Hobbit budgets

I do not know how much NZ central and local governments spent on Lord of the Rings and on The Hobbit. There are conflicting reports, and nobody seems particularly clear on how much was subsidy in the sense of "they paid less in tax than they would have if they were some other business, but they might not have come here without it, so we don't know if the net effect on total taxes paid was positive or negative, but we're going to assume a counterfactual of that it would have been done here and assess on that basis" and how much was a straight-up grant. Gordon Campbell reports that, for LOTR, it was done as tax rebate and that it's now a grant. I've seen other sources counting a GST concession as a Hobbit tax break, but all products and services produced for export are GST exempt so inputs for that export product would always get a GST rebate. I'd love to see an authoritative figure.

But it can be useful to put the figure purported for The Hobbit into a bit of context. The most commonly cited figure for government support for The Hobbit is $67 million. I do not know whether this was a cash grant based on a proportion of their domestic expenditures, a tax concession, or something else. But I do know that for the 2012/2013 budget year, Vote.Tourism allocated $83.9 million for marketing New Zealand as an international tourist destination. 

Imagine that the only benefit we get from the whole LOTR/Hobbit franchise is as tourism marketing campaign.

For 2012/2013, which did more to market NZ as an international tourist destination: The Hobbit, or everything else the government might have done in tourism promotion? Which seems more likely to inspire travel to New Zealand: 100% Pure, or Middle Earth? 

Now I'm not sure that the government should be involved in tourism promotion in the first place.* But if they're going to do it, and if more tourism is a good thing,** is it crazy to think that LOTR/Hobbit could have delivered at least as much per dollar spent as the rest of the Vote.Tourism funding for overseas promotion? 

I don't like differential tax treatment for different industries. And races to provide tax breaks for films mainly benefit Hollywood (see here and here and here and here). But imagine that Peter Jackson had submitted a GETS tender to deliver international promotion of New Zealand. He provided The Hobbit - a 3 hour infomercial for New Zealand - and delivered it to maybe 90 million sets of eyeballs*** for $67 million. Could Tourism New Zealand have done better if they'd won that contract instead of its being outsourced? I'd try to evaluate the government's investment on that basis rather than on economic impact measures. 

Marginalia follows below.

* The main plausible market failure case would be that any firm attracting more tourists to New Zealand only recoups a small portion of the returns and that there are too many of them out there plausibly to coordinate. But there are ways around that kind of problem: The country's two main international airports could have coordinated things along with Air New Zealand, with LOTR sponsors getting access to LOTR tourist packs for incoming visitors. Affiliating sponsors could be listed on Hobbit Trails and the like on the tourist maps. 

** I wonder about it whenever cruise ships come into town. Princess Cruise Line's Diamond Princess visits regularly, carrying 2,600 elderly Americans, most of whom seem to get bused downtown at the same time. Christchurch's total population is about 360,000; Dunedin has about 120,000. This is just me being grouchy though. 

A free idea for somebody planning on entering the 48 Hour Film Festival: a man suffering severe caffeine withdrawal realizes that the passengers being bused into town from the cruise ship are actually zombies. The ship was infected en route. Nobody else in town notices that they're zombies because, well, their behaviours aren't that different from cruise ship passengers: slow shuffling from tourist photo spot to tourist photo spot, moving in herds attracted by noise and light, biting people. Film two versions: one where he does what's necessary about the zombie invasion, with the I Am Legend twist at the end [we'll all be elderly cruise ship passengers, some day, and they're just like that], the other where he tries and fails in raising the alarm because everyone worries about effects on local restaurants, etc. Idea perhaps inspired by that the quest for my first coffee Sunday morning was very slightly delayed by herds from the cruise ship.

*** US domestic gross $287m; international gross $608m (and counting). A U.S. movie ticket averages under $9. If we assume $9 per ticket, then that's almost 100 million people who sat and watched a 3 hour infomercial for New Zealand. That's likely an underestimate as foreign ticket prices should be less than those in the US, and lots of people will have seen the movie via torrented illegal copies. 

Gawihir 777

Another for the "I can't believe you people haven't emigrated to New Zealand" file.

Here in New Zealand, we don't have to bother going through any kind of security for domestic flights that can't reach international destinations. And when we do go through security, it's the standard metal-detector kind with friendly security personnel and, again, the whole not-being-molested thing.

