Interesting question raised by Brian Sumers. Brian, I always enjoy your provocative and thought-provoking headlines. I’ll admit I’m not a subscriber to your newsletter – yet – so I haven’t read the arguments made in your article. However, I do want to comment on whether airlines like Air Tahiti Nui should keep flying. To start, I think we can agree that 1) the barriers to exit in the airline industry are too high, and 2) there are too many protectionist barriers that prevent large-scale airline consolidation and that greatly limit the ability to easily redeploy movable assets (aircraft and crews) to efficiently align supply with demand. As a result, there are far too many ‘zombie’ airlines that keep industry returns on capital low while every other part of the value chain benefits. There are far too many airlines to name that are simply not financially viable yet continue to exist thanks to endless subsidy and bailouts, and government spending can crowd out private sector investment in the sector. However, does that mean that state-owned airlines like Air Tahiti Nui shouldn’t exist? If you think of scheduled air service as essential infrastructure, much like roads and railways, then there is a value to society in ensuring a reliable air transport network. Air service not only guarantees a steady supply of seats to support the tourism industry, but also ensures that local residents have access to essential services (education, medical care, etc.) not readily available in their island-nation. This is particularly true for island nations like Tahiti and elsewhere in the Pacific, Caribbean, etc. Fortunately, most of these routes are commercially viable, and do not require the government to step in. However, that is not always the case, and depending on the private sector carries inherent risk – e.g., that a route will be canceled – that governments may not be willing to accept. The question is then one of ‘build’ vs. ‘buy’, i.e., operate a state-owned airline, or subsidize foreign airlines through revenue guarantees, wet-leases, JVs (e.g., the former Virgin Samoa), etc. This requires a benefit-cost analysis. While engaging a foreign airline is likely to be more cost-effective, this is akin to importing the service and represents a foreign currency cash outflow from the country, with few positive externalities. Conversely, with a state-owned airline, you’re creating quality jobs (pilots, mechanics, management, etc.) that have a positive economic multiplier effect and generate tax revenues. I cannot opine on Air Tahiti Nui without seeing the numbers. However, I would say that some of these sub-scale state-owned airlines serve an important role that would probably not be satisfactorily filled by the private sector. #airlinesandairplanes
My readers turned against me. There's a poll at the end of this story, and four-in-five readers say Air Tahiti Nui should keep flying. I say it's a relic of the past. What about you?
Airline Industry Expert | Journalist | Public Speaker
10moThank you, Carlos R. Ozores, for this enlightening comment. I always appreciate your analysis. Now we need to turn you into a paid subscriber. Better yet: how about an enterprise subscription?