How a crisis at Qantas has obscured, and may drive, momentous change in Australia’s skies. Tony Harrington reports from Brisbane
The contrast could not have been greater.
As Vanessa Hudson, the new CEO of Qantas, publicly apologised for a string of corporate failings which repelled once-loyal customers, savaged the airline’s reputation, and forced the early exit of her predecessor, Alan Joyce, Bonza CEO Tim Jordan was bathing in public praise as his low-cost start-up airline added another tranche of routes to its ever-expanding national map – and signalled there would be more.
“I know that we have let you down in many ways, and for that I am sorry,” said Hudson, a Qantas veteran and the former CFO, who replaced Joyce just as Australia’s biggest airline company scrambled to manage a maelstrom of collapsing reliability, customer service failures, and ethical and legal crises, while justifying an A$2.47 billion profit, largely funded by fierce cost-cutting which fuelled the fiasco in the first place.
“We understand we need to earn back your trust,” added Hudson, “not with what we say, but with what we do and how we behave.”
The first step proposed was a huge reinvestment in customer service staffing and training to help rebuild not just the carrier’s performance, but its reputation with staff, passengers, governments, shareholders and communities that depend on its reliability.
In breezes Bonza
For Jordan, however, the opposite was true, as Bonza – with its laid-back, cheesy Aussie style, and planes with names like Bazza, Shazza, and Sheila – continued to attract new and repeat business, and applause for its low-fare Boeing 737 Max flights that largely link destinations previously not connected by direct services.
Take Albury and Maroochydore.
Outside Australia, few will have heard of either place. But during a recent holiday period, Bonza reported 100% load factors on the pioneering route from inland Albury to Queensland’s Sunshine Coast, while other new and equally novel sectors exceeded 90%.
“We’re about unserved and under-served markets,” said Jordan. “Of the 38 routes we fly or have announced since January, 32 are not flown by the other airlines in any shape or form. That’s 84%, new and uncontested. And there’s a lot of Australia we haven’t touched yet.”
Qantas meltdown
The Qantas meltdown was the last straw in a long build-up of nose-to-tail chaos, from endemic lost luggage and cancelled flights to allegations and findings of unlawful behaviour.
The airline’s dramas will feature prominently in upcoming deliberations on the future structure of Australia’s aviation sector.
Post-pandemic, airlines everywhere were tripped up by their own lack of preparedness once borders reopened, travel restrictions eased and demand for air travel surged back.
But Qantas was not just any airline. It was ‘the flying kangaroo’, an iconic and loved Australian brand, historically a big employer, and a critical enabler of social and economic connectivity in a country the size of 31 UKs, but with well under half the UK population.
It was not delivering. Now it was on the nose.
The Federal Court of Australia had just ruled that almost 1,700 Qantas ramp staff were illegally sacked during the pandemic, replaced with cheaper, off-the-shelf, off-the-books contractors.
The Australian Competition and Consumer Commission (ACCC) additionally launched legal action alleging Qantas knowingly continued to sell tickets on some 8,000 flights it had already cancelled.
It also emerged that Joyce had pressured the Federal Government to deny Qatar Airways approval for more flights to Australia, despite a serious shortage of international seats, sky-high air fares, and the unwillingness or inability of Qantas to add capacity.
And while Qantas had played a minor role in repatriating Australians stranded overseas, or returning foreign citizens during Covid, Qatar had been a major player. Yet the Doha-based carrier was still blocked.
In a masterpiece of bad timing, Qantas then announced a chunky A$2.47 billion profit.
At any other time, this result would have been applauded. But news dropped soon afterwards that the airline had refused to return bailout funds provided by the government to help maintain jobs during the pandemic, and just as Qantas was accused of crying poor and demanding protection from Qatar Airways’ expansion plans.
Days later, in a further birdstrike on the brand, it transpired that Joyce, reputedly Australia’s highest-paid CEO, could still depart with a payout package potentially exceeding A$20million.
For the exiting Irish CEO, this was Murphy’s Law at work.
Sea change in the skies
The ‘Qantroversies’ engulfing Australia’s biggest airline company attracted and even dominated media coverage for months.
But they also overshadowed a significant and arguably bigger story of sea change in the skies, with diverse, exciting evolution across Australia’s aviation sector.
The emergence of Bonza is a small but high-profile example of the multiple changes reshaping the industry. It is also an indicator of the public appetite for change and greater competition in a market historically dominated by just two carriers – usually Qantas and one other.
Beneath its reputational dramas, the Qantas Group is reshaping for the future with a comprehensive overhaul of fleets and networks.
