Government-owned Link PNG continues to eye its local competitor, PNG Air, with a recent proposal to buy a minority stake. The two airlines compete for business in Papua New Guinea (PNG). Link PNG, which is owned by flag carrier Air Niugini, which in turn is majority-owned by the PNG Government, has had an ongoing interest in its privately-owned rival.

PNG Air plays an important competitive role in PNG aviation

In the small but turbulent world of PNG aviation, Link PNG and PNG Air are significant players. The capital, Port Moresby (pop, 391,000), is not linked by road to rail to any other major town or city in PNG.

The remainder of PNG's nearly nine million people are scattered around hundreds of islands and the rugged highlands of eastern New Guinea. The country is notorious for its tricky flying conditions and short runways, but the population is highly dependant on air transportation to travel any distance.

PNG Air has been flying passengers for nearly 25 years around the country from its base at Port Moresby's Jackson International Airport (POM). The airline has seven ATR 72-600 aircraft and eight Dash 8-100 aircraft. PNG Air is listed on the Port Moresby Stock Exchange. Its biggest shareholders are Mineral Resources Development Company Limited and superannuation fund Nasfund.

Link PNG, also based at Jackson International, is the regional subsidiary of Air Niugini, kind of like a smaller, island hopping, Melanesian version of BA CityFlyer. Link PNG has nine aircraft, all various types of Bombardier Dash 8s. The Air Niugini subsidiary has been eyeing a stake in PNG Air for some time.

PNG regulator knocks back first attempt to buy a stake in PNG Air

A report by PNG aviation expert Desmond Narongou published by the Development Policy Centre thinktank says Link PNG wanted to buy a 40% stake in PNG Air in May 2020. Link Air planned to buy the shares from Nasfund. The superannuation fund, wary of a 12-year airline investment that had failed to deliver, agreed to sell. But PNG's consumer watchdog, the Independent Consumer and Competition Commission (ICCC), knocked it back, saying the deal would undermine competition.

Twelve months later, Link PNG is back with a revised offer. While providing an essential service and much-needed competition in the PNG airline industry, PNG Air has lost over US$26 million in the last four years - that's a substantial amount of money for a small airline in PNG. The last 12 months have caused further pain at PNG Air.

"It will take two to three years before the airline can foresee a return back to (pre-travel downturn) levels of business activity," said PNG Air in a recent business update.

"The organization has taken stringent measures to save costs and maximize utilization of available resources to keep operations flowing considering it has not received any assistance from anyone in the process."

Link PNG back with a revised offer, keen to maintain independent airline identities

In the current climate, Link PNG is now presenting as a white knight, able to assist and attuned to competitive sensitivities.

"It is critical that PNG continues to have two independent airlines," said Link PNG chairman Kostas Constantinou in a joint statement with PNG Air Chairman Augustine Mano in April. Link PNG still wants an (unspecified) minority shareholding, this time acquired through Mineral Resources Development.

Both airlines argue allowing the buy-in will create synergies that will help each of them recover from the travel downturn. As with airline markets everywhere, the cold cash sapping winds of the COVID crisis gusted through PNG.

To alleviate concerns about squashing competition and adversely impacting PNG flyers, Link PNG and PNG Air want to keep flying independently of each other. And even if Link PNG and, through it, Air Niugini and the PNG Government, gain a financial interest.

Should ICCC allow the share buy to go ahead, commercial functions would remain separate and independent. That includes PNG Air continuing to sell its own tickets and controlling its own pricing and yield management. PNG Air would retain an independent Board and Management. Distinct sales channels would remain, both on the ground and online. Finally, PNG Air aircraft would retain their own distinctive livery, and employees on the ground and in the air would keep their PNG Air uniforms.

"The key synergy benefits would come from back-office functions that can be more efficiently managed across the two airlines and more efficient use of the fleet," says the statement from the two chairmen.

“With the savings we will generate, we will be able to pass this back onto our customers through more affordable airfares.”

Whether the ICCC and other shareholders approve remains to be seen. The PNG Government regulator is yet to show its hand.