ICCC rejects merger plans

Business

By PETER ESILA
THE Independent Consumer and Competition Commission (ICCC) has rejected a proposal to merge Air Niugini’s Link PNG and PNG Air because of concerns regarding monopolisation of the country’s airline industry.
ICCC general manager Brian Ivosa said the decision to decline the authorisation was made after assessing the proposal and taking into account stakeholder submissions.
He said ICCC was satisfied that if the acquisition proceeded, it would cause harm to the current level of competition in the airline services.
Therefore the ICCC declined authorising Link PNG Ltd to acquire nasfund’s 40 per cent shares in PNG Air Ltd.
“The proposed acquisition would affect the markets for the provisions of domestic regular passenger transport, domestic air freight, air charter, international regular passenger transport services between PNG and Australia and the markets for packaged tours in PNG and overseas,” Ivosa said.
The two major players in the domestic market are Air Niugini and PNG Air.
“While Link PNG argued that, post-acquisition, the two airlines will remain as separate entities, the characteristics of the domestic markets are such that, if the acquisition proceeds, the separate management of the two major competitors in relevant markets would combine to become an effective monopoly.”
He said if authorised, the following were likely effects of the proposed acquisition on competition:

  • The acquisition would effectively create a monopoly and would give Air Niugini the market power of a monopolist in those domestic markets;
  • Import competition would not be possible. Thus the price levels and services provided post-acquisition would be dictated by Air Niugini;
  • The proposed acquisition would effectively remove any competitive constraints; and,
  • The ICCC considers that it would see the exit of the only competing player in the domestic markets, with high barriers to entry, and would thereby remove the only competitive constraint against Air Niugini.

“Therefore, the ICCC, is not satisfied that this proposed acquisition, if authorised, would not have, and would not be likely to have, the effect of substantially lessening competition,” Ivosa said.
In terms of public benefit and detriment assessment, the ICCC was of the view that if the proposed acquisition was authorised and proceeded, it would result in the following:
• Creating a monopoly that would disincentivise innovation and efficiency, which was often true in monopoly markets where actual and potential competitive pressure is lacking. If there was competition, the market could correct itself resulting in a viable domestic aviation industry which was important to economic progress in developing counties like PNG; and,
• There would be inefficient services because of the absence of competitive pressure which could result in flight delays and less attention to consumers’ queries and a reduction in the quality of services.

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