Promising innovation, can Koala Airlines survive the aviation graveyard?

Aviation industry experts say upstart carrier Koala Airlines will have a difficult time entering the Australian market and ensuring it has a sustainable business model.

The company, which does not yet operate any domestic flights, has recently appointed a management team, updated its website and social media presence, and revealed ambitious – albeit light on detail — plans on how it is going to enter a market that has been defined by failure.

Rico Merkert, professor and chair in transport and supply chain management at the University of Sydney Business School, said Koala Airlines would face serious challenges in entering the domestic market, even if economic conditions remained stable.

“All the different market segments are quite well covered when you talk about Qantas, Virgin and Jetstar,” he said.

“What they will do is defend their turf as much as they can and they obviously have a strong tool in their loyalty programs.”

Koala Airlines has earmarked the Boeing 373 Max 8 as its aircraft of choice.

He said that for the business to be financially viable, Koala Airlines would need access to “cheap aircraft”.

“Unless a newcomer can come up with a plan in terms of having those cheap aircraft available to them, I don’t see how they can survive in that very competitive market,” Merkert said.

“Both Qantas and Virgin will do everything in their power to make their entrance as difficult as possible.”

Innovation?

Australia’s airline industry has already been rocked by two companies shuttering or entering administration this year in Bonza and Rex.

But Koala Airlines has acquired a charter flight company that has an air operator’s certificate and promised a strategy that will “fundamentally differ from previous entrants in a domestic market”.

Dr Ian Douglas, an expert in aviation and airline management from UNSW Sydney, said the AOC belonged to a Darwin charter company that “flies five or six seats Cessnas and a couple of old Metroliners”.

“It would be a dramatic shift for them to move to flying a narrow body, 180-seat domestic aircraft,” he said.

“There are no records I can find of them ordering them and nothing on Boeing’s order books for them either.”

Koala Airlines CEO Bill Astling founded the airline in March 2018 and acquired the charter flight company with the AOC in 2019.

Gui Lohmann, a professor at RMIT University, said entering the airline market was a “resource and capital-intensive” endeavour.

“We saw what happened with Bonza. They were having flights twice a week and simply didn’t have enough frequency to make sure that the business traveller could shift from Virgin Australia or Qantas,” he said.

“With Rex’s problems, they would have a workforce to tap into, but the challenge is more towards getting access to the right aircraft.”

Workforce issues ultimately grounded Bonza, according to Lohmann, Photo: AAP

Red flag

The airline plans to start Boeing 737 Max 8 flights, depicting the craft on its website, and Lohmann said that the choice in aircraft “is already a red flag for Koala”.

“It has a longer range and a higher capacity, as well. Is there enough demand for an aircraft of that size?” he said.

“One of the challenges for any airline coming in is how its fleet they’re getting access to actually match the market.”

Douglas agreed that the aircraft may prove troublesome and said that a plan to fly just four aircraft “makes no sense”.

“When Virgin came back from bankruptcy, I did work for the department then and found that they needed 35 aircraft to come back as a viable operator in the domestic space,” he said.

“Four aeroplanes just doesn’t cut it. You don’t get any efficiencies, you’re a huge risk of disruption, and it’s awkward with crewing and maintenance.”