The core Qantas brand has launched a 10-year replacement of Boeing 717 and 737 narrowbodies with up to 130 longer range, more efficient Airbus jets – initially A220s, then larger A321 marques, including the longest-legged version, the XLR. Its LCC sibling Jetstar is already deploying new A321LRs.
With their new fleets, the two can not only creatively and flexibly reshape their domestic and regional international networks, but also serve more distant destinations which do not warrant bigger planes, but can be served with more frequent, viable, or incremental flights by smaller, longer-range jets. Adelaide–Tokyo is just one route which has been speculated.
Qantas is also acquiring more widebody 787s and introducing ultra long-haul Airbus A350s to revive and expand its long-range reach.
It has already deployed 787s on new, nonstop Perth–London, Perth–Rome, and Auckland–New York flights, and is looking to others including Perth–Paris. Meanwhile customised A350-1000s will deliver groundbreaking direct services, initially from Sydney to London and New York, under Joyce’s ambitious legacy initiative, ‘Project Sunrise’.
New Alliance
And to build and reshape domestic services, Qantas has partnered with Brisbane-based Alliance Airlines for supply and operation of up to 30 Embraer E190 jets.
Alliance is arguably the fastest-growing, but least-known airline brand in Australia, and one of the few anywhere which grew during the pandemic.
It rose from the ruins of former regional operator Flight West, which collapsed more than 20 years ago.
An investor group acquired the assets, then built a business based on contract and wet lease flying, using second-hand regional jets.
Its key activity is ‘fly-in, fly-out’ (FIFO) operations for resources companies, through which it shuttles employees between major population centres and remote exploration sites, mostly beyond the networks of scheduled airlines.
Alliance also provides significant capacity for Qantas Link and Virgin Australia, enabling them to increase or maintain market presence without using their own aircraft or crews.
In return, Alliance has guaranteed revenues, but without the risks associated with regular airline services, such as filling flights or competing on fares.
Pre-pandemic, Alliance flew 37 Fokker F70 and F100 jets. Then it swooped on 33 used E-190s, and later 30 more, to boost its fleet to almost 100 aircraft by 2026.
Alliance Managing Director Scott McMillan flagged more airline flying as the latest Embraers arrived.
“While we have conducted wet lease flying in the past, it has been largely ad hoc in nature,” he said. “We are focused now on growing this segment under a contracted revenue model.
“The attributes that make us the best FIFO operator in the country are equally applicable for contracted wet lease: superior operating performance, geographic infrastructure, low operating cost, availability of suitable aircraft, and labour resources including pilots.”
Seeking to access the FIFO market, Qantas bought 19.9% of Alliance before the pandemic, then sought to acquire the company. The attempt was strongly opposed by fellow Alliance customer and Qantas competitor Virgin Australia, blocked by the competition regulator, and is now abandoned.
But Alliance remains a key independent provider of capacity, and a major growth enabler in Australian aviation.
Virgin Australia’s revival
Virgin Australia, the second-largest scheduled airline in the country, is also on the rise.
It collapsed under the weight of heavy debt early in the pandemic, and was later rescued by a consortium led by Bain Capital, which installed former Qantas executive and Jetstar chief Jayne Hrdlicka as CEO.
From near death, Virgin has re-emerged smaller but fitter, and just posted a net profit of A$129 million, its first positive result in over a decade.
When the airline took off over 20 years ago, backed by Virgin billionaire Sir Richard Branson, it was Virgin Blue, a cheeky, low-cost challenger brand.
It gradually morphed into full-service Virgin Australia, with a large, diverse fleet, multi-class domestic and international services, lounges for frequent flyers, and enormous global connectivity through commercial and equity partnerships with prestige carriers including Singapore Airlines, Air New Zealand and Etihad.
But with big change came big costs.
“It has been 11 years since Virgin Australia returned a profit,” said Hrdlicka, announcing the latest result. “By creating a systemically lower cost base and a conservative balance sheet, as well as investing heavily in technology and our frontline, we are well positioned for the future.”
Virgin has just deployed the first two of 32 new 737 Max jets, committed to a A$110 million refurbishment of existing 737s, restarted limited international flying and struck new partnerships with Singapore Airlines, United Airlines, and, significantly, Qatar Airways.
Bain Capital is now planning to exit Virgin via a share float.
Reshaped Rex
Also expanding and reshaping is Regional Express, or REX, a Singapore-controlled, Sydney-based company whose heritage is in turboprop operations across Australia with over 50 Saab 340s.
When it was still touch and go whether Virgin would survive, REX announced expansion into jet operations on key domestic routes.
By the end of 2023, the carrier will have 10 737-800s, some ex-Virgin, with plans for more next year. It has also launched its first loyalty programme and offered to match the status levels of deserting Qantas or Virgin frequent flyers. And it has bought FIFO operator National Jet.
