1 00:00:05,790 --> 00:00:08,130 Sean Aylmer: Welcome to The Fear and Greed Business Interview. I'm Sean 2 00:00:08,340 --> 00:00:12,929 Sean Aylmer: Aylmer. Australia's newest airline is in trouble. Budget carrier Bonza 3 00:00:12,929 --> 00:00:16,709 Sean Aylmer: yesterday went into voluntary administration after canceling flights across the 4 00:00:16,709 --> 00:00:20,250 Sean Aylmer: country. It only officially began operating in January last year, 5 00:00:20,250 --> 00:00:23,100 Sean Aylmer: but for some, the development does not come as a 6 00:00:23,100 --> 00:00:27,570 Sean Aylmer: surprise. Neil Hansford is an international aviation consultant. He's spent 7 00:00:27,570 --> 00:00:30,360 Sean Aylmer: more than 40 years providing business plan assessments to airlines. 8 00:00:30,509 --> 00:00:33,059 Sean Aylmer: When Bonza first announced its plans to launch a new low- 9 00:00:33,059 --> 00:00:36,599 Sean Aylmer: cost airline, Neil declared it only had a 5% chance of 10 00:00:36,600 --> 00:00:40,140 Sean Aylmer: success. And on that front, unfortunately, he appears to have 11 00:00:40,140 --> 00:00:41,940 Sean Aylmer: been correct. Neil, welcome to Fear and Greed. 12 00:00:42,330 --> 00:00:42,720 Neil Hansford: Pleasure. 13 00:00:43,500 --> 00:00:45,718 Sean Aylmer: So what went wrong? Was it the business model of 14 00:00:45,719 --> 00:00:49,049 Sean Aylmer: Bonza? Were they, sort of trying take on established players, 15 00:00:49,049 --> 00:00:49,949 Sean Aylmer: was just too hard? 16 00:00:50,729 --> 00:00:55,560 Neil Hansford: Well, the business model was unlikely to work in Australia. 17 00:00:55,920 --> 00:00:59,130 Neil Hansford: It's a problem of trying to provide an all- leisure 18 00:00:59,130 --> 00:01:03,179 Neil Hansford: airline on routes that are fundamentally too thin, with an 19 00:01:03,179 --> 00:01:07,200 Neil Hansford: aircraft that was 180 seats, and new, and having all 20 00:01:07,200 --> 00:01:10,020 Neil Hansford: the costs of a new aircraft and all the costs 21 00:01:10,020 --> 00:01:10,589 Neil Hansford: of setting up. 22 00:01:11,670 --> 00:01:14,940 Sean Aylmer: Okay, so it's in voluntary administration. What about the fact 23 00:01:14,940 --> 00:01:18,480 Sean Aylmer: that it was owned by a ... I mean it was a private owner. It was 24 00:01:18,480 --> 00:01:21,959 Sean Aylmer: a US private investment firm, 777 Partners. Given what you 25 00:01:21,959 --> 00:01:25,799 Sean Aylmer: just said then, when you don't have a major carrier 26 00:01:25,799 --> 00:01:28,349 Sean Aylmer: behind you, how much harder is it? 27 00:01:29,100 --> 00:01:34,770 Neil Hansford: All the 777 Partners gave them was access to aircraft, a 28 00:01:34,770 --> 00:01:40,800 Neil Hansford: cheer squad, and a working capital. And the working capital 29 00:01:40,889 --> 00:01:45,268 Neil Hansford: obviously wasn't enough. I don't think the business plan was 30 00:01:45,270 --> 00:01:50,730 Neil Hansford: robust enough to be able to see that the ... I 31 00:01:50,730 --> 00:01:53,010 Neil Hansford: doubt if this airline had made a profit for one 32 00:01:53,010 --> 00:01:56,460 Neil Hansford: day, one week, or one hour. So it doesn't take 33 00:01:56,460 --> 00:01:59,969 Neil Hansford: long to burn through the bucket of money. At the 34 00:01:59,969 --> 00:02:04,139 Neil Hansford: same time, 777 Partners have got all of their own 35 00:02:04,139 --> 00:02:05,580 Neil Hansford: problems in the United States. 