Soaring ambitions: can more airlines fit in our skies?

“It’s not an easy task coming into Australia or setting up in Australia, and we know that because 12 airlines have attempted to do it since deregulation happened in 1990, and they’ve all failed,” says aviation veteran Bill Astling. “In my view, they haven’t failed because demand didn’t exist – everybody’s always been looking at a third airline in Australia because of the duopoly. I don’t think they failed because the aircraft were not acceptable, and they’ve all come out with very competitive pricing … it’s probably based on the political ecosystem we’ve got in this country, and the distribution structure that they didn’t get right, and also the defensive capabilities of the incumbents.”

Those incumbents, and their defensive capabilities, are no joke at all. Between them, Qantas Group – that is, Qantas, QantasLink and Jetstar – and Virgin Australia, which also encompasses Virgin Australia Regional Airlines, operate a staggering 98.5 per cent of all domestic flights within Australia, according to ACCC figures, with Rex a cosmically distant third. While there are a handful of smaller carriers in that minuscule slice of the pie left over – think Airnorth, Nexus, Hinterland, Skytrans – very few operate anything larger than a turboprop, let alone aspire to national ambitions.

According to Steve Leib, associate professor of aviation at CQUniversity, the sheer weight of the duopoly – and the tactics it can bring to bear against any challengers – makes it hard to argue the case that newcomer airlines can stay viable for long.

“We’ve seen some new entrants that have yet to take hold and demonstrate long-term success,” he says. “There’s been a few startups in recent years – not just start-ups, but also new business models – that have tried to add a third entrant style competition. None of them has been successful. So, I think a lot of it has to do with market saturation and the concentration of markets in Australia. I think it will be a difficult case to make that there’s room for a third.

“A few techniques have been deployed [by the incumbents]. Certainly, price matching – we’ve seen pretty aggressive pricing when new entrants show up, and they have their own kind of promotional introductory fares, and the other airlines tend to match that very readily. Sometimes we even see them operate at a loss to earn that ticket revenue as they try to establish themselves. But that situation tends to favour the existing airlines, who can sustain losses longer than a new entrant.

“Even the Jetstar model of being part of the Qantas Group provides some insulation that makes it less vulnerable than a typical new entrant in terms of competition. There’s also one more technique I had in mind – they will try to match frequencies, convenience, and things like that to eliminate any potential for passengers to steer towards the new entrant. Whatever reason passengers would be considering the new entrant for, they will try to replicate it in the older airlines. So, it’s a very tough crowd. Not only is it fierce competition, but it’s very specific markets, and I think a new entrant would face an uphill battle from the legacy airlines who want to keep that market intact.”

Hats in the ring

And yet, against this challenging backdrop, at least two – and maybe three – potential new airlines are preparing to stride into the domestic market. As previously covered in Australian Aviation, Astling’s Koala Airlines is looking to launch with a fleet of Boeing 737 MAX 8 aircraft, while another start-up, fellow aviation long-timer Peter Kelly’s Zinc Airlines, plans to become the “Ryanair” of Australia – and a third, foreign-owned, contender is rumoured to also be lurking in the wings, so to speak.

Each is pursuing a different business model: Koala’s plan is to act as a feeder and a distribution network for overseas airlines – of which Astling says he is in talks with around a dozen – rather than pursuing the traditional model of chasing domestic business.

“If you and I were going to start an airline tomorrow, in most countries, we might set up a website, we’ll open up a reservation system, and we’ll put our fares up and hope that people come. We’ll go out there and market,” he says. “That’s what’s happened in Australia in the past: airlines have started by setting up websites and hoping that the passengers will come. Now, that’s probably part of the failure, because the passengers have come for the first flight or the second flight, but then the competition from the duopoly has become such that, in the end, people have gone back to them. So, your distribution is extremely important, and you’ve got to have the agents on side. You’ve got to have the overseas tour operators on side. You’ve got to have your distribution set up in a proper and structured way.

“There’s a lot of groups wanting to come here and wanting to see more of Australia, so we’ve been in discussions – I’ve had a number of airlines who’ve come to us, we haven’t gone and sought them, and organisations, tour operators, wanting to operate charter flights. Now, how they will come together is another issue, but there’s obviously a demand there. Because at the moment, I was looking at it the other day, and we’ve had discussions with 12 airlines about a range of different things. For groups, it’s not easy for Qantas and Virgin to cater for that sort of market. They’re operating scheduled services, and they don’t have lots of aircraft sitting on the ground waiting for people to charter them.”