But having grown these operations, REX has also axed a number of regional routes, variously citing lower traffic, higher costs, pilot shortages, supply chain delays and fierce competition on selected sectors.
There is also the question of replacements for the ageing Saab 340s. Given the dearth of existing, conventionally powered, same-size successors, new electric or hydrogen-powered models come into contention.
REX has invested in Sydney-based start-up Dovetail Electric Aviation and plans to retrofit a 340 with a hybrid-electric powertrain to test the technology. That could lead to a life-extending switch for some or all of the current fleet while a longer-term solution is sought.
Bonza, too, is confident that its model of low fares and sub-daily services on secondary routes will thrive, despite the poor history of challenger carriers in Australia.
The role of 777 Partners
Although it has just four 737s, Bonza has a big backer, US investor 777 Partners, whose aviation arm has ordered more than 200 737 Max units and supports two other LCCs: Canada’s Flair and South Korea’s Eastar Jet.
Benefits of the 777 Partners relationship include financial synergies and operating flexibility between its three airlines, explained Manish Raniga, CEO of Aviation for 777.
The trio recently achieved significant savings through a combined deal on insurance, and next year, Flair will provide two of its 31 737s to help Bonza launch three new routes from its latest base, Queensland’s sub-tropical Gold Coast, one of Australia’s leading holiday destinations.
At the time of writing, Bonza had just announced yet another nonstop link, the first from the Gold Coast to Launceston, in the island state of Tasmania.
“We have access to brand new aircraft. And we have the highest density for 737s in the Australian market, with 186 seats,” said Raniga. “So, our trip costs and seat costs are significantly lower than anybody else’s.”
Bonza’s app-based model is designed to create a “one-stop shop” through which flights, accommodation, tours, and other products or services can be booked in a swift, single transaction, rather than through multiple diversions to the websites of different suppliers.
“The ambition of Bonza is not to be the size of Virgin or Qantas,” added Raniga. “We are not a threat to them. Our underlying aspiration is to be an e-commerce company with wings.”
Airport developments
Change is also occurring on the ground. Curfew-free Brisbane Airport opened a second parallel runway just before the pandemic, and is now planning a new, combined terminal ahead of the city’s hosting of the 2032 Olympic Games.
Melbourne Airport, also curfew-free, is building a third runway, Perth is expanding its terminal and considering a third runway, and others have completed or are planning renewal, expansion, or replacement of facilities.
The biggest development of all, the new Western Sydney International Airport (WSA), is on schedule to open late in 2026. It will provide a second gateway to the Sydney region, where the nation’s biggest hub, the inner-city Kingsford Smith Airport, has been critically constrained for decades.
WSA, again without a curfew, will draw from a catchment exceeding 2.6 million people, equivalent to 10% of the current national population and bigger than Brisbane, Australia’s third-largest city.
Its activation will significantly reshape Australian aviation almost 80 years after the need for a second Sydney airport was first flagged.
What does the future hold?
Amidst the market evolution and the Qantas revolution, the Australian Government released an Aviation Green Paper, ‘Towards 2050’, to spark discussion and generate submissions ahead of the release next year of an Aviation White Paper to guide the next growth phase of the nation’s air transport sector.
But parallel with the government’s request for submissions, a hostile Senate launched an inquiry into the unexplained rejection of the Qatar Airways application, and the broader question of competition in Australian skies.
Its public hearings inadvertently previewed some of the submissions expected in the Green Paper review, with significant focus not just on international traffic rights, but domestic domination by the Qantas Group with over 60%, and Virgin Australia with 33%.
Some participants in the inquiry urged forced divestment of assets or subsidiary businesses, while others wanted divestment of slots. Stephen Byron, Canberra Airport’s CEO, said the answer was another major airline.
“If we look forward three, four and five years,” said Byron, “either we need to have an independent third airline with at least 15% of the market, or we need to end up with an outcome where Qantas does not continue to be the owner of both Qantas Domestic and Jetstar.”
Opinions remain divided on how and when Qantas will rebuild its reputation. Some are expecting it to reset to its previous powerful state, and others speculate the latest upheavals will lead to curbs on its market dominance. But few doubt it will remain the biggest player.
“Of course, it will bounce back,” declared one industry executive. “It has had a few challenges over the years and has always come through.”
But others said Qantas had sustained long-lasting damage, undermining its social licence to operate right when the government was formulating a long-term strategy for more competitive skies.
One aviation leader said competitors had been gifted an opportunity to edge forward without hindrance while Qantas was forced into an extended period of good behaviour.
“The scars are quite deep from this episode,” he said. “The aviation landscape has changed forever. They [Qantas] have lost the cultural standing they had with the public. Their competitors can only benefit.”