36 00:02:06,360 --> 00:02:10,919 Sean Aylmer: Okay. So with the airline, Bonza, so is it fuel 37 00:02:10,919 --> 00:02:15,030 Sean Aylmer: costs, its fees, landing fees, those sorts of things, its, 38 00:02:15,030 --> 00:02:18,750 Sean Aylmer: obviously, staffing costs, are they all the big costs for 39 00:02:18,750 --> 00:02:22,469 Sean Aylmer: an airline outside literally the leasing cost of the airline 40 00:02:22,469 --> 00:02:25,650 Sean Aylmer: itself and whatnot, are they the ones that its kind 41 00:02:25,650 --> 00:02:28,320 Sean Aylmer: of the cost base is just too great to be 42 00:02:28,320 --> 00:02:30,060 Sean Aylmer: competitive in a thin market? 43 00:02:30,540 --> 00:02:35,250 Neil Hansford: It's a very thin market and the aircraft is ... Very 44 00:02:35,250 --> 00:02:39,090 Neil Hansford: few airlines when they've started in the low cost area, 45 00:02:39,299 --> 00:02:43,950 Neil Hansford: have started with brand new aircraft with a reputational problem 46 00:02:43,950 --> 00:02:49,560 Neil Hansford: that the 737- 8 had, in a market where Qantas 47 00:02:49,590 --> 00:02:53,280 Neil Hansford: and Virgin are not going to sit back and watch somebody 48 00:02:53,280 --> 00:02:57,809 Neil Hansford: eat their lunch. So it was always difficult, but the 49 00:02:57,809 --> 00:03:00,988 Neil Hansford: particular routes and I said it before it ever started, 50 00:03:01,380 --> 00:03:05,040 Neil Hansford: these routes are not going to give you enough traffic. 51 00:03:05,310 --> 00:03:09,809 Neil Hansford: They didn't understand the basic rules that unless you're getting 52 00:03:09,809 --> 00:03:13,410 Neil Hansford: business market and getting proper yields of people who will 53 00:03:13,410 --> 00:03:16,079 Neil Hansford: pay the right fare, you'll have your back to the 54 00:03:16,079 --> 00:03:19,110 Neil Hansford: wall and you can fill an aircraft like this to 55 00:03:19,110 --> 00:03:22,918 Neil Hansford: 180 seats. But if it's all at the wrong fare, 56 00:03:23,220 --> 00:03:25,380 Neil Hansford: you will go nowhere but down. 57 00:03:26,460 --> 00:03:29,040 Sean Aylmer: Okay. And so you don't think there's a way back? 58 00:03:29,040 --> 00:03:31,799 Sean Aylmer: It is voluntary administration for Bonza. You don't think there's 59 00:03:31,799 --> 00:03:32,820 Sean Aylmer: a way they can work through it? 60 00:03:33,450 --> 00:03:36,030 Neil Hansford: No. I looked at Hall Chadwick who are the voluntary 61 00:03:36,480 --> 00:03:40,050 Neil Hansford: administrators. I had no names jumped out at me, that 62 00:03:40,050 --> 00:03:44,310 Neil Hansford: these people know anything about the macro industry, let alone 63 00:03:44,639 --> 00:03:50,190 Neil Hansford: knowing the nuances of a low- cost leisure airline, flying 64 00:03:50,190 --> 00:03:53,249 Neil Hansford: on routes that are too thin and not providing enough 65 00:03:53,250 --> 00:03:57,480 Neil Hansford: services a week. So it is one challenge too big 66 00:03:57,780 --> 00:03:58,770 Neil Hansford: for anybody. 67 00:03:59,760 --> 00:04:02,129 Sean Aylmer: Okay. So there were reports yesterday that Bonza's aircraft are 68 00:04:02,130 --> 00:04:06,149 Sean Aylmer: being repossessed. In fact, one report there was actually an 69 00:04:06,150 --> 00:04:08,820 Sean Aylmer: aircraft on the ground and people, passengers, were kicked off 70 00:04:08,820 --> 00:04:11,429 Sean Aylmer: because they said, " Sorry, this is being repossessed." How does 71 00:04:11,430 --> 00:04:14,730 Sean Aylmer: that actually work? I mean, how does the nuts and 72 00:04:14,730 --> 00:04:16,530 Sean Aylmer: bolts of repossessing an aircraft work? 73 00:04:17,310 --> 00:04:20,460 Neil Hansford: Oh, the nuts and bolts of ... You obviously have the 74 00:04:20,460 --> 00:04:23,700 Neil Hansford: right paperwork to support you and you go and you say, " 75 00:04:23,700 --> 00:04:27,808 Neil Hansford: Well, I've got a lien. I'm taking possession and this 76 00:04:27,809 --> 00:04:31,289 Neil Hansford: aircraft is not going to move." And then they would 77 00:04:31,289 --> 00:04:36,029 Neil Hansford: be in the process of organizing, repatriating the aircraft quickly out 78 00:04:36,029 --> 00:04:39,779 Neil Hansford: of Australia and getting it into some other location where 79 00:04:39,779 --> 00:04:41,609 Neil Hansford: they can start getting some lease payments. 80 00:04:42,389 --> 00:04:44,250 Sean Aylmer: Stay with me Neil. We'll be back in a minute. 81 00:04:51,330 --> 00:04:56,428 Sean Aylmer: I'm speaking to International Aviation consultant Neil Hansford. So if 82 00:04:56,428 --> 00:04:58,860 Sean Aylmer: you look at the landscape generally, we think of Qantas 83 00:04:58,860 --> 00:05:02,400 Sean Aylmer: Link, Rex is another one. I presume if these routes 84 00:05:02,400 --> 00:05:06,150 Sean Aylmer: were commercially viable, they would've jumped in anyway. But what 85 00:05:06,150 --> 00:05:08,400 Sean Aylmer: about those sorts of ... I mean Qantas Link is different 86 00:05:08,400 --> 00:05:11,400 Sean Aylmer: because it's part of Qantas, but Rex Regional Express, how 87 00:05:11,400 --> 00:05:12,600 Sean Aylmer: does that survive? 88 00:05:13,560 --> 00:05:17,279 Neil Hansford: Well, one, it's got a very old fleet where other 89 00:05:17,279 --> 00:05:22,919 Neil Hansford: than the 737s, the Saabs are 30 odd years old. 90 00:05:23,129 --> 00:05:26,190 Neil Hansford: So the capital cost of the aircraft, which they own, 91 00:05:26,790 --> 00:05:29,339 Neil Hansford: don't have a heavy burden. And the other point is 92 00:05:29,339 --> 00:05:33,000 Neil Hansford: they don't offer fares that are in the gutter. They offer 93 00:05:33,000 --> 00:05:36,599 Neil Hansford: fares that is going to give them a chance of 94 00:05:36,599 --> 00:05:40,169 Neil Hansford: providing the service and the integrity and most of all, 95 00:05:40,170 --> 00:05:43,289 Neil Hansford: satisfying the requirements of the regulator CASA. 96 00:05:44,310 --> 00:05:47,670 Sean Aylmer: Okay. So it looks like Bonza is likely to not 97 00:05:47,670 --> 00:05:51,329 Sean Aylmer: fly. Is there room for another airline, for another operator, 98 00:05:51,809 --> 00:05:55,229 Sean Aylmer: if the economics or if they're charging fair prices, if 99 00:05:55,230 --> 00:05:57,450 Sean Aylmer: they can get landing slots at Sydney Airport, et cetera, 100 00:05:57,450 --> 00:05:59,099 Sean Aylmer: et cetera, is there room for another airline? 101 00:05:59,729 --> 00:06:00,118 Neil Hansford: No. 102 00:06:00,900 --> 00:06:01,260 Sean Aylmer: Right. 103 00:06:02,310 --> 00:06:07,020 Neil Hansford: Basically, Australia's got a ... Because of our population and the 104 00:06:07,020 --> 00:06:12,090 Neil Hansford: spread of our population, we don't have enough people to 105 00:06:12,420 --> 00:06:17,430 Neil Hansford: have four or five airlines. And whilst ever we as 106 00:06:17,430 --> 00:06:23,339 Neil Hansford: Australians require the service levels, we're not very forgiving. We 107 00:06:23,339 --> 00:06:25,560 Neil Hansford: want the world, we want to pay nothing for it. 108 00:06:25,890 --> 00:06:28,740 Neil Hansford: And no matter how well Virgin and Qantas are going 109 00:06:28,740 --> 00:06:32,099 Neil Hansford: at the moment, this can only be expected to continue. 