Exclusive interview with new Australian LCC Bonza

Transcript

Peter Harbison:And a big welcome today to CAPA Live. Not actually coming physically from Puerto Rico, but from Sydney. Wish we could be in Puerto Rico. Today we have with us, as you've seen, the latest big new event in Australian aviation, Bonza. Tim Jordan, who's got a lot of experience in the Australian market as well as various places like the Philippines and Kazakhstan in the low-cost airline industry, started out with Virgin Blue in Australia many years ago with some other parts, strings to his bow. But Tim Jordan, great welcome to Sydney and great to hear the news.

Tim Jordan:Thank you, Peter.

Peter Harbison:Tim, let's sort of— we've got people coming online to ask questions and we'll probably try and feature a few of those, but just quickly let's run through sort of what we know now from the media. Bonza, B-O-N-Z-A, is going to be a low-cost or ultra-low-cost carrier starting with 2 or 3 aircraft beginning early '22 or as early as you Can in 2022, operating domestically using MAX 8 aircraft, which are fairly large aircraft. We'll talk about that a bit later. You're backed by a group called 777 Partners, who are an investment group with about $6 billion, I think, in investment funds. So fairly hefty. They have interests in a Canadian low-cost carrier, Flair, so they're already sort of investing in this market as well as other parts of the aviation market. So let's take it from there. Anything I've missed sort of as background that I should be saying, Tim?

Tim Jordan:No, I think that's a good summary to start with. We very much are focusing on the leisure market like most low-cost carriers, but, you know, pretty much 100% of our focus will be on the leisure market.

Peter Harbison:All right, well, one of the things you've said, I think, is that you're to some extent based on the Allegiant model. This is an ultra-low-cost carrier in the US which has been very successful through thick and thin. There are some differences with its model, though, its original model anyway, and that was it bought very old aircraft so it didn't have to utilise them very much. You could have them sitting on the ground But they would just operate really from, typically from fairly small ports to some destinations, or in some cases to large ports, but also between smaller ones. And but the fact that they could leave those aircraft sitting on the ground meant that they didn't have to operate all that frequently. These weren't daily services or twice daily services. They tended to be more like—

Tim Jordan:Yeah.

Peter Harbison:Almost like a charter, in fact, in a lot of ways. So, um, you— and these are very large aircraft that you're talking about too. I think if they're configured the same way as the Flair aircraft are in Canada, they've got something like 189 seats. So these are big aircraft for small markets that are going to be— have to be flying very free— very frequently. Sort of, I don't know what you're aiming at, 12, 15 hours a day, 12 hours a day. to keep them, you know, in a way that's economic. What have I said that's wrong there, and what— where do you fit into that scheme?

Tim Jordan:No, I think that's a good summary. In terms of the Allegiant model, yes, we believe we shall execute in a similar manner. However, we do believe that there are markets out there which will allow us to have utilization which is higher than that Allegiant model, which, as you say, does lend itself to the aircraft, the brand new aircraft that we'll be operating. I guess it also— what we also know is the pricing that And the subsequent lease rates that we're looking at are highly, highly competitive. So our investment partners, 777 Private Investment, have secured a marvellous arrangement in terms of those particular aircraft. And that's, you know, it's fair to say that 2 or 3 years ago, we probably wouldn't be looking at having brand new aircraft. starting this opportunity. But now we can because of the pricing involved. So I think the economics have become— have allowed us to operate brand new aircraft while also improving upon the Allegiant utilization assumptions.

Peter Harbison:So when we talk about that, what sort of utilization are you featuring, Tim? Going to be able to hit 12 hours?

Tim Jordan:I think that's a reasonable goal. You know, whether it's between 11 to 12 hours, I think obviously here there are certain airports with certain curfews that, you know, lead to certain constraints in terms of— or definite constraints in terms of scheduling. But to have that goal of 11 to 12 hours is, I think, not unreasonable.

Peter Harbison:As I said, you're operating very large aircraft. I don't know if they're going to be the same as Flair, 189 seats, but are there that many markets in Australia where you can be operating that frequently with— because you've got to get full loads. It's one thing to have low unit seat costs, but to have low unit passenger costs is another issue entirely. Yeah, I think we're going to be focusing on the major cities.

