ANG codeshare with Philippine Airlines declined
Updated: Jan 21
The Independent Consumer and Competition Commission (ICCC) has released its final determination declining to grant authorisation to Air Niugini Limited to code-share with Philippine Airlines Inc. on the Port Moresby/Manila route.
The ICCC made this decision after assessing Air Niugini’s application and concluded that the POM/MNL route is already competitive; and introduction of this proposed code-share will stifle the current level of competition, including benefits currently enjoyed by the travelling public.
Commissioner and Chief Executive Officer, Paulus Ain, said: “The ‘free sale’ code-share arrangement is not very competitive, hence, it will lessen the level of competition that currently exists in the market. The ICCC considers that in the present circumstances, it is better to have Air Niugini and Philippine Airlines to continue to operate independently on the Port Moresby and Manila route.”
Consistent with its draft determination which was released on 11th July 2019, the ICCC considered that, if the parties proceed with the code-share arrangement, the public detriments resulting from this will outweigh the public benefits that currently exists while the two airlines operate independently.
With comments received from stakeholders and submissions on the draft determination from the parties, the ICCC assessed the application and is not satisfied that the proposed code-share agreement, if authorised, would result in more benefits to the public.
Key considerations and reasons for declining authorisation are:
The market is already competitive, given the current average passenger market share of 44 percent for Philippine Airlines and the increase of capacity on the route (as a result of the two carriers increasing their flights per week); and a substantial reduction in fares following the entry of PAL.
The current market data on the route indicates that there is potential for growth in traffic volume. As the route develops and becomes less costly for travellers, it is likely that traffic volume will continue to increase due to effective competition between the two airlines operating independently.
The total of nine (9) flights weekly is sufficient to maintain or improve the current level of services enjoyed by businesses and other travellers in both countries, using air services on POM/MNL route. The ICCC does not have any information that suggests that without the code-share, services will reduce in frequency; or that fares would rise above competitive levels.
The structure of the proposed code-share agreement does not impose any significant costs on the airlines associated with unsold capacity, as distinct from a “hard block” basis where each airline commits to a certain level of capacity on the other airline’s flights. Thus it provides little incentive for strong price competition, despite a small degree of price competition being possible from the relatively low margin between wholesale and retail prices under the code-share agreement. While the proposed code-share may result in a limited degree of increased travel choices for the travelling public, particularly for loyalty and lounge program members, such an arrangement is not likely to be advantageous for most consumers on a route that has only two players and prices are likely to be higher for all travellers.
A reduction in airfares to lessen the anti-competitive effect of the only two competitors in the market entering into the proposed agreement is unlikely under the proposed ‘free sale’ arrangement, which is highly likely to exacerbate the significant anti-competitive effects of the proposed agreement described herein, between the only two competitors in the market.
The projected increased revenue for Air Niugini did not include information on how Air Niugini has been faring on this route. Air Niugini also did not demonstrate how any increased revenue would translate to public benefit.
Philippine Airlines contended that joint marketing costs in aggregate would be substantial. If so, such costs would be likely to be passed on in increased fares. The ICCC considers such costs would be relatively low and as the marketing carrier would be incurring such low costs for joint marketing, there is very little incentive for vigorous competition on airfares under the ‘free sale’ arrangement. A “hard block” arrangement with a sufficiently high margin between the settlement amount and the ticket price, on the other hand, would encourage some competition on fares, but would not significantly reduce the anti-competitive effect of the only two competitors in the market entering into an agreement for services they provide.
The ICCC has also noted some market conditions that may contribute to hinder potential new entry. The ICCC has noted that availability of limited slots at the Port Moresby Jackson’s International Airport could potentially inhibit new entries.
The ICCC considers that despite the recent redevelopment at the Jackson’s Airport, there was no evidence which suggested that slot availability has increased. Should demand grow for passenger (and freight) services for international flights, new carriers may enter the market and provide air transport services. The limited availability of slots and how the slots are allocated could hinder the entrance of potential airlines. This would likely lead to delayed/missed opportunity to enhance competition on the incumbents; hence the likely benefits. This is the matter for the National Airport Corporation to assess and take appropriate steps, if deemed necessary to improve.
The ICCC also noted that regulatory requirements such as airline designation and capacity requirements as per bilateral agreements between PNG and Philippines can prove at times, to be challenging for a new carrier to enter. It is understood that before an airline could operate international services to another country, the government must first negotiate a treaty level agreement with the destination country’s government.
PNG has a bilateral Air Service Agreement (ASA) with Philippines. Under the ASA, requirements such as traffic rights, capacity, designation, ownership and control, other policy, safety and security clauses would be included. Such regulatory requirements can make entry of a carrier into the international air transport services challenging; hence hinder potential effective competition.
The State and the Department of Transport can consider this in the next bilateral ASA discussion with Philippines.
Based on the above considerations, the ICCC has declined authorisation to Air Niugini to code-share with Philippine Airlines.