110 00:06:32,370 --> 00:06:36,568 Neil Hansford: And if there is a route that's not being serviced, there's 111 00:06:36,570 --> 00:06:39,750 Neil Hansford: no way in the world that people like Steph Tully 112 00:06:39,750 --> 00:06:43,410 Neil Hansford: at Jetstar won't be looking to how they put the 113 00:06:43,410 --> 00:06:46,409 Neil Hansford: right equipment on that route. And that's why Qantas have 114 00:06:46,410 --> 00:06:51,030 Neil Hansford: got their relationships with people like Alliance. They operate turboprops. 115 00:06:51,330 --> 00:06:54,270 Neil Hansford: They can match the market with the right size aircraft. 116 00:06:55,529 --> 00:06:59,520 Sean Aylmer: So that means we are left basically with the aircraft 117 00:06:59,520 --> 00:07:02,460 Sean Aylmer: that we have now, in terms of the parent brands, 118 00:07:02,460 --> 00:07:08,640 Sean Aylmer: Qantas and Virgin and their offspring. Is that competitive enough 119 00:07:08,700 --> 00:07:11,789 Sean Aylmer: for this market? What's it mean for airfares, that type 120 00:07:11,789 --> 00:07:12,090 Sean Aylmer: of thing? 121 00:07:12,660 --> 00:07:15,450 Neil Hansford: Well, if you're looking in percentage terms, it's not like 122 00:07:15,450 --> 00:07:17,160 Neil Hansford: the figures that you're going to get for Coles and 123 00:07:17,160 --> 00:07:20,879 Neil Hansford: Woolworths in the Senate inquiry. This is not an industry 124 00:07:21,150 --> 00:07:24,509 Neil Hansford: that ... If it was any other industry than airlines, if 125 00:07:24,509 --> 00:07:26,520 Neil Hansford: it was a coal mine and you were getting the 126 00:07:26,520 --> 00:07:30,269 Neil Hansford: return on your funds employed that the airlines get, if it was 127 00:07:30,389 --> 00:07:33,870 Neil Hansford: a coal mine, you'd close it. So we have special 128 00:07:33,870 --> 00:07:40,050 Neil Hansford: circumstances for this industry. But this industry, I haven't seen 129 00:07:40,290 --> 00:07:45,329 Neil Hansford: yields above 10% for a very long time. And pre- 130 00:07:45,330 --> 00:07:49,170 Neil Hansford: COVID you were seeing 18s and 19s, and those airlines 131 00:07:49,170 --> 00:07:52,770 Neil Hansford: are now doing twos and threes. So it's not the 132 00:07:52,770 --> 00:07:55,530 Neil Hansford: next place to make your fortune. And the biggest problem 133 00:07:55,530 --> 00:07:59,460 Neil Hansford: is the big four banks in Australia have little to 134 00:07:59,460 --> 00:08:01,140 Neil Hansford: no appetite for aviation. 135 00:08:02,009 --> 00:08:03,960 Sean Aylmer: Just, sorry, can you explain that? Can you break that 136 00:08:03,960 --> 00:08:05,939 Sean Aylmer: down for me? It's not an area I'm familiar with. 137 00:08:05,940 --> 00:08:09,720 Sean Aylmer: And you were saying yields gone from 18% to 2% post-COVID. Is that 138 00:08:09,720 --> 00:08:13,140 Sean Aylmer: because not as many people are traveling? I'm just, so- 139 00:08:13,680 --> 00:08:17,429 Neil Hansford: I was aware ... I was talking pre- COVID, there was 140 00:08:17,429 --> 00:08:18,871 Neil Hansford: airlines in the States making 19%. 141 00:08:18,871 --> 00:08:21,660 Sean Aylmer: Okay. Right, right, right, right. Okay. 142 00:08:21,870 --> 00:08:25,800 Neil Hansford: Look, let's give you a historical thing, the Kangaroo Route, 143 00:08:25,800 --> 00:08:30,420 Neil Hansford: London to Sydney, there was only one year in 40 144 00:08:30,870 --> 00:08:34,199 Neil Hansford: that every airline on the (inaudible) on that route, 145 00:08:34,740 --> 00:08:39,420 Neil Hansford: made money and the highest was 3 to 4%. 