Wacky Wednesday? Air Pacific Nationalises


Today’s wacky Wednesday post is a little different. Is what Fiji doing with their carrier Wacky?

The Fijian government led by Commodore Frank Bainimarama seized power in a coup d’état in December 2006. Fiji has been running against the world and pushing back against Australia since then. Australia and Fji expelled each other’s diplomats in 2009 and Fiji has been increasingly making it  difficult for foreign owned [often Australian controlled]  businesses to operate. Now the “war” has moved to the air.

Air Pacific, the flag carrier, was Fiji Air. It was founded in  1951 by Gatty, an Australian aviator. 70 per cent of all travellers to the island nation use Air Pacific, although competition by the two Australian carriers  Jetstar, owned by Qantas and Virgin Australia has been steadily increasing. Air Pacific flies to points in Australia, New Zealand and USA plus key Pacific islands. CEO Dave Pflieger (who came in 2010 from Virgin America) has been leading a restructuring project. The carrier is today owned by:

  • the Fijian government (51%
  •  Qantas (46.32%).
  • Air New Zealand (3.7%)
  • the governments of Kiribati, Tonga, Nauru and Samoa  (minor stakes)
I am not sure how and when Qantas got the stake in Air Pacific but it is no secret that Qantas has wanted to sell for many years. The obvious buyer is the Fijian government but the parties haven’t been able to agree on terms and price. Qantas in 2010 proposed a price of $F70 million (about $US39.5 million)This week, though, the government of Fiji has forced Qantas hand.A new Civil Aviation Decree requires that at least two-thirds of Air Pacific’s board be Fijian, and that the airline be “under actual and effective control of Fijian citizens”. They have said that while Qantas will still be entitled to dividends (when and if paid), it no longer be able to exercise control over the annual operating budget, the appointment of the airline’s chairman, routing or other key management decisions. A spokesperson for the government has said they want to fly to countries which they have recently established relations with. These two countries are Georgia (the country not the US state) and Russia who are competing for attention in the islands. Flights between those two countries do not strike me as making much economic sense. Moscow- Bangkok-Nadi anyone? Maybe charter flights for Russian holiday makers?
I think there are some negative implications with this nationalisation move:
  1.  the value of the airline will be reduced,
  2. the potential value of the Qantas stake will be eroded. I don’t think it will stop Qantas selling but they may not be thrilled with he final price,
  3. More importantly, it will be harder to sell stakes to third parties outside Fiji which reduces the pool of potential investment now and in the future,
  4. This move wont help attract capital and Air pacific is already woefully undercapitalised. This has limited expansion and growth. For example, in 2011, Air Pacific canceled their entire order of eight 787s after two horror financial  years,
  5. For some passengers, the diluting of Qantas involvement may be a reason not to fly Air Pacific and push more passengers to Jetstar and Virgin,
  6. There are signifiant links between Qantas and Air Pacific’s frequent flyer programs which also build the case for flying Air Pacific.

This move potentially sidelines Air Pacific and consigns to an ever shrinking network, capacity and fleet. If this is the result, then this move is wacky. I am curious to see what CEO Dave Pflieger (pictured here) does next.

I have often thought that Air Pacific should stitch up deals across the region creating a mega airline with Air Caledonia, Air Tahiti Nui, Solomon Islands, Air Nu Gini, and covering all Pacific islands countries. Instead of a lot of small carriers all competing, one could take on the world taking passengers across the region. No way are we going to see that idea which may prove to be as wacky as the effective nationalisation of Air Pacific.

Comments

  1. The politicians should just stop messing with everything. A good economy was screwed and it doesn’t seem to be ending any more.

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