Australia’s Airline Industry: What We Can Learn From Bonza’s Voluntary Administration

High barrier to entry

Australia’s airline industry operates in a heavily concentrated domestic air travel market. In fact, over 85% of routes are operated by three airline groups: Qantas Group (Qantas and Jetstar), Rex, and Virgin Australia. The strong competition meant that Bonza only managed to capture a 2% market share in the past year.

Additionally, Bonza failed to gain access to the lucrative Sydney airport, although it did grow its base to service routes in Melbourne’s Tullamarine and Gold Coast. Government-imposed regulations currently cap the flow of Sydney airport to just 80 take-offs and landings per hour, making the competition tight for which airline gets the slots.   

Big airline companies have been accused of ‘slot hoarding,’ a scenario in which the airline schedules more flights than it intends to run and cancels them if the passenger capacity is not reached. This act effectively blocks the slot from smaller airlines and limits their access.

Risky private equity backing

Bonza relied on 777 Partners for funding, which proved to be a risky source that possibly led to its downfall.

777 Partners is a Miami-based private equity firm that originally owned all of Bonza’s aircraft feet. However, its group’s creditors have since created a new arm that would own the company’s 737 Max-8 aircraft (essentially used by Bonza). This caused Bonza to be hamstrung by severe fleet issues, as many of its planes have been redirected by 777 Partners to its other airlines owned.

According to Australian Aviation, 777 Partners was also responsible for sourcing and paying the leases for all of Bonza’s aircraft. However, they had failed to do so. Two weeks later, Bonza’s planes were seized to recoup money owed to investors.

High operating costs

Any form of travel, be it by car, bus, or train, is generally more expensive in Australia than other parts of the world. This is due to the country’s higher fuel, labour, and maintenance costs, which have seen a sharp and sizable increase.

Being a budget carrier, Bonza worked with relatively tight margins, banking instead on capturing market scale. To date, Jetstar is the only low-cost airline that has made headwinds in Australia, thanks to its backing from its parent airline, Qantas. Even then, budget airlines in the country must always battle the high costs of transporting expensive planes across big distances.

Geography and market scale

Rather than competing with the high-frequency routes of Qantas or Virgin, Bonza entered the market by servicing tourism destinations in regional Australia.

Unfortunately, the company simply couldn’t find the scale needed to break even its margins. Unlike in Europe and the US, where there’s a sizable population to meet that demand, regional Australia simply didn’t have the density needed. Smaller regional towns are often connected with local aircraft, and any larger planes that wish to service the town may find themselves operating with half-empty planes.

Geographically, most of the country’s major cities were concentrated on the east coast, without a central hub to connect these cities. This further added to the costs of operations which becomes unviable for a budget carrier.