Why budget airlines keep failing
Sam Hawley: Most Australians have never flown it and now they may never get a chance. Bonza has followed so many other airlines and collapsed, meaning yet again less competition in our aviation market. Today the rise and rapid fall of the budget carrier and whether one day we’ll get a third major airline to drive down airfares across the country. I’m Sam Hawley on Gadigal Land in Sydney. This is ABC News Daily.
Justin Wastnage: My name is Justin Wastnage. I’m an adjunct industry expert in aviation at the Griffith Institute for Tourism. I have previously been a director of the Tourism and Transport Forum and written papers for University of Sydney on aviation, as well as advised organisations such as New Zealand Airports Association. And previously I was an aviation journalist for many years.
Sam Hawley: Alright, so you’ve been in the field for a while, which is great because we’re going to talk about Bonza, which is the airline that’s gone into voluntary administration and left passengers stranded around the country.
Bonza passenger: We want to go home and I’ve just got here and some airport man out the front said, your flight’s cancelled. I’ve come in and I can’t find anyone to talk to. There’s nobody here.
Bonza passenger: Around 10 minutes before the boarding time, they announced that it’s cancelled…
Bonza passenger: I think a lot of big companies forget about the little people and that our money is the one that pays their executives their wages and they forgot about us.
Sam Hawley: Justin, I might be naive, but I had never actually heard of Bonza until it made the headlines this week.
Justin Wastnage: So that’s probably because you don’t live in a more regional area. So Bonza was or is an ultra low cost airline. Its main base was Sunshine Coast Airport and it was really trying to exploit the smaller routes between two what we call city pairs. So it didn’t fly out of Sydney and its services into Victoria were limited. The ultimate owners are this organisation called the 777 Partners and they do have other airlines around the world. And they obviously looked at Australia and reasonably thought, well, we can have a slice of this market. So Flare Airlines is the airline that they have in Canada, which operates successfully. So really, it was trying to find a new niche in the market of selling direct customers through its app and charging for lots of services, but really exploiting those routes that people wouldn’t necessarily think to fly on.
ABC News: The nation’s newest airline has taken off from the Sunshine Coast. Bonza is the first major passenger airline to be approved in Australia since Tiger Airways more than 15 years ago.
Bonza launch: It’s a great day for Cairns, for Townsville, for Mackay, Whitsunday, for Rockhampton, for Gladstone, for Toowoomba, Wellcamp, all those Queensland regional communities that will be supported by this amazing new airline.
Sam Hawley: So it was a small, low-cost airline that popped up in 2023. Tell me, what’s going to happen to those passengers who were left behind? Are they going to get their money back, some sort of compensation?
Justin Wastnage: We’re in a bit of a limbo. So in 2017, the Compulsory Travel Compensation Fund was abolished. This was a fund that all licensed airlines and travel agents actually paid into in the event of an airline collapsing in order to automatically compensate passengers. This was replaced with a scheme where passengers had to actually take travel insurance as part of their ticket. So that, in theory, should cover it. But in reality, what it would do is actually Virgin and Qantas will issue tickets and be reimbursed in part or in whole, and this is yet to be seen, through this new scheme. So this will be the first sort of test of this post-travel compensation fund.
Sam Hawley: Okay, so that’s a test, and customers hopefully won’t be left out of pocket. But that’s not to mention the 150 staff that worked for the airline. What about them?
Justin Wastnage: Well, yes, exactly. You would imagine that some of the routes will be picked up by the existing carriers, any ones which were profitable. I mean, Sunshine Coast Airport is probably the jewel in Bonza’s sort of crown, and definitely because of the population on the Sunshine Coast, there is definitely room for expansion from some of the other carriers there. But yes, I mean, the others, it’s going to be a tough week and tough month and possibly a tough year for them.
Sam Hawley: Well, let’s delve into why this airline has failed, because it sounds like it’s not a bad business model, tapping into a market that’s underserviced, and there’s a lot of people that live in those regional areas.
Justin Wastnage: Well, there’s probably not enough people. Really, to have a big enough base to sell enough tickets, you need cities of a greater size than 100,000. When you look at the number of people in North America, for example, there’s over 250 cities of greater than 100,000 people in population. By comparison, in Australia, we only have about 27 cities, even if you include New Zealand and New Caledonia. So really, it’s that size of the market. And they were using 737s, which are narrow-body aircraft, which take up to about 180 passengers, 190 in some cases. And that’s probably too large an aircraft for the type of business they were operating. And I think the feeling was that you could do it in the summer, get people to fly to especially parts in Queensland where there’s tourism destination, and it didn’t really matter the day or the time. But it was always going to be tricky in the winter, and I think that’s what’s really happened.
Sam Hawley: Justin, of course, we are, as Australians know, strangers to airlines collapsing. It has happened rather a lot, hasn’t it? The biggest, of course, being Ansett back in the early 2000s.
ABC News clip : In a shock announcement overnight, the country’s second airline, Ansett, suspended its flight operations.
ABC News clip: Unfortunately, about 12.30 last night, all our efforts resulted in not being able to secure the necessary cash. And as a result, it was necessary to suspend the flight operations today.
Sam Hawley: I mean, so many more as well, right? Tiger Air, Compass Air, OzJet. Impulse. They just all fall by the wayside.
