The financial administration of Bonza, Australia’s latest entrant into the aviation industry, whose flights have been grounded and aircraft repossessed, should sharply focus minds in Canberra to take action on a market dominated by “too big to fail” Qantas.
It’s a huge loss for Australian consumers, and Bonza staff, and yet another return to the bad, old days, with Qantas eyeing 70% of the domestic market. Yet it’s far from the first collapse of an aviation wannabe, following Compass (1990-91 and 1992-93); Ansett (1936-2002); Impulse (1992-2004); Ozjet (2005-06); Air Australia (2011-12); and Tigerair Australia (2007-20).
The government continues to debate how to pull into line the two major supermarkets, Coles and Woolworths, but there are four viable players in that sector. Woolworths’ market share is 33%, Coles’ is at 27%, Aldi’s is at 12% and Metcash’s (IGA) is at 7%. Yet market concentration and power are far greater in the domestic airline sector, with Qantas Group dominating with a 61.8% market share and Virgin with 31.2% — a combined 93% of the market at least. Former Qantas CEO Alan Joyce liked to talk up his ambition to get to 70%, and there is no sign his successor Vanessa Hudson has plans to change that strategy.
In a brief statement yesterday, Bonza founder and CEO Tim Jordan claimed the move was “temporary” and that discussions were underway regarding the “ongoing viability of the business”. But it’s hard to run an airline without planes. Meanwhile, corporate undertaker Hall Chadwick has been appointed.
Bonza had been taking a novel approach to the market, focusing on regional travel and using the Sunshine Coast as its main base, as well as the Gold Coast and Melbourne. It was competing for lower-end leisure dollars when interest rates and inflation were squeezing potential customers.
At its peak this past summer, the airline flew 35 routes and has carried 750,000 passengers since its first flight, using Boeing 737 aircraft rather than the more economical turboprops. To put that in perspective, 40 million passengers pass through Sydney Airport each year. It has not helped that its owner, US-based 777 Partners — which also owns soccer clubs (it’s currently trying to buy Everton) — is in all sorts of trouble, having been accused of breaching contracts, failing to pay debts and acting fraudulently.
But lack of access to the expensive and choc-a-bloc Sydney Airport also proved problematic, said industry insiders who spoke to Crikey. Each airport can charge its own landing fees and manage its take-off and landing slots, another failure of privatisation.
“This is a very large island. Aviation is critical infrastructure and we’ve got an aviation industry that’s broken,” Transport Workers’ Union secretary Michael Kaine said. And he is right: the sector is rife with cancellations and delays, with March statistics showing lower on-time arrivals and higher cancellations than long-term averages. Qantas’ fleet is stretched and ageing, and there is a shortage of pilots and engineers.
There is no shortage of initiatives the Albanese government can take that previous governments of both stripes have balked at. These include start-up subsidies and initiatives, industry-specific consumer protections and guarantees, an overhaul of landing slot allocation at major airports, better regulation of private airports, a refocus on safety after a string of disturbing incidents, and an obligation for training to future-proof the sector.
There was finally some action by Transport Minister Catherine King in February to shake up Sydney’s slot allocation for the first time in 27 years, but it came too late for Bonza. Just this week, the US passed legislation giving automatic refunds for cancellations and delays to airline passengers, reflecting exciting EU protections. However, King still drags her feet.
In terms of subsidised industry, apparently long-dated, risky investments such as quantum computing are better for Australians than an airline industry that delivers for consumers. If Bonza’s backers were not in such strife, a government-backed rescue should be on the table, given it would be small change compared to Qantas’ unrecoverable $2.7 billion COVID-era subsidies.
The failure of Virgin to overcome its financial hurdles and re-float this year underscores the fact that Qantas’ market dominance makes it an effective monopolist. The fact that Australian tarmacs are strewn with ghosts of failed competitors since Qantas was privatised shows how uncompetitive the market is and that much stronger measures are needed.
“The two airlines within the Qantas Group — Qantas and Jetstar — are not considered to be in competition with each other,” the Australian Competition and Consumer Commission’s latest report on the sector said.
Canberra needs to wield the stick in an inflation-prone sector with one dominant player, just as it has been urged to give regulators divestment power to break up supermarkets — and should involve a threat to force Qantas to divest from Jetstar. The low-cost carrier was created for exactly this: to see off any low-cost competitors in a sector where barriers to entry are extremely high due to the capital investment needed.
This is redoubled by Qantas being able to wield its balance sheet to give pilots and engineers better security and better pay. Qantas has 35% of the domestic market and Jetstar 27%, so a break-up would leave three players of similar size and more room for market minnow Rex (5.1%) to breathe as Qantas and Jetstar were forced to compete.
The demise of Bonza is just the latest sign that it’s time for the Albanese government, and Catherine King in particular, to act, proving they have not been captured by Qantas lobbying, spin and duchessing — and the controversial Chairman’s Lounge. It’s time to back consumers, not big air.