This kind of model is one that Leib says could well work in Australia, representing a “great opportunity to identify a unique market that’s not currently being served”.

“I think that kind of thinking is what I would expect a new entrant, to be successful, to be thinking about. So, I like that approach,” he says. “The management team is clearly thinking outside the box, which is a good set of skills. I think with Chinese tour operators and that market, it’s a large market, and there is probably a lot of interest, especially if the idea to facilitate that travel was sourced in the market, and was sort of brought to them. That bodes very well. It adds complexity around like visas and things like that – that’s a potential threat to the size of the market that they’d be serving – but it’s definitely got potential. I think we’re seeing more and more people go outside of major cities to explore Australia, and this could be a great way to serve that group.”

Zinc Airlines, meanwhile, has identified a different opportunity – one called “Western Sydney International Airport”. With Australia’s newest major gateway to open up in just a few months, serving a catchment of around 3 million people, and lacking the caps or curfews that have strained capacity at Kingsford Smith and boxed smaller airlines largely out of the Sydney basin, Kelly believes the field is ripe for a new ultra-low-cost carrier. The plan is to fly A320 family aircraft on the “Golden Triangle” of Sydney–Melbourne–Brisbane, as well as to Adelaide and the Gold Coast.

“The lessons I’ve learned from what’s happened in the past: one of the major impediments is Sydney, and that’s been eliminated basically with the opening of Western Sydney International,” he says. “So, that is absolutely key to our establishment, and that is why I even thought about starting up a new airline in Australia. Before that, I would not have considered it – in the absence of Western Sydney, we would not start up an airline. Wouldn’t risk it; it wouldn’t happen. You could not be efficient enough. But the opening is there. It’s a catalyst, and it’s a massive infrastructure development, and it will develop over time, and it’s built for expansion.”

According to Kelly, while Zinc has drawn comparisons to Ryanair and has “adopted some of the core underlying attributes”, many of those attributes are “not transportable to Australia or appropriate”.

“The market here is different to Europe, and I am familiar with the European market, especially with having lived in various cities there over many years, and overseen the start-up of two European ULCC airlines with EASA AOCs,” he says. “I have a lot of admiration for Ryanair. I am not sure if you saw their financial results; from memory, it was around 2.3 billion euros, after-tax profit. Not too shabby, is it? Moreover, O’Leary would love his bonus on that result.

“Passengers will enjoy the experience flying on Zinc. For a start, it is difficult to differentiate product on narrow-body aircraft on short-haul domestic routes. So, we do not have a wide gap to bridge. Most passengers ascribe little value to getting a meal on a short-haul flight of around 1.5 hours, and maybe a little more legroom – not if it comes at a cost.

“They are first looking for a safe airline, and all airlines in Australia are safe because of CASA oversight, so all airlines here tick that psychological box. Then, in their purchasing decision matrix, they generally next want a flight at the right time – so frequency helps. Then third, they look at price. Low pricing wins on short-haul domestic travel most of the time, and this is well exhibited with Jetstar having a 90.1 per cent year-round average load factor. It is substantially higher than Qantas domestic and a fair bit higher than Virgin – who also have healthy load factors.”

Leib, however, is more sceptical that a “Ryanair-style” ultra-low-cost model can work in Australia, saying it’s a more challenging proposition here than elsewhere in the world because of our higher cost base.

“Achieving that low-cost carrier model in a sustainable way, there’s a much narrower pathway for success. Especially with the Ryanair model, their route network is pretty well aligned around shorter point-to-point flights, and with ultra-low-cost carriers, I can’t think of an example at the moment of one that has a hub-and-spoke network with transit-style connections,” he says. “A lot of the passenger traffic between major cities is connecting traffic. So, without that infrastructure in place, they would be limited to sort of point-to-point traffic, and with an ultra-low-cost carrier, their target market would likely be more focused on leisure, you know, opportunistic travellers.

“Is today’s world a world where that market is healthy? I mean, certainly they seem to think so, and I think there is definitely something to be said for leisure travel and tourism, which is still happening. But without that sort of reliance on transit passengers and business travellers, there’s not a huge market remaining for them to carve out their sort of niche operations.”

