Wednesday, 21 March 2018

Regional Air Services

Regional Development Minister Shane Jones is way out on a limb, beating up on AirNZ for withdrawing air services from Kapiti and (back in 2015) Kaitaia. As Andrew Geddis noted in this thread, AirNZ is not an SOE and its directors are obliged by law to maximise profits.

I'd add that the deficiencies of competition law currently allow/encourage AirNZ to play the following dynamic game:

  1. withdraw regional services from a location 
  2. watch how the smaller airlines fill the service gap
  3. observe that at these lower prices demand increases
  4. eventually decide the market is big enough again
  5. re-enter with price/connection combos that the small airlines can't match
  6. burn them off, increase prices and enjoy life until
  7. demand starts falling away at AirNZ's now higher prices
  8. start again from #1

I'm blaming competition law for giving AirNZ a free rein on #5 and #6.

The same gap in our competition law gives free rein to any firm with substantial market power in any market to use that power to unilaterally restrict competition. Competition professionals have all known this for at least six years.

So, Shane, mate, how about fixing the laws instead of beating up on people who optimise against them?

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