Tim Jordan:Yeah, indeed. This is about using the capacity. I find myself quite often rolling my eyes at carriers that don't use the capacity. And, you know, the ultimate perishable good is when we push back. So, yes, we do absolutely need to use the capacity. If we're not running, pushing, you know, 85% to 90+% capacity, I'm going to be disappointed. So in terms of the number of markets that can sustain— 186 seats is how we're going to be configuring the aircraft. In terms of the number of markets, we will look at frequency. We do believe we, you know, we will be— we are certainly not going to be a business-focused carrier. We're not going to be operating any markets 2 or 3 times a day. There's some great carriers out there already doing that. Will we be operating markets It's 2, 3, 4 times a week. Yeah, that's probably the sort of frequency levels we're looking at. Does that work for our customer base? Yes, it will do, because the alternative is probably sitting in the car or sitting on the sofa. You know, our market's not flying at the moment. So if your alternative is sitting in the car with the kids in the back for 8 hours, you know, I'll take that hour flight on a Wednesday afternoon.

Peter Harbison:Okay, well, we might go— obviously won't go into the cities that you're talking about, but one thing to clarify too is you've said you're not going to be operating the Golden Triangle, as in relatively high-frequency Sydney, Melbourne, Brisbane operations, but you will be flying to and from those cities as well from these other destinations?

Tim Jordan:Yeah, yes, we will be offering some service from Melbourne, Sydney, and Brisbane, assuming we can get an airport arrangement with our airport partners. Obviously, if we can't, we won't. But the intention is we believe there are some new markets that are possibly unserviced from those cities that with the right fares, we could do some market stimulation. And we can operate Probably on a low-frequency basis, or certainly on a low-frequency basis. Again, nothing which is going to distort the market in terms of business travelers. We are not going to appeal in any shape or form to any business travelers. Our product is just not going to work for them. From a frequency, from a schedule, from lounges, from frequent flyer points, none of those— call them bells and whistles, but—

Peter Harbison:Yeah.

Tim Jordan:They're just not going to— we're not going to appeal as a consequence. But there will be service from Melbourne, Brisbane, and Sydney if we can get the airport arrangements. There will be some service from those locations.

Peter Harbison:Tim, I mean, it's one thing to have low unit cost aircraft, but services in Australia, ground services, tend to be fairly expensive. And we've been watching Qantas having its debate with the unions over outsourcing ground handling, for example. Are you confident you can keep those costs down as well? Because there are a whole array of different areas in Australia, which is a pretty small market, where those costs do tend to squeeze upwards generally.

Tim Jordan:Yes, they do. It is a— it's More competition in that particular space wouldn't necessarily be a bad thing. But there are providers and we're hoping again they look at us as an opportunity to expand their business potentially to locations where they don't maybe operate at the moment. And there'd be a halo benefit for those places whereby they do operate at the moment and we also want their services. So yeah, we are hopeful that those ground handling partners, the airport service providers, step forward and want our business.

Peter Harbison:Have you had any indications yet that you might be successful in that?

Tim Jordan:We think— we believe there will be support for what we're doing.

Peter Harbison:Good. I won't push that any further. I know it's a sensitive area. Let me turn to a few of the questions. We've got one from Western Sydney Airport, which of course, as you know, won't be flying for 5 years or so. What is Bonza's sales and distribution strategy? That's the verbatim question.

Tim Jordan:Yeah, we will embrace— The pandemic's been revolting for everybody, including industry partners. So we will put our hands around the industry as much as we possibly can and try and encourage more tourism and more support for our partners. Does that mean we'll suddenly be paying commissions and those sorts of things?

Peter Harbison:No.

Tim Jordan:Are we quite happy to work with partners who charge for the services that they provide? Yes, why not? If that allows the market to grow and for them to see some extra business, why not? Everyone's done it tough the last couple of years.