That said, Leib does agree with Kelly’s assessment that Western Sydney Airport could level the playing field for new entrants – though here, too, he has some words of caution.

“If nothing else, Western Sydney Airport opens up capacity,” he says. “Kingsford Smith Airport is constrained all the time. There is not a moment where there’s capacity that’s unfilled. There’s always constant demand, and there’s a queue for airlines to get into to Sydney, and WSI opens that up greatly. All this increase in capacity is based on the assumption that those two airports are interchangeable choices for passengers, and we should be careful about making that assumption.

“Both arriving into Sydney and departing from Sydney, I think there are many people for whom that choice is interchangeable – not everyone, but the net is a gain. So, the capacity will go up, and that is an opportunity for new entrants. It’s also a potential threat to the operations of airlines that intend to fly to both. That creates complexity that new entrants that specifically focus on Western Sydney Airport may not have to worry about. So, I think that part is accurate – as to whether it translates into a long-term sustainable operation stemming from that opportunity, we’ll see.”

Chasing the tiger

So much for the two home-grown challengers – but what of this third potential entrant? At the time of writing, it’s only speculation, but that speculation isn’t based on thin air (again, so to speak). Vietnamese low-cost carrier Vietjet, according to rumours and reports in the press, has been laying the groundwork to launch a domestic Australian subsidiary with 10 737s, including applying with CASA for an all-important air operator’s certificate – this isn’t the first time that speculation has flared, either, with reports in 2024 that it was eyeing Bonza’s AOC after the ill-fated start-up collapsed.

If the rumours are true, Vietjet’s putative Australian arm would have a number of advantages – the backing of a deep-pocketed foreign airline that can more easily lay its hands on aircraft, rather than need to raise funds and battle backlogs, being just a start.

“It resolves a lot of the threats to a new entrant establishing themselves and growing,” says Leib. “We’re talking about a new entrant with a new AOC. It’s an Australian airline, but it is backed by Vietjet, and perhaps its design is a product of Vietjet’s model. So, essentially you have a new entrant that has the intelligence input of a successful carrier, and in terms of investment, if Vietjet is backing that, then you have that pool of money to sustain the initial operations while you establish yourself. I think that model bodes well for this new entrant to actually take hold in the marketplace, so I’m quite excited about what that will look like.”

The observant may also draw parallels with Tigerair, which started as an overseas carrier’s Australian subsidiary in 2007 before being absorbed as Virgin’s answer to Jetstar, and operating quite happily in the local market for a remarkable (in Australian terms) 13 years, only meeting its demise in 2020 due to the broader problems that sent its owner into administration.

“They lasted quite a while, and I think that their, I guess, failure in long-term survival was despite the initial backing and support that they got when they started up,” says Leib. “I think the situation is a little bit different because Virgin Australia was in a position to just sort of hand aircraft over to Tiger as they went on and as they were growing, but that’s because we’re all within the same country, so that would be a much bigger challenge for Vietjet to have a similar operation as that. But aside from that, in terms of starting up an airline and being able to weather and sort of incubate that while it gets established, both of those models I see a lot of similarity, as well as with the Jetstar model, and with Singapore and Scoot, and this seems to be a very workable model worldwide.”

Ultimately, whether it’s Koala, Zinc, Vietjet, or anyone else, Leib says any new challenger would need to remain financially sound to overcome Australian travellers’ natural inertia in their airline choices.

“It would need a lot of money just to be able to sustain its operations while it waits for the market to warm up to it,” he says. “I think in Australia, our needs as passengers, we sort of have an existing understanding of how to fulfil those. It will take time to have the sort of cultural, societal embracing of a new entrant, and we tend to be a bit conservative in the Australian market around making changes to our normal travel cadences.

“A new entrant domestically will face an uphill battle of just being around long enough that it starts to turn heads and people consider, ’oh well, maybe I should be using these guys to fly to this place’. The money factor is key. Also, a new entrant needs the marketing presence to do that – it’s not just time. There’s the actual marketing and being a part of the social fabric to get the word out, and sort of in parallel with that, the operations needed for the ticket sales, and the ability to make reservations and bookings and things like that, has to also meet the market’s interest and capabilities.”

With the first flights by any of these new airlines still looking to be a ways off, we may have a while to wait – but if they can avoid the mistakes of their predecessors, it’s possible the challengers may finally have a shot at breaking the domestic duopoly.