Seriously: The last time I caught a flight here, I parked the car 30 minutes before the flight, walked over to the terminal, walked up to the gate, waived my phone at the kiosk (it's an electronic boarding pass), and hopped on board. If you have to check luggage, add 15-20 minutes.

Here's the latest Air New Zealand in-flight safety briefing. I love how the whole country turns Middle Earth whenever a new LOTR movie comes out.

 

HT: @IAMJohnLai

Blaming deregulation

Phillip Longman and Lina Khan at Washington Monthly blame airline deregulation for high cost, low frequency flights between less-travelled American cities. Some cities are losing major business headquarters because of poor flight logistics. They recommend a return to airline regulation with cross-subsidization of low-volume routes. I'd be awfully surprised if that fixed things.

As best I'm aware, Air New Zealand is under no mandate to provide cheap travel between smaller New Zealand ports of call. So as a quick test, I checked the price on Air New Zealand for travel from Christchurch (population 330k or so, South Island) to Napier (population 100k or so, North Island) for a month from now. They're quoting NZ$273 ($218 US) round trip with no connections. There might be cheaper flights; I didn't check any aggregators. A shorter (about two-thirds the distance) hop within the US, Pittsburgh to DCA, for the same dates, is US$374 (including $43.21 in taxes and fees) on Orbitz with a stop in Boston. In real terms, the shorter US flight costs more and is less convenient. If I want a next-day flight, the NZ round trip is NZ$642 (US $514); Orbitz has the PIT-DCA route at US$635.

If you change things to American cities that are more comparable in size, like a routing from Toledo, Ohio to Erie PA, the New Zealand advantage gets a fair bit stronger: the next-day flight between those two is $1000 US and has two stops. Maybe there's just something weird about the airport combinations I've picked; they were random draws based on rough city size.

Point-to-point domestic travel within New Zealand has lots of small planes going between lots of small places, as well as a few higher volume routes with bigger planes. And, in general, it's a joy: rock up to the airport 20 minutes before your flight and walk straight onto your plane after waving your phone at the machine at the gate. If you have checked baggage, add another 20-30 minutes to be safe. When the weather is clear, just watching the mountains out the window is almost worth the price of the airfare.

So, if deregulation is the problem, why is flying within New Zealand relatively cheap? It isn't going to be fuel costs: I'd expect that domestic air travel attracts carbon charges via our emissions trading system. And small-country maintenance and engineering costs have to be higher: engineering works have a big fixed cost component, though I think AirNZ has outsourced some of that work.

Further, whatever subadditivity and network problems might require network regulation in the US ought to apply doubly hard in New Zealand, where Australian airlines can cherry-pick whatever higher margin NZ domestic routes they like. Cabotage is forbidden in the US, but flying is less expensive here.

If I had to point a finger at anything in the States, I'd start with airline security. You get enough stories about TSA agents making 4 year old kids cry, or stealing money from 95 year old war veterans [or allowing that the money be stolen; who knows what happened], or molesting women, and people don't want to fly. Lengthy security-induced queues at airports add a fair bit of time to your total flight cost. So more people choose to drive. That sucks in industries geared up for bigger passenger volumes that now have to spread those fixed costs across a smaller number of fliers. Worse, airline security measures increased the fixed costs of flying at the same time as they reduced the number of travellers over which those costs could be spread. New Zealand lets small airports provide low cost services.

Want cheaper flights and better service within the US? Look at airport slotting fees, cabotage rules, and security arrangements before putting in price and route controls.

Bad management

Managers are strong complements to workers; with bad managers, everyone's productivity goes down the toilet.

Eli Dourado reckons the cost of managerial complements makes a case for zero marginal product workers: the worker might be producing more value than he's taking home in pay, but not enough to cover the cost of the manager that lets the worker produce positive-value products. Read the whole excellent post.

And we can see this when the managerial complement goes awry. Case in point: Mexico. 

Mexico City’s Buena Vista Walmart is the first super-market I’ve ever seen paralised by a trolley-jam. It is not more busy than any other large city supermarket, and not understaffed. No: the reason it takes ten minutes to walk from one side of the store to the other every single night is because they have no baskets—only large trolleys. To my sample of Mexican Walmarts, this is unique; most Mexican Walmarts have trolleys and baskets. And so the error must have been made by the managers of that particular outlet. Of course, this is only a small example of inept management in Mexico, but it’s sadly representative—labour productivity in Mexico is about a third of that in the US. If Mexico were as well managed as the US, it would be as rich.