Justin Wastnage: Yes, and it is another victim of Australia’s size and geography. A lot of our population is obviously based in main cities, which already have a functioning airport. Again, if you compare it to geographies of similar size, so the European Union or North America, there are just many more cities from which to pull passengers from and deliver passengers to. Plus, there are much bigger populations overall. Also, foreign airlines cannot fly domestically within Australia due to what’s called cabotage rules. And this is, of course, to protect Australian workers, but it does have the effect that operating aircraft is much more expensive here than other jurisdictions. And that’s a double-edged sword because obviously you want to protect Australian workers, but that comes at a cost to Australian flyers. Although we do have Rex, which is actually doing great guns. It now has a fleet of aircraft flying between the major cities, but roughly half of the seats of those are already sold from passengers coming from regional points.
Sam Hawley: Okay, so Rex is a kind of rare success story. If we compare ourselves, Justin, to Europe, for example, we really are as passengers at a great disadvantage, aren’t we? Because they have so much competition. There’s Wizz Air, Wow Air, EasyJet, Vueling, and I had a bit of a search just because, you know, to make myself very jealous of how they can fly around. But you can fly on Wizz Air from London to Lyon in France for 13 pounds, which is like $25. Wow.
Justin Wastnage: From. Yes.
Sam Hawley: Yes, from, but still cheap, right?
Justin Wastnage: Yes, I mean, so there was enormous amount of work done in the European Union to liberalise flights, and it’s one of the crowning successes of European policy. And really, because any airline from any European Union country can fly any route within the European Union, you can have Wizz Air, which is based in Slovakia, which is a relatively low-cost country, and you can have those costs being used to fly London-Lyon.
Sam Hawley: We’ve sort of been talking domestic flights here in Australia, but even internationally, right, we have to pay so much more from Australia to get anywhere. And I think everyone’s really noticed since COVID the cost of flights are exorbitant. Qatar had tried to increase flights here, but was blocked, of course, by the government and the transport minister, Catherine King. And one of the arguments about that was it’s really important that Qantas is kept afloat, right?
Justin Wastnage: Yes, I mean, the Australian government did have various things it needed to actually protect in addition to not just Qantas’s operating, but also there was some human rights issues, there was some worker rights issues. And I think some of the commentary in the media at the time was this is all about just blocking these additional flights. It was more nuanced than that. But the good news is that the cost of international travel is actually decreasing again after having been very high after COVID. But of course, the game changer will be the opening of the second Sydney Airport, Western Sydney Airport. So Melbourne already has a second airport in Geelong, which can take international flights and that will be something which will start to happen more. Of course, Queensland, South East Queensland already has the Gold Coast and Sunshine Coast in addition to Brisbane. But there is much more competition there and airfares are cheaper. So if you’re living in South East Queensland, international flights are cheaper than if you’re living in Sydney or Melbourne. So really, as Western Sydney Airport opens, you will actually suddenly see much more, much keener airfares internationally.
Sam Hawley: I guess we all know domestically, at least, that one of our biggest problems, of course, in Australia is that we have a duopoly. So we really only have Qantas and Virgin as the big players here and that really does affect the cost of everything.
Justin Wastnage: Yes, I mean the same as supermarkets, the same as everything else. Yes, and this is partly a function of our size as an economy, but also partly because incumbent airlines particularly can use slot trading. So it’s a tricky situation because you cannot deny incumbents their right to use those slots, but equally it makes entering at times which are attractive. So new entrants can come in, but they have to fly at funny times and that may not suit their international connections and so forth. So yes, it is tricky.
Sam Hawley: A big concern, of course, here is sort of slot hoarding, keeping slots to make current airlines more profitable.
Justin Wastnage: Yes, and so the second aviation white paper is currently being debated and it’s going through various committees. And part of this will actually look at some of that slot hoarding, especially in automatic compensation. So again, the European Union 20 years ago introduced automatic compensation if your flight is delayed or cancelled. The airlines are obviously against it, but what it would do is that if you are holding onto a slot, purely to hold onto the slot, and then your intention is often to cancel the flight that would be in that slot, then that sort of behaviour would be punished by this new compensation scheme if it gets up.
Sam Hawley: All right. So Justin, tell me, because I think a lot of people want to know the answer to this. Is there anything that could happen that would make it possible for a third airline, a big player, to actually operate here so we can all have perhaps a cheap weekend away?
Justin Wastnage: Yes. I mean, I think the, as I said earlier, the real bright spot on this is Rex. Rex has played the slow and steady game because it has the foundations of a good network and it has loyalty, actually, amongst its customers. It’s probably the best place to really then offer either a low cost feeder or some sort of complementary service to its existing ones. But really, until Australia doubles or triples in population, it’s probably still going to be tough for a third carrier.
Sam Hawley: Justin Wastnage is an adjunct professor in aviation at the Griffith Institute for Tourism at Griffith Uni. Bonds’ administrators say the fleet is grounded until at least Friday. This episode was produced by Bridget Fitzgerald, with audio production by Anna John. Our supervising producer is David Coady. You can find all our episodes of the podcast on the ABC Listen app. I’m Sam Hawley. Thanks for listening.
