Bill Astling says he knows what it takes to start a new airline in Australia.
“You have to be insane,” he says. “You have to have a degree of insanity.”
Astling is the chief executive of Koala Airlines, a company hoping to avoid the fate of others that have tried to take on Qantas and Virgin.
“I’ve had a few people who’ve said: ‘Have you appointed the liquidator yet?'” he jokes.
Australia’s airline graveyard is littered with carriers who have tried and failed to beat the “big two”.
Another two joined them this year — and we’re all paying the price.
“Customers are paying more than they would in a much more competitive market if there were three or four substantial players,” Professor Allan Fels says. He headed the competition watchdog ACCC for eight years.
“With two players, or one and a half, really, [we have] weak competition on price and service,” he says.
Bill Astling is keeping tight-lipped about Koala Airlines. (Four Corners)
Astling wouldn’t say when Koala will launch, what routes it will fly, or who is backing the venture.
He would say he’s confident it will be the airline that breaks Australia’s long duopoly.
“Our population is small, but the vast distances mean we can only travel by air. It can’t all be done by two airlines.”
“We’ve got a lot of support. We’ve also got a lot of skeptics. That’s understandable, they just think we’re going to be another one of the many that have collapsed … and we’re not.”
Astling has been in aviation for decades. In 1977, he stared down a court challenge from Ansett to launch the cargo carrier Air Express, which went into receivership after the lengthy battle.
An 1977 article from The Age featuring Bill Astling and his then-freight company Air Express. (The Age)
He has since worked with airlines in Australia and overseas.
Astling says Koala has learned lessons from its predecessors, who he says got “emotionally carried away”.
“They think they can beat the two airlines … and [that] the only way they’re going to beat them is by lowering the fares. Well, that’s never worked, and it probably never will.”
He says Koala will instead take the approach of Aldi or IGA in Australia’s supermarket sector, filling “niches” left by the big two.
Koala Airlines’ office in Melbourne. (Four Corners)
One approach he is willing to reveal: the airline will have a guaranteed cash refund policy, with fares sitting in a trust account until the flight is taken.
“If you don’t fly, you’ll get your money back. It’s simple,” he says.
For other details, he says, “you’ll have to just wait”.
“We are just not prepared to give away what our strategy is and allow competitors to be able to think: ‘Right, well, we can work on this or work on that.'”
Fierce competition
Those competitors are unlikely to welcome the marsupial newcomer.
Australia’s domestic aviation market is among the most concentrated in the world.
Since the 1930s there have only ever been two major carriers — and today, nine out of 10 domestic passengers fly with Qantas or Virgin.
The so-called “golden triangle” of the Sydney-Melbourne-Brisbane routes is the lucrative prize several companies have tried to take.
Compass Airlines tried and failed twice in the early 1990s, Impulse was eventually absorbed into Qantas, and TigerAir was bought by Virgin then closed down.
When regional airline Rex tried to move into the capital city market in 2021, it soon felt the squeeze of the big players.
Data from analytics firm OAG Aviation shows that once Rex entered the intercity market, Qantas upped the number of low-cost Jetstar seats on its city routes. It also entered 10 of Rex’s regional routes.
Virgin often matched Rex’s lower prices.
“It’s sort of a sign of, if you like, not illegal, but silent cooperation between Qantas and Virgin to drive the third player out of the market,” Fels says.
Rex Airlines went into administration in August. (ABC News)
Qantas said in a statement that it welcomes competition and denied it had targeted Rex. It said it added intercity seats and regional routes to meet customer demand.
Three years after entering the capital city market, Rex went into voluntary administration.
In the aftermath of Rex’s decline, some blame was levelled at the Sydney Airport system that determines which planes get to land and when.
Qantas and Virgin are the majority funders for the company that hands out take-off and landing slots, Airport Coordination Australia (ACA).
But the woman who runs ACA, Petra Popavac says it’s not her fault Rex struggled to compete.
“[Rex] received most of the slots that they applied for, and all of the slots in the peak period that they were wanting to operate,” she says.
“They had too many in the peak, so they handed some back.”
Former newspaper columnist Joe Aston, who has written a book about Qantas, says what happened to Rex went beyond airport slots.
He says Qantas is a “hyper-aggressive” competitor that uses its scale to put pressure on its competitors, and Rex is just the latest to find out the hard way.
But he acknowledges there was also poor management along the way.
“This sort of half-baked venture of taking on Qantas and being the third major domestic airline was just such a strategic error, but such an obvious strategic error. It sort of smelled of fantasy,” he says.
Deep pockets and something different
Brett Godfrey is one of the few Australians who can claim to have successfully launched a domestic airline.
He co-founded Virgin Blue in 2000, with funding from billionaire Richard Branson.
Virgin Blue was founded in 2000.
At that time the big two were Qantas and Ansett. Godfrey says he knew they were susceptible to failure.
“They had uncontested markets and they’d got to a point where they were both financially a bit strained,” he says.
“We just knew that we could sell every seat on our airplane for about $79 and make money, and we knew if they matched us, they’d be losing about $1 million to $2 million a day. And that was unsustainable.”
Brett Godfrey co-founded Virgin Blue with the backing of billionaire Richard Branson. (Four Corners: Ryan Sheridan)
Ansett’s collapse a year later paved the way for Virgin’s success.
But the man who helped pull off that gambit cautions others not to follow suit — unless they have a competitive advantage.
“I don’t believe there’s room for a third airline. A niche player? Absolutely. It’d have to be a new model,” Godfrey says.
“The only way it will work is if they’ve got deep pockets and something different to bring to the table. But failing that, I think you’re foolish to risk your capital.”
Godfrey thinks the current duopoly works for Australians.
“I do believe that consumers are getting a pretty good deal,” he says.
“I think they compete quite vigorously. You’ve got an ACCC that has significant powers to ensure that they do compete fairly.”
An ACCC spokesperson says it’s investigated a range of concerns raised by those in the industry, including Rex, and found that while some airlines’ actions may have impacted the market, they didn’t meet the threshold of “substantially lessening competition”.
Time to break up?
A recent Treasury Department report found that an additional airline on a route reduces fares by five to 10 per cent. It said those fares drop even further with every additional carrier.
The exception to this is when Jetstar enters a Qantas route.
Some have floated the idea of forcing Qantas to divest Jetstar — creating a third airline by breaking up the country’s biggest player.
A Qantas Group spokesperson said having Jetstar as part of the company means overheads are shared and warned that breaking it up would “increase costs and put upward pressure on fares”.
Qantas says splitting Jetstar from the rest of the company would increase costs. (Four Corners)
Professor Allan Fels believes even the threat of forced divestiture could benefit consumers.
“I think it would be highly desirable for our aviation market to be aware there’s such a power,” he says.
“It would be up to the courts to determine if there is illegal behaviour.
“The remedy might be fines, but it’s possible in some cases after careful consideration … the best remedy is break-up.”
Joe Aston says while such an action would truly change the landscape, it’s not going to happen.
“If Qantas and Jetstar were competing with each other instead of using each other at both ends of the market to sort of manoeuvre, I think we’d have a very, very different set of outcomes,” he says.
“But of course, Qantas will be forced to divest Jetstar on the day that pigs fly over the east-west runway.”
Koalas may just fly first.
Watch Four Corners’ full investigation, Flight Club, Monday night from 8:30pm on ABC TV and ABC iview.