It’s a fine week to be an armchair airline CEO. There’s a lot going on, most of us are at home working and in need of distraction. And who doesn’t think they know more about running airlines than Willie Walsh, Doug Parker, or Tony Douglas?
With Virgin Australia in strife, there’s plenty of chat in the blogosphere and online forums about whether Australia could get a new domestic airline. That depends on a lot of factors. Virgin Australia might be down, but it isn’t out yet.
A need for two strong domestic airlines
But most people agree that Australia needs (and can support) two domestic airlines. Importantly, nobody wants to see the Qantas CEO and his treasury staff doing cartwheels through their Sydney HQ, should that airline end up being the only show in town.
The repercussions on fares and service would not favor the traveling public.
If history tells us anything, it’s that nature abhors a vacuum in aviation. There have always been people with big visions ready to start up an airline in Australia. After all, who doesn’t want to be an airline boss?
In the worst-case scenario, it is unlikely Qantas would have the field to itself for long. Yesterday I heard (I assume it was an April Fool’s Day joke) that Ryanair would step into any breach. That’s so appalling it’s funny. Imagine Australia’s cosseted frequent flyers dealing with Michael O’Leary. There will be no more worrying about what type of pinot noir they serve in the Virgin Australia lounge if he hits town.
It’s unlikely things will come to that (I hope). But assuming that a second airline will pop up, either way, it is interesting to second guess who might be behind it.
A few airlines have tried and failed to crack this market
Virgin Australia (then Virgin Blue) was around before Ansett collapsed in 2001. But Ansett’s collapse gave Virgin Australia serious competitive uplift. It was a lucky break for Virgin which otherwise would have probably struggled in a market too small to support three big domestic airlines.
Various domestic airlines have come and gone over the decades. Witness Compass I, Compass II, Impulse, the fabled and ludicrous OzJet. Most have failed. Besides a general lack of cash, their fundamental strategic error was competing in a field against two large pre-existing domestic carriers.
The airlines that succeeded, like REX, Alliance, and Air North, serve niches that complement rather than compete directly with the two big domestic carriers.
Possible new entrants?
But if there is only one big domestic carrier, the chances of success for a new entrant increase. Who would that new entrant be?
This time last year, I would have cast my eye east over the Tasman to Air New Zealand. They are a successful airline that knows the local market. But Air New Zealand took a financial hit last year and embarked on an efficiency drive. Such drives rarely involve starting up new airlines. And of course, like airlines everywhere, Air New Zealand is in a world of pain right now.
Therefore, you couldn’t reasonably consider Air New Zealand a serious contender these days.
You’d have to consider Singapore Airlines
Another live possibility is Singapore Airlines. Presently, they too are taking a big hit, but the airline is majority-owned by the Singaporean government. Ultimately, funding isn’t an issue for the airline. Here’s what interests me about SQ. As the current crisis illustrates, a weakness of Singapore Airlines is its dependence on Singapore. If Singapore Airport closes, so does Singapore Airlines and a little diversification would help protect against that.
Singapore Airlines also has an ownership stake in Virgin Australia. It is the third biggest international carrier in Australia (by passenger numbers), knows the local market well and has long has ambitions in the region.
There are probably some legislative and statutory hurdles to overcome, but it makes for an interesting proposition. Certainly, Singapore Airlines would be a better match for the Australian domestic aviation market than say, Ryanair.
But it’s all a bit of a parlor game right now. Qantas may disagree but it’s in nearly everybody’s interest that Virgin Australia pulls through. They may need to refocus on their low-cost Virgin Blue origins and skip their international ambitions, but a viable and prosperous smaller airline is a far better outcome than the current teetering airline.
Should there be a new second airline, what do you think it will be? Who will be behind it? Post a comment and let us know.