Australia’s experience with low-cost airlines is a long one filled with dashed hopes. Historically, it has been difficult for newcomers to gain traction. The most recent victim in the business is the low-cost carrier Bonza, which abruptly cancelled all of its flights and entered voluntary administration in April 2024.
For the twenty-four remote Australian locations without direct connection to any other airline, losing the airline would be devastating. Additionally, it would result in even less competition in the highly consolidated domestic aviation industry. Only three airline groups operate more than 85% of the routes.
However, Bonza did not find herself in this predicament by accident. Errors in judgment were probably a major factor from the start.
What went awry?
Bonza introduced a small fleet of Boeing B737 jets into the Australian market. However, these had no lower operating costs than the B737s that Qantas, Virgin, and Rex already used. Furthermore, Bonza’s little fleet lacked any scale advantage compared to crew or aircraft scheduling.
Second, the airline used a completely different strategy, putting the app first, to sell tickets. Customers could only look for and purchase tickets directly through the official Bonza app. However, this meant that prospective buyers could frequently not find Bonza flights when using traditional search methods like search engines or booking websites.
The fact that Bonza found it difficult to acquire momentum on its flights to Gold Coast airport, which welcomes a sizable 250,000 domestic travellers each month, highlights this problem with the business strategy.
Thirdly, although Bonza provided service to a distinct set of destinations, its network-wide flight schedule was far from ideal. Certain routes had only one weekly flight, in contrast to the far more regular gateway city services offered by Rex and QantasLink.
It may be feasible for European airlines such as EasyJet or Ryanair to operate fewer than daily flights to smaller tourist sites. However, these airlines are large and connected enough to provide passengers with several network routes. Short regional routes are not the mainstay of their economic plan, in contrast to Bonza.
The success of a jet airline depends on maximising three critical elements: territory, airport accessibility, and market size. Australia provides a harsh starting point for aspiring low-cost carriers on all three fronts.
Market proportions
Airlines offering low-cost and ultra-low-cost services have established themselves well in Southeast Asia, the United States, and Europe. However, compared to Australia, these markets are orders of magnitude bigger.
For instance, the US provides airlines with a market of sizable cities spread out over a vast region. The populations of Miami (6.1 million), Houston (7.1 million), Chicago (9.6 million), and New York are getting close to 20 million.
Nearly 450 million people live in the European Union. Furthermore, there are more than 30 European cities with a population of one million or more, including the United Kingdom. There aren’t many cities like that for Australian carriers.
Australia lacks the range of secondary airports that European low-cost carriers have used to access adjacent markets and reduce operating costs, as well as the population density of Europe.
Airport accessibility
The next major obstacle low-cost and extremely low-cost market entrants must overcome is airport access. Most major routes connecting major Australian cities run into Sydney are all concentrated along the east coast.
Aircraft movements at Sydney Airport are artificially limited to 80 takeoffs and landings per hour during peak hours by regulations, which also place significant restrictions on the use of the airport. The incumbent operators retain the majority of the slots.
London Heathrow, on the other hand, is a limited two-runway airport that can handle 88 movements per hour.
Some alleviation from this capacity constraint will be available upon completion of the new Western Sydney Airport. It won’t, however, change the reality that Sydney Airport is subject to an operational restriction.
Geographical reasons
The final limitation in Australia is geographic. They have a line of big cities on the East Coast, unlike Europe, the US, or Southeast Asia. There isn’t a hub that links our larger cities with other regional locations.
The populations of towns too far away for easy access by rail or road are frequently too tiny to allow regular, let alone profitable, flights to the larger centres.
Small “turboprop” aircraft can operate with success on some regional routes. The cost per passenger to operate these is higher than that of passenger aircraft that connect the major cities. However, operating larger aircraft on these itineraries is insensible if the flights are only half full.
Walk down memory lane
The 1990s end of Australia’s two airlines programme, in which two similar corporations, one private and one public, maintained identical fleets and timetables, was expected to boost competition. A litany of failures has occurred.
The first major example was Compass Airlines, which began in 1990, failed in 1991, was revived in 1992, and crashed in 1993. Tigerair, OzJet, Strategic Airlines, and others have come and gone since then.
As Impulse Airlines showed, Qantas acquisitions are the best for tiny airlines. Impulse was a regional airline from 1992 until 2004 before Qantas bought it and started Jetstar. Qantas uses Jetstar as a “flanker” or “fighter” subsidiary to prevent low-cost competitors while maintaining its premium brand status.
Virgin Australia, which took much of Ansett Australia’s market, is the only serious competitor. Even that was uncertain. Although the Morrison government wanted Virgin to fail at the start of the COVID pandemic, Bain Capital saved it. Qantas, always the recipient of political favours, has refused to repay billions in public help.
More disappointing than surprising is Bonza’s departure. However, the lack of actual rivalry in the Australian airline business is unexpected. The “golden triangle” (Sydney, Melbourne, and Brisbane) has some of the world’s busiest flights and passengers. Four, six, or more airlines provide similar routes. Australians can fly Virgin, Qantas, or Jetstar.
This hurts customers. Australians rarely have a choice of three or four airline groups, yet the Australian Competition and Consumer Commission found lower fares. As competition decreases, airfares rise considerably.
Another 1980s and 1990s neoliberal microeconomic reform programme failure is the greater story. Much of the country’s political class still romanticises this Hawke-Keating and Howard-era programme. However, most Australians now see it as a failure, and politicians are responding.
Failures like financial deregulation, privatisation, and outsourcing policy to consulting firms are easy to identify but harder to fix. After the Chris Minns-led New South Wales government exposed private toll roads’ devastation, calls for renationalization have grown. The failure of the National Electricity Market and privatisation has forced states to generate electricity again.
Restoring a two-airline regime is unwise for the aviation sector. Instead of waiting for the market, competition must be enforced.
The most crucial step is forcing Qantas to sell Jetstar. Not easy. Prime Minister Anthony Albanese calls compelled divestiture for competition regulators a “Soviet-style” policy. Whether Stalin would have liked better competition legislation, it’s hard to see another method to abolish the near-monopoly that is much of the Australian industry.
Restoring public authority over landing and takeoff slots at Australia’s privatised airport system is more realistic but still tough. The administration is reviewing the system to make it more welcoming to newcomers. As Bonza joins the long list of failures, new entrants are unlikely to arrive soon.
Setbacks for regional Australia
Australia’s tiny population, the capacity restrictions placed on Sydney Airport, the existence of powerful existing airlines, and the East Coast market’s linear structure all contribute to the difficulty of new entrants.
After Ansett collapsed, Virgin Blue took over the space. However, two iterations of Compass, Impulse, Tiger, Air Australia, and Ozjet failed as market entrants. Even Air New Zealand decides not to do domestic operations in Australia despite having the fleet, strong brand, and market access necessary to justify joining the country.
Australian regional towns might take little comfort in knowing why new entrants fail. However, capital city travellers hoping for increased competition on the main East Coast routes won’t see much difference because of Bonza’s tiny footprint.
According to Michael Kaine, national secretary of the transport workers union, “Bonza must ensure staff are prioritised and informed as this process plays out.”
Along with criticising the “unchecked corporate greed” in the aviation sector that has resulted in higher tickets, Mr. Kaine issued a warning to carriers, saying that they “have little chance of survival” in the competitive market.