The Independent Consumer and Competition Commission (“ICCC”) has proposed to decline authorizing Air Niugini Limited (“Air Niugini”) to partner with Philippine Airlines Inc. (“Philippine Airlines”) to provide code-share services between Port Moresby, PNG, and Manila, Philippines.
The ICCC is proposing 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 and reduce the current levels of benefits realized by the travelling public.
Commissioner and Chief Executive Officer, Paulus Ain said that the ‘free sale’ code-share arrangement is not very competitive and hence, it will lessen the level of competition 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.” Commissioner Ain said.
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 benefits resulting from this will not outweigh the benefits realized currently while the two airlines operate independently.
Commissioner Ain said that with comments received from stakeholders and submissions from the parties, the ICCC assessed the application and is not satisfied that the code-share services, if authorized, would result in more benefits to the public.
In its assessment of the application, the ICCC has considered that;
- The market is already competitive; and introduction of this proposed code-share will only stifle the current level of competition, including benefits realized by the travelling public.
- The current market data on the route indicates that there is potential for growth in traffic volume because the volume has being increasing since Philippine Airlines entered the market independently. This adds to route development and travels become less costly for travelers. If the current level of competition is maintained, it is likely that traffic volume will continue to increase and potentially attract new carriers on the route.
- The total of nine (9) flights weekly is sufficient to maintain or improve the current level of services enjoyed by businesses and other travelers in both countries, using passenger 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.
- 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 were each airline commits to a certain level of capacity on the other airlines flights. Thus it provides little incentive for strong price competition. While the proposed code-share may result in increased travel choice for the traveling public, particularly for loyalty programme members, such arrangement is not likely to be good for consumers on a route that has only two players.
- A significant reduction in airfares is unlikely to happen under the ‘free sale’ arrangement and there is significant risk of fares rising.
- Competitive airfares, with code-share, will be possible if there is sufficient margin between how much the airlines would agree to pay each other (the “settlement amount or price”) and the ticket price (for each classes). However, since the marketing carrier would be incurring only minimal costs due to marketing and advertising, there is no, or very little, incentive for vigorous competition on airfares. The “hard block” arrangement does encourage strong competition on fares.
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 proposed to decline authorizing Air Niugini to code-share with Philippine Airlines.