How are Pacific government-owned airlines performing?

Throwing good money after bad?

An expert on State Owned Enterprises with the Asian Development Bank’s (ADB) Private Sector Development Initiative, Christopher Russell says the Samoan government’s experience with Polynesian Airlines shows that “they probably would have been better off if they just shovelled that money down the toilet.”

Russell made the comment at the Fiji launch of the ADB’s Finding Balance 2023 report, which benchmarks performance and building of climate resilience in Pacific State-Owned Enterprises (SOEs).

That report describes the Samoa experience more diplomatically, stating: “The government’s experience with Polynesian Airlines shows the risks associated with the airline ownership, in particular when facing international competition. The decision in 2018 to acquire a B737 MAX, the measles epidemic and coronavirus disease in 2020 created significant adverse consequences for Samoa Airways.” 

Between 2017-2019, Polynesian Airlines accumulated losses of ST51.5million (US$19million). “Cumulative losses have wiped out shareholders’ funds, which, by 30 June 2020 were ST17.9 million,” the report states. 

An earlier incarnation of the airline which operated until 2005 also performed poorly; in its final year those losses represented 20% of the government’s budget. Conversely between 2005-2017 Polynesian Airlines flew only domestically and to American Samoa and was profitable. 

The report posits that the government would have been partially shielded from these consequences if it stayed in a joint venture with Virgin Australia branded Polynesian Blue, which actually paid the Samoan government a ST5.7million dividend in 2016.

“I’m not exactly sure what the thinking was, but then they essentially just dissolved the joint venture and went off on their own with disastrous outcomes,” Laine Darcy, ADB Private Sector Development Initiative team leader said at the report launch.

“A general theme is airlines are a very risky business,” she continued. “I think a great example that we’re seeing now, and how a country without an airline is getting services is by contracting other services, so Air New Zealand is now running a service from Tongatapu to Vavau. And again, because Tonga’s government-owned airline collapsed, so it’s much cheaper for them and much lower risk to contract out that service to larger airlines.”

Finding Balance 2023 notes that Pacific Island SOEs involved in air travel and tourism were hardest hit in the pandemic, with revenue for airlines down an average of 34%.

“Five of the seven airlines in the SOE portfolios were financially vulnerable before 2020, with some generating losses in each of the five years preceding 2020; COVID-19 only exacerbated their need for restructuring,” it states.

Air Vanuatu and Polynesian Airlines suffered downturns of -53% and -33% Return on Assets respectively in 2020 (see table). Air Kiribati and Air Marshall Islands improved their financial performance due to demand for cargo and repatriation flights and lower fuel costs. Fuel prices have since increased.

While the ADB authors caution against state investment in airlines, former Association of South Pacific Airlines (ASPA) CEO, George Faktaufon says government ownership of airlines is important in order to negotiate bilateral air service agreements (ASAs), in the absence of a global ASA.