146 00:08:40,350 --> 00:08:42,510 Sean Aylmer: Okay. Now, in the last few days, there was an 147 00:08:42,510 --> 00:08:44,580 Sean Aylmer: interesting report out from JP Morgan. This is along the 148 00:08:44,580 --> 00:08:47,309 Sean Aylmer: same lines, Neil, that you've been discussing. It basically is 149 00:08:47,309 --> 00:08:50,189 Sean Aylmer: looking at capacity market share revenue on 10 of Australia's 150 00:08:50,190 --> 00:08:53,250 Sean Aylmer: busiest routes. Now on the Melbourne- Sydney route, the busiest 151 00:08:53,250 --> 00:08:57,450 Sean Aylmer: route, Qantas had 5% more market share than Virgin Australia, 152 00:08:57,780 --> 00:09:01,890 Sean Aylmer: but it made almost twice as much revenue, 5% extra, 153 00:09:02,100 --> 00:09:04,830 Sean Aylmer: twice as much revenue. Also double the revenue on Brisbane 154 00:09:04,830 --> 00:09:09,180 Sean Aylmer: to Sydney carrying 20% more passengers. How's that work? 155 00:09:10,950 --> 00:09:14,819 Neil Hansford: It's basically yield management and you've got the big distortant, 156 00:09:14,849 --> 00:09:19,050 Neil Hansford: the Qantas Frequent Flyer where people who are spending often 157 00:09:19,050 --> 00:09:23,820 Neil Hansford: somebody else's money, like their employer, will go on Qantas 158 00:09:24,120 --> 00:09:29,040 Neil Hansford: at any price and not as price sensitive. And they 159 00:09:29,040 --> 00:09:31,799 Neil Hansford: choose to go Qantas to get their frequent flyer, where 160 00:09:31,799 --> 00:09:37,020 Neil Hansford: they've got 16 million members. So it's all a case 161 00:09:37,020 --> 00:09:40,559 Neil Hansford: of who's getting the right sort of people sitting up 162 00:09:40,559 --> 00:09:45,329 Neil Hansford: the front of the aircraft, that's paying a disproportionate cost 163 00:09:45,660 --> 00:09:48,780 Neil Hansford: of the aircraft operations, against those who is sitting at 164 00:09:48,780 --> 00:09:49,140 Neil Hansford: the back? 165 00:09:50,130 --> 00:09:52,409 Sean Aylmer: Fair enough. One final question for you, Neil. What about 166 00:09:52,410 --> 00:09:54,750 Sean Aylmer: Virgin? If it does list, it's a bit different because 167 00:09:54,750 --> 00:09:56,790 Sean Aylmer: it's privately owned now, but if it does list, can 168 00:09:56,790 --> 00:10:01,170 Sean Aylmer: it be a competitive player, earn a return on investment for 169 00:10:01,170 --> 00:10:04,349 Sean Aylmer: shareholders, assuming it lists, this is, given what you just 170 00:10:04,349 --> 00:10:05,189 Sean Aylmer: said about Qantas? 171 00:10:06,030 --> 00:10:10,260 Neil Hansford: Yes, it will do that. There is a very clear 172 00:10:10,260 --> 00:10:14,190 Neil Hansford: market, and I come from an (inaudible) perspective that 173 00:10:14,460 --> 00:10:17,189 Neil Hansford: it will take two players, but you've got to have 174 00:10:17,190 --> 00:10:20,458 Neil Hansford: to have a lot of infrastructure behind you, like frequent 175 00:10:20,460 --> 00:10:24,540 Neil Hansford: flyers and all the things that the business community require. 176 00:10:25,320 --> 00:10:27,029 Sean Aylmer: Neil, thank you for talking to Fear and Greed. 177 00:10:27,450 --> 00:10:27,810 Neil Hansford: Pleasure. 178 00:10:28,500 --> 00:10:32,190 Sean Aylmer: That is international aviation consultant Neil Hansford. This is The 179 00:10:32,190 --> 00:10:34,440 Sean Aylmer: Fear and Greed Business Interview. Join us every morning for 180 00:10:34,440 --> 00:10:36,900 Sean Aylmer: the full episode of Fear and Greed. Daily business news 181 00:10:36,900 --> 00:10:39,270 Sean Aylmer: for people who make their own decisions. I'm Sean Aylmer. 182 00:10:39,719 --> 00:10:40,320 Sean Aylmer: Enjoy your day.