It’s been a busy year for Australian aviation. Two domestic airlines, Rex and Bonza, fell into administration. And though the government gave a resounding “NO!” to Qatar Airway’s application for more flights, it opened its arms to Turkish Airlines with an extensive offer that allows the airline to sell flights to carry passengers between two foreign countries.
Meanwhile the long-awaited aviation white paper has kicked the can down the road on consumer protections, leaving Australians without the sort of rights that Europeans have enjoyed for 20 years. Australia currently has significantly higher rates of flight cancellations than the United States and lower on-time performance than even the low-cost airlines in Southeast Asia. Compensation for cancellations and delays is left to the individual airline to decide. This is unlike regulation in Europe, the US and Canada, where airlines must meet service standards, and where compensation for significant delays, cancellations and denied boardings is legislated.
Australian consumer law is not designed to deal with the requirements of passengers left standing in an airport. Qantas recently argued that you are buying a bundle of conditions, not a ticket, for a specific flight. But if you don’t turn up to travel on the day and time on the ticket, you may well forfeit part or all the fare.
Before its demise, Bonza announced it was cancelling its Darwin to Gold Coast services mere days before the flights were scheduled, leaving their passengers with few and expensive alternatives. Under European and North American law, passengers could not have been left stranded like this.
Trimmed pay packets for the CEO and directors at Qantas followed the airline selling seats on cancelled flights, but preceded another Qantas billion-dollar-plus profit announcement. Still to come this year is a new owner for the Rex regional business, the appointment of the airport slot coordinator, and maybe another new market entrant in Koala Air.
It is difficult to see how Koala’s plans “to carve out a unique niche” can be delivered. Low-cost Tiger, regional operator Bonza, capital city flyer Rex and business-class Ozjet have all failed. The incumbents are entrenched, and the Australian market is arguably too small for a new entrant to develop sufficient scale.
Access to the airport at commercially attractive times is essential for a new entrant to compete. The current slot management regime follows a worldwide practice designed for airlines to retain their access to an airport from one year to the next, provided they are used at least 80% of the time. Access to Sydney is further limited by an arbitrary hourly flow rate below the capacity of the airport’s runways. Airlines need only use these “grandfathered” slots 80% of the time to retain them.
The core East Coast routes between Melbourne-Sydney-Brisbane are very valuable. Flights take an hour on near-identical narrow-body jets. The cost per seat is very similar for Qantas, Virgin, Jetstar or any new entrant. Qantas and Virgin compete with large loyalty programs, alliance partners and airport lounges that new entrants lack. New entrants with limited flight frequency compete with Jetstar on price but without Jetstar’s scale.
In the 30 years since state-owned Qantas and Australian Airlines were merged and privatised, the market has been allowed to shape Australian aviation under light-handed regulation. Virgin Blue took the place of the failed Ansett; Qantas turned the collapsed Impulse into Jetstar. Bain Capital revived the Virgin business after the COVID-19 pandemic, and Virgin has carried more than 100,000 passengers stranded by the collapse of Rex’s jet operation.
We may not love Qantas, Jetstar or Virgin, but the airlines we have are shaped by the market they fly in. Australia does not sit in a prime geographic position on global air routes, but the market has repeatedly demonstrated that investors will support at least two domestic jet operators.
Some large markets from Australia are only served by foreign airlines. While Qantas and Virgin choose not to fly those routes, customer demand attracts foreign carriers. Singapore Airlines, Emirates, Qatar and Turkish Airlines leverage their comparative geographic advantage to build globally connected hubs that aggregate connecting passengers. Their home airports are capable of handling more than 100 million passengers each year. The fifth terminal under construction at Singapore Changi Airport will add capacity for an additional 50 million passengers annually.
Australian airports and airlines are located too far south and east to compete. Australia’s privatised airports need only grow fast enough to serve Australian demand. The domestic market, while valuable, appears only able to support two carriers.
With the distances between cities in Australia, air travel is essential. High-speed rail is extremely costly to build and run, and for most major Australian city pairs it is economically and operationally impractical. Australian travellers will benefit most if investment and focus are directed to better customer protections, sustainable fuel production, increased openness of international markets, and better use of scarce airport slots.
