public.

But some of Sir Mekere’s reasons for this course of ac­tion by the government seem very optimistic. He said the in­crease in airline services na­tionwide and overseas was expected to grow exponentially in a short time-frame. The statement espouses figures that are very impressive.
“At present, between Air Niugini and Airlines PNG, there are only 32 places that have scheduled services. Thegovernment believes the merged airline will be able to fly scheduled services to 126 pla­ces within six months, 295 places within nine months and more than 325 places in 12 months.”

This forecast is extremely optimistic and one can only think that just achieving half of that would see the combined airline in a good financial state. But is this a realistic picture that the mi­nister has presented? If the improvement in ser­vice is this good, how would that translate into making Air Niugini, as the merged entity will be called, more profitable? One of the other concerns allayed by Sir Mekere was the possibility of a monopo­ly being established which would hold most travellers at ransom.

One lesson the PNG consumer has learned about what competition can do is seen in the current mobile phone business where prices are lower while the service has improved.
Airlines PNG offered airfares for travel to destinations like Cairns and even domestic ports that were lower than Air Niugini. 

Can the government gua­rantee that with only one air-line operating it will not make decisions that will benefit its bottom line ahead of the people’s welfare? The most telling factor for the merger has been Sir Mekere’s frank admission that Air Niugini has been operating effectively with five of its own aircraft while leasing another 16 (including larger aircraft that fly international routes) in its fleet.

He said Air Niugini needed K800 million to re-fleet over the next three years but the go­vernment would not be able to fund that enormous expen­diture, so a merger would be a strategy to keep the airline viable. We can only hope and trust that it is the right path.

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