This all raises a few questions: why are managers in Mexico (and the developing world in general) so terrible? why are those in the US so good? and how much of the difference is able to be affected by policy?

James Savage chalks it up to Mexico's caste system, nepotism / seniorism, and an awful school system. If your first worry is about hiring somebody who won't steal from you, you'll weight connections over competence. But again, read the whole post and despair at the morass of interlocked problems that reinforce each other and make solutions difficult. Foreign firms coming in and bringing with them stronger demand for competence has to be part of the solution, but the Walmart example suggests it might take a while.

Air Canada provides a different problem. Here's Josh Gans, lamenting just how awful Air Canada is compared to what he's been used to in Australia. Where Virgin in Oz had in-flight face painting for the kids at the back of the plane - effectively in-flight child entertainment far away from the parents - Air Canada seemed determined to make sure his family of 5 were separated throughout the plane. Josh very nicely explains the obvious points about just how terrible it is for all fliers that Air Canada made it impossible for him to sit beside his kids; it would be surprising if Air Canada's gains in forcing families to book through the Air Canada system outweighed the losses they get from ruining everybody else's flight.

The less sinister explanation is that Air Canada have a very poorly executed booking and flight reservation system. Someone, somewhere forgot about families and deep in the code there is no way for Air Canada to sort out the mess. My bias is on incompetent planning rather than evil attempts at price discrimination in these matters.

This is observationally equivalent to my hypothesis, formed about a decade ago and now potentially out of date: a too-large proportion of Air Canada staff actively hate the passengers.

I don't think Josh's explanation is sufficient; Air Canada could always choose to release third-party booked seat allocations more than 24 hours ahead of flights. And my "they hate the passengers" explanation is not only more plausible than that it's profit maximizing to impose potentially massive costs on full-fare paying flyers to keep price-sensitive families from using aggregators, it's also parsimonious, explaining much of the overall Air Canada experience.

Again, like James's Mexico problem, we've got a set of interlocking issues: this time around union rules, seniority, effective domestic monopolies, and government bailout backstops making for soft budget constraints. But this one seems easier to unravel. Canada could unilaterally allow cabotage on its routes instead of waiting for a bilateral agreement with the States. Let Virgin America run intra-Canada flights, drive Air Canada into bankruptcy, sell off the planes to new entrants, and start over with new management that doesn't hate passengers.

I'll continue to be very happy with Air New Zealand (regardless of changes to its AirPoints upgrades system), and even more happy with Emirates on the Trans-Tasman.

New Zealand Airports (continued)

On the flight back from Wellington last night, and as usual on any New Zealand domestic flight where the plane isn't capable of reaching Australia, there was no security at all. For those flights, only domestic regs apply. I walked into Wellington airport and interacted with precisely zero airport, airline, or security people until I reached the gate agent who took the boarding pass that I'd printed back in Christchurch at the terminal. No ID. Bruce, in comments yesterday, noted that I could have saved precious seconds by just waving my phone at the gate; my mPass would serve as boarding pass with no need to print boarding passes. Excellent.

When a mentally ill woman a couple years back attempted to hijack one of these no-security flights, she was restrained by crew and put on normal trial. Even though she was a Muslim and Somali immigrant, I never heard anybody argue that she shouldn't have the same right to a fair trial as someone NZ born. She was sentenced to nine years in prison after a perfectly normal trial.

The utterly sane New Zealand airline security response? Reinforce cockpit doors. That's it. Even though the hijacking was in an election year.

In case you're wondering why I continue to love living in New Zealand despite earthquakes and have little intention of moving back to the US, add this to the list.

World famous in New Zealand

Air New Zealand's Kia Ora in-flight magazine has a blogwatch feature. This month's issue features Wellingtonista and Offsetting:

Who knew economics could be so fun? Eric Crampton, senior lecturer of economics at the University of Canterbury, gives his take on all things current, with an economics twist. We've all read about price gouging in a disaster zone - where else can you learn the economic benefits of price gouging over rationing?
www.offsettingbehaviour.blogspot.com

For folks Stateside who've not tried AirNZ, it's generally worth it when heading this way. A rather better flight experience than Qantas, which feels a lot more like a US carrier for longhaul.

And now, Air NZ comes with more Richard Simmons.
I think I preferred the previous iteration...