Peter Harbison:Okay, on that sort of extension of that, Tim, one of the areas you've talked about, well, looking at the revenue side of things, obviously for very low-cost carriers, ancillary revenues are a key part of it. Whether it be paying for a seat allocation or buying in-flight meals, in-flight snacks. The Australian traveller has become pretty much spoiled. I think you'd agree Australia's domestic market is probably— domestic service on the airlines is probably as good as anywhere in the world, if not better, and therefore a bit demanding. Are you confident you can actually squeeze those extra dollars out of passengers for— For getting their hands in their pockets in flight?

Tim Jordan:We think there's a reasonable chance. We are going to be talking to the very price-sensitive end of the market. So what that tells us is we've got to be fair and reasonable. We've got to look at ourselves in the mirror when we're setting some of those ancillary pricing levels. And we've got to say, if I'm hearing this as a customer, do I think this is reasonable? And if we can say yes, that's all well and good. If we're finding ourselves struggling to explain the rationale for a particular charge, or we believe, you know, when we're looking at a specific charge, it's on the high side, then maybe it's telling us something. So I think fair and reasonable, we need to actually pass that. We need to pass that test.

Peter Harbison:Are you going to go beyond the normal standard fare for In-flight sales?

Tim Jordan:I guess in-flight sales, you know, I think we might see some Bonza budgie smugglers make an appearance on the aircraft. There may be, you know, a few quirky items that suddenly pop up on our in-flight merchandise. So, but I don't want to spoil all the surprises. But yeah, we'll have a Well, we'll have a good cultural offering.

Peter Harbison:So just to be very clear, you're not talking about the crew uniforms there? Yeah, you're absolutely right. OK, well, good luck with that. The Flair aircraft— I just might ask you a little bit about any similarities with Flair after this because we do have a question on that. But the Flair aircraft have inbuilt Wi-Fi. Are these aircraft that you're bringing in going to have Wi-Fi?

Tim Jordan:We believe so. It's something which is being clarified at this moment. So yeah, I don't want to— that's to be confirmed on that one.

Peter Harbison:It's probably something now you're going to need to have, isn't it? Because to be competitive in this domestic market, that's where everybody is pretty much.

Tim Jordan:I'm not sure you do when You know, when your alternative is 8 hours in the car with the kids, you'll possibly sit, you know, without Wi-Fi. So I think if you're in a highly competitive market, yes, I'd absolutely agree with you. But in a market where you're the sole operator or potentially the only low-cost operator, I think you don't necessarily need those.

Peter Harbison:Yeah.

Tim Jordan:those particular items. But as I say, we may end up down that particular road, to be confirmed in the coming weeks and months.

Peter Harbison:So, I mean, and talking about Flair, how much alike Flair is Bonza going to be? Flair, the Canadian ULCC.

Tim Jordan:We clearly are— our owners are shared. The aircraft, we are obviously going to be operating the same aircraft. But other than that, you know, we are independent in terms of operations. I very kindly got a message from Stephen Jones this morning just saying congratulations on yesterday's announcement. But we really haven't, you know, we're not swapping notes in the evening or the morning.

Peter Harbison:Okay.

Tim Jordan:Twice a day or anything like that.

Peter Harbison:Okay, that's good to know. Well, so you've got a bit of latitude. This one's sort of got a sting in the tail, this question. How do you envision Bonza will be different from other failed LCCs in Australia? In other words, how are you going to succeed where they can't?

Tim Jordan:Sure.

Peter Harbison:What's the magic?

Tim Jordan:And I guess having been asked that question only about 30 or 40 times in the last 24 hours, You may have heard this response already, but I guess the key thing about what we do is where we fly. That's the primary part of our product. And so like any industry, this industry is particularly hard, but any industry is hard if you have too many people doing the same thing. And if I don't want to critique previous airlines. I wasn't around for some of them. But what I can say is we will be doing things differently in terms of our route network. More than half of our routes that we've identified are not currently operated by any carrier. Where we are overlapping with existing operators, they're generally small business-focused operators. We will be looking to stimulate a brand new low-cost market without interfering with their market. And so we're not going to be going toe-to-toe for the same market segment as existing carriers. And I think that is the recipe for our success.

Peter Harbison:Well, Tim, I mean, that sounds good, but you've been around this industry a long time. You know very well, particularly when you've got a large gorilla sitting in the corner, That once you establish a particular route and it works, someone else is going to come in over the top of you. I mean, that's the way it works in the industry. The product is indistinguishable in many ways. The price is different, the smiles on the crew faces are perhaps different, but otherwise the product is the same, flies at the same speed. It's very easy to come over the top of you. How do you, how do you How do you plan to confront that issue?

Tim Jordan:I sort of— if a market is being flown 2 or 3 times a week, I would question the viability of a business-focused operator coming into a market, especially when that market is actually highly, highly price sensitive and essentially has been created by Bonza. If all of a sudden another operator comes in over the top, And suddenly the entrance pricing goes from $69 to $169, I think that market evaporates pretty damn quickly. So I think it would be unlikely for that to happen. If it does happen, from our cost base— And we believe we have a cost base to, on a route-specific basis, that will be able to compete with anybody else in the country. So that is also a defence mechanism. And I guess if, as a— and I sincerely hope that this wouldn't be the case, but I guess at the endpoint is there are competition authorities. And if someone very— if a route hadn't been flown for 50 years and all of a sudden we start flying a route—

Peter Harbison:Yeah.

Tim Jordan:and 3 weeks later somebody else decides to fly the same route which hasn't been flown by anyone for 50 years, then that may raise some eyebrows in various quarters.

Peter Harbison:Yeah, I think you've probably got more confidence in the power of competition law in the aviation industry than I have. It hasn't had a great 60 years, but yeah, point taken. I won't labour that. But it is the first time there have been 4 jet aircraft, jet airline operators in Australia operating separately. Who do you anticipate would hurt most? Are you— do you think you'll hurt Rex or Virgin or even have a nibble at the big gorilla's toes?

Tim Jordan:I don't think we will have an impact on any of the above, to be quite honest, in any Absolutely. Any significant way at all. I guess in terms of the point of 4 jet operators in the country, you know, 21 years ago when Virgin Blue started, you know, since that point, the population of Australia has grown by a third. The demographics of this country has changed markedly since Virgin Blue, and Virgin Blue seems like yesterday. And yet the population has grown by a third. Now, that's a very significant population growth in the country, let alone the geographical and demographic spread which has happened across the country in terms of large regional centres that are growing up and continue to grow. So I think all of that validates what we're actually planning to execute in the market.

Peter Harbison:Okay, yeah, well, you dodged that question. But I hear what you're saying. Yeah, I mean, the underlying point is that, of course, you're all competing for the same number of pockets. You might be able to stimulate some additional travellers. And good luck with that. Hope it works.

Tim Jordan:I'm sure it will. Yeah, we It's about increasing the pool of travelers because, you know, especially when you're looking at outside of Sydney, Melbourne, and Brisbane, or even within Sydney, Melbourne, and Brisbane, there's a lot of people that are still not getting on aircraft as frequently as they would if there was another low-cost alternative, or if the only alternative currently is a business-focused operator.

Peter Harbison:Yeah.

Tim Jordan:And what we plan to do is to make that pool bigger. And so therefore, I would say, you know, it's not a case of taking from somebody else's pockets. That really won't be the case. And I think around the world, you've actually seen the situation where a low-cost carrier has come into a market, the pie has grown for everybody.

Peter Harbison:Okay, but you're starting with 2 or 3 aircraft. You obviously have aspirations to grow, so that equation is going to shift over time, isn't it, in terms of the competitive dynamics with the other airlines, but also with demand in the market? These MAX 8 aircraft are very flexible, of course. They do have a range of, what, 6,000 kilometres plus? What sort of sector lengths do you see as becoming typical once you do start operating?

Tim Jordan:I, you know, we, from a low-cost carrier perspective, we would love to be, um, we would love all of our sector lengths to be in that glorious 1 to 2 hour, um, block, block hour sort of, uh, sector length time. Um, we know that that's the, you know, that's the sweet spot of operation in terms of, uh, yield and cost. And, um, so Where possible, we will try and adhere to that as much as possible. But we can't move cities as much as we'd love to, pick them up and maybe drag them one direction or the other 500 kilometres. That's not possible. So we will deal with the geographical situation we're presented with.

