Regional residents worse off if discount airline Bonza collapses

Bonza faces an uncertain future after cancelling all its flights.

Bonza faces an uncertain future after cancelling all its flights. Photo: Getty

Australians will suffer under a less competitive aviation industry that could even be more costly for some regional customers if embattled airline Bonza collapses, experts have warned.

The discount carrier sensationally cancelled all its flights on Tuesday amid a series of financial woes that have left CEO Tim Jordan considering the company’s “ongoing viability”.

The airline was put into voluntary administration on Tuesday with Hall Chadwick appointed as administrators.

It followed news of Bonza’s fleet of Boeing 737 Max 8s being repossessed earlier in the day.

It’s a sharp turn from this time last year when Bonza was expanding its leisure travel model to dozens of regional routes – most of which weren’t even being flown by Qantas and Virgin.

Competition analysts hoped Bonza would grow to become a thorn in the side of the major airlines and force airfares lower on regional and eventually even capital city adjacent flights.

But more recently the discount player had actually been pulling out of some regional areas in a bid to refocus on more profitable routes, particularly Queensland’s Sunshine Coast.

Ian Douglas, an honorary senior lecturer in aviation at the University of New South Wales, said the airline’s financial woes demonstrate how hard it is to launch an airline in Australia.

He said the inability of Bonza to break into lucrative routes around Sydney, Melbourne and Brisbane – partly because of airport slot allocations – left it without the scale to earn profit.

“The nature of the Australian market is that it’s small,” Douglas explained.

“A business model like Bonza works for you in North America or Western Europe, but you come here and it’s too thin – it just doesn’t work.”

Regional flyers worse off

If Bonza collapses there will be less competition, Douglas said, but the direct effects will be limited to select regional routes and not the broader market because Bonza was still small.

Competition regulator analysis had shown Bonza helped put downward pressure on airfares on the routes it flew, but that its impact was limited with a tiny 2 per cent market share.

University of Queensland economist John Quiggin said regional Australians on those routes will be worse off after yet another new entrant into the industry failed to usher in change.

“Under current rules, competitive entry to the market is pretty much impossible,” he said.

“As long as we have the current rules we’re effectively stuck with Qantas and Virgin.”

Quiggin argued that controversial rules for plane slot allocations at major airports such as Sydney are a key problem hurting new competitors, ultimately making airfares much higher.

Veteran aviation consultant Neil Hansford takes a different view, saying that Bonza was destined to fail in Australia because there isn’t a market for a leisure-driven regional carrier.

“The inevitable has happened; as a business [Bonza] didn’t look like making money at any stage since launch,” Hansford said. “Aviation is littered with failed leisure airlines.”

Hansford doesn’t believe Bonza’s collapse would have a significant effect on airfares given its small size, saying it focused on routes that weren’t being serviced by other airlines.

That also means the opportunity for competitor airline Regional Express (Rex) will be negligible because it didn’t focus on the same routes.

But Australians who had started using Bonza routes will now face added inconvenience of needing to hire a car from a capital city airport or buying a connecting flight, Hansford said.

Competition problems

In a broader sense, Bonza is just the latest airline to sputter after trying to break into the Australian market, despite experts decrying lacklustre competition across the industry.

Bonza and Rex have repeatedly blamed – at least in part – alleged “hoarding” of slots at the all-important Sydney Airport.

Douglas explained that the slots are crucial because the connecting markets between Sydney, Melbourne and Brisbane are revenue hotspots that airlines need to be successful.

“If a new entrant can’t get into Melbourne and Sydney they can’t operate where the market is,” Douglas said.

Experts such as Quiggin and former ACCC boss Rod Sims, have argued that the current rules allow airlines like Qantas to protect valuable space at Sydney in ways that make it difficult for competitors to break in and increase their national profiles.

Several reviews have recommended changes to the system, including most recently a federal inquiry that called for an overhaul of ‘use it or lose it’ rules for slot allocation.

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