Full story: https://grafa.com/insights/bonza-way--failed-airline-or-system-failure--217483
Bonza’s brief flight path screeched to a halt this week, entering voluntary administration and grounding its entire fleet.
The low cost airline, launched just a year ago, promised to shake up the Australian domestic market with lower fares.
Its demise has not only raised questions about the viability of a third carrier in the domestic market, it has cast a larger shadow over Australia’s concentrated business environment.
The market is mine… all mine, baby!
From supermarkets, to aviation, to telcos, to banking, Australian markets are dominated by a few, very well established companies.
The grocery sector is dominated by Coles and Woolworths, while banking’s big 4 of ANZ, Commonwealth, Westpac and NAB control a whopping 75 percent of the market.
Think you’ll have a craft beer? It’s likely owned by Lion or Carlton United Breweries, who between them control 85 percent of the beer brewed in Australia.
About to take a holiday? Looks like that’ll be either Qantas or Virgin who operate about 90 percent of the market.
You get the picture.
Market concentration can lead to higher prices at the till — Woolworths and Coles are currently facing a Senate inquiry over it.
But on an international measure, the picture is even more worrying.
Australia has one of the most concentrated markets in the world.
According to research compiled by e61 Institute, the top four Australian firms account for a staggering 80 percent in some markets, with an average concentration exceeding 60 percent across various industries.
This market concentration is even more narrow than what it is in the United States.
So why does any of this matter?
Well, because a lack of market competition can lead to a decrease in national innovation, investment, and overall productivity.
Australia is currently ranked 93 out of 133 (near Uganda) for economic complexity, as recorded by Harvard Growth Lab’s Economic Complexity Index.
It serves as a timely wake up call that we need to innovate and diversify our economy.
Yet, how can that happen when it’s so difficult to get a business off the ground.
Now, back to Bonza.
Was the carrier a poorly managed startup, or was its demise a symptom of a system that does little to support the challenger?
From a business standpoint, analysts point to several factors that might have contributed to Bonza’s downfall.
The airline relied heavily on a leasing agreement for its four planes. When the lessor repossessed the aircraft, Bonza’s operations were crippled.
This highlights the vulnerabilities of airlines that are heavily reliant on leased fleets, especially for startups with limited capital reserves.
Breaking into this market is notoriously difficult, with high operational costs and fierce competition on popular routes.
The airline was also unable to secure access to Sydney Airport, leaving it unable to tap the lucrative market.
It’s worth noting that the CEO of Bonza, Tim Jordan, was a lot more than just some guy with an idea though.
With 25 years experience in the low cost airline industry, he knew the industry very well.
Nonetheless, the company has followed the likes of airline competitors Tigerair Australia, Ozjet and Air Australia to vanish from Australian skies over the past 20 years.
The final word
The failure of Bonza, or any Australian startup company for that matter, should not just be “accepted”.
Businesses are going into administration at a rapid pace in Australia and that is a concern — it sends a message to anyone else in this country looking to start a business; why bother?
If the regulatory hurdles aren’t big enough, the stranglehold the incumbents have over everything from pricing power, to access to infrastructure is beyond challenging, no matter in which sector a company operates.
A company will literally just run out of runway before it can spin a profit.
Hopefully, Australia starts to view competition as a good thing and policy gives a leg up to those looking to innovate.
Without it our economy will ultimately suffer.