Peter Harbison:What is going to be the— I mean, you've obviously looked at routes and I'm obviously equally obviously not going to ask you what they are. What is going to be the average length if you can't get in that magic 1 to 2 hours? Will you be operating West Coast as well?

Tim Jordan:In terms of the airport process that we started at 6 o'clock yesterday morning, there were a good number of, you know, the whole country was covered in terms of the 45, 46 airports that we contacted and said, would you be interested in Bonza service? Yes. WA was in there and the NT was in there. The whole country was covered.

Peter Harbison:That does widen the scope quite a lot. There are a lot of city pairs when you look at the permutations. There are lots of opportunities there, and I think a lot of routes that aren't served. You're obviously right there. What sort of expansion are you looking at, say, for mid-2023? How big, assuming you Your plan goes okay, how big will you be then?

Tim Jordan:Difficult to say. I'd rather not say. What I'm happy— what I'm really happy about though is the flexibility that our investment partner actually brings to us. You know, we are leasing the aircraft from 777 Partners, who is our investor. So that gives us fantastic flexibility to actually speed up and slow down as we would, as the market, as our performance actually tells us to. And that is a wonderful bit of flexibility that most startup carriers just don't have available. And, you know, you're locking yourselves into leases. And yes, you are getting the aircraft when you said you were taking the aircraft. And I, you know, being part of that 777 family with multiple airlines gives us a little bit more flexibility, which may not be the case if we were out there in other— with other lessors.

Peter Harbison:Yeah, that's a good place to be. This question is a bit further down the line, obviously, and I suspect with the sort of route network you're planning to operate, it might be difficult. But we've got a question. Would you be Looking to partner with international carriers feeding your network, for example, from the US?

Tim Jordan:No. And I'm always cautious of saying no definitively. I should probably preface it with it's highly unlikely, but we should never say never. So, but at this point in time, I will say no.

Peter Harbison:Yeah, obviously as you get bigger, then things start to change. You start to look at new horizons, I guess. So maybe 2023, that might become something on the agenda.

Tim Jordan:Yeah, I just, you know, from a previous life, you sort of, you learn from all your experiences. And I do remember putting in place previously such an arrangement. And really, based on the complexity that it introduced and the uptake from a passenger number, from a customer number, it just really didn't warrant the time and effort involved. And I think you just have to learn from previous experiences and actually go, yeah, okay, well, The world hasn't changed that much in that time. So you draw on that experience.

Peter Harbison:Right. Yeah, sounds very reasonable. A couple of quick questions to finish with. When do you expect to get your AOC?

Tim Jordan:Subject to us doing everything that we should do in the eyes of the regulator, we are expecting that the second quarter of 2022 is when we should be taking to Australian skies.

Peter Harbison:Right. That sounds— it's not far away, actually. It's almost Christmas.

Tim Jordan:No, it's not. But we will be taking brand new aircraft. You know, we aren't taking used aircraft which have come back to a lessor and have been flying around in other parts of the world. Which you can understand, you know, there would— could potentially lengthen that particular process. These are brand new aircraft coming towards us, coming to us, and the obligation is on us, obviously, with the authorities, with CASA, to make sure that we are ready. And if once they are happy with us, then obviously we will move ahead.

Peter Harbison:Any in the paint shop yet?

Tim Jordan:Not at the moment.

Peter Harbison:The politician's question now, sir, Mr. Minister. How many jobs do you anticipate this will create for the Australian economy?

Tim Jordan:Hundreds initially in a direct environment for us. In terms of head office roles, we are going to be based in regional Australia. You know, a point of difference. We will be based either in northern New South Wales or southeast Queensland. We are currently interacting with New South Wales and Queensland government. That head office will be plus or minus around 100 roles initially. For each aircraft we add, as you can imagine, with There will be about 50 team members that we add. So initially hundreds in terms of the scope of our initial operations and obviously a significant multiplier effect in terms of the general economy and tourism beyond that.

Peter Harbison:So yeah, to close that off, eventually thousands is what you're saying. Tim Jordan, thanks very much. Good luck.

Tim Jordan:Thank you very much.

Peter Harbison:We're looking forward to having you in the market with us. Thanks, Tim. So good luck.

Tim Jordan:Thank you. Bye-bye.

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