THE WASHINGTON POST: New airlines target Qantas’s grip on lucrative Australian market

A trio of new airlines are eyeing Australia in what’s shaping up to be the biggest assault on Qantas Airways’ iron grip on domestic air travel since the company listed in 1995.

Startup Koala Airlines Pty plans to offer passenger services by the end of this year.

Another new entity, Zinc, which was founded by former Qantas executive Peter Kelly, aims to begin operating out of Sydney’s new airport in early 2028 and is in talks with a potential cornerstone investor.

The best credentialed potential challenger is VietJet Aviation JSC, which is preparing to enter Australia as a domestic operator, according to local media reports.

The Vietnamese airline has already been allocated thousands of takeoff and landing slots at Sydney’s main airport, said a person familiar with the matter.

Australia’s domestic aviation market is one of the most lucrative in the world, thanks to the duopoly held by Qantas and Virgin Australia Holdings, which between them control 98.5 per cent of the market and generate profit margins up to twice as much as US carriers.

While recent attempts to crack the duopoly ended with the collapse of regional carrier Rex and startup Bonza two years ago, key structural changes to the aviation market are giving new entrants courage to try again.

The allocation of takeoff and landing slots at Sydney’s main airport has been overhauled, while the new Western Sydney International Airport offers an alternative - and largely vacant - operating base with fewer flight restrictions.

“Everyone sees there’s money to be made,” said Simon Elsegood, head of research at CAPA Centre for Aviation.

The opportunity for airlines at Sydney’s new airport makes it Australia’s most significant aviation infrastructure since Brisbane’s new airport four decades ago, he said.

A wave of new airlines would be welcome news for Australian travellers, who must contend with what the local antitrust regulator has labeled one of the most concentrated industries in the country.

The lack of competition means Qantas and Virgin have had less incentive to offer attractive airfares, develop more direct routes or operate more reliable services, the Australian Competition & Consumer Commission said in a landmark 2023 report.

For example, a return economy flight from Perth to Melbourne to attend the AFL Grand Final in September - when the Fremantle Dockers are currently favourites to win their first premiership - costs as much as $3667 on Qantas. That’s almost twice as much as a discounted return Perth-Paris flight next year.

The network connecting Melbourne, Sydney and Brisbane is so lucrative for airlines that it’s known in Australia as the Golden Triangle. The Melbourne-Sydney route was the sixth busiest in the world