The collapse of Bonza is bad news for Australian air travellers, particularly those (like me) who live on the Sunshine Coast where the budget airline was based. But it’s no surprise. The end of Australia’s two airlines policy in the 1990s, in which two identical firms, one private and one public, operated identical fleets and schedules, was supposed to bring a flowering of competition. Instead, we’ve seen a litany of failures.
The first major example was Compass Airlines, which was launched in 1990, failed in 1991, relaunched in 1992 and finally collapsed in 1993. Since then, we’ve seen Tigerair, OzJet and Strategic Airlines come and go, among many others.
The best hope for a small airline is to be acquired by Qantas, as was the case with Impulse Airlines. Impulse survived as a regional airline from 1992 to 2004 before being taken over by Qantas and turned into Jetstar. As a “flanker” or “fighter” subsidiary, Jetstar is a central part of Qantas’s strategy to deter low-cost competitors while maintaining its own position as a premium brand.
Only Virgin Australia, which captured much of the former market of Ansett Australia, has provided serious competition. And even that was touch and go. The Morrison government was happy to let Virgin collapse at the onset of the pandemic, but a rescue from Bain Capital kept the airline alive. Qantas, as always the beneficiary of political favours, subsequently received billions of dollars in public aid which it has declined to repay.
The departure of Bonza is a disappointment rather than a surprise. In another sense, however, the absence of real competition in the Australian airline market is genuinely surprising. The routes serving Australia’s “golden triangle” (Sydney, Melbourne and Brisbane) are among the busiest in the world, whether measured by flights or passenger numbers. Other comparable routes are served by four, six or even more airlines. Australian travellers have the choice of Qantas/Jetstar and Virgin.
This is bad for consumers. The Australian Competition and Consumer Commission has found that in the rare instances where Australians have the choice of three or four airline groups, fares are significantly lower. As competition has diminished, air fares have risen significantly.
The bigger story here is the failure of yet another piece of the neoliberal microeconomic reform program of the 1980s and 1990s. This program, pushed by both the Hawke-Keating and Howard governments, is still viewed with rose-coloured glasses by much of our political class. But most Australians have long since recognised it as a failure, and politicians are beginning to respond.
It’s easy enough to list the failures (financial deregulation, privatisation, outsourcing of policy to consulting firms), but much harder to unscramble the mess created by them. However, we are seeing some moves in the right direction. The Minns government’s recent exposure of the disastrous mess created by private toll roads has produced calls for re-nationalisation. The failure of the National Electricity Market and the associated program of privatisation has led state governments to re-enter the business of electricity generation.
In the case of the airline industry, there is little merit in returning to a two airlines policy. We need to enforce competition rather than wait for the market to deliver it.
The most important step would be to force Qantas to divest Jetstar. That won’t be easy. The creation of a forced divestiture power for competition regulators has been described by Anthony Albanese as a “Soviet-style” measure. But whether or not Stalin would have been a fan of more effective competition policy, it’s hard to see any other way of ending the near-monopoly that characterises much of the Australian economy.
More feasible, but still difficult, will be a reassertion of public control over the allocation of slots for landing and take-off by our privatised airport system. The government has announced a review designed to make the system more friendly to new entrants. But as Bonza joins the long list of failures, it’s hard to imagine that such entrants are going to appear any time soon.
The road back from neoliberalism will be a long one. We will probably not get far until the generation brought up in the legendary golden era of reform departs the political scene. But the airline industry is a good place to start.
John Quiggin is a professor at the University of Queensland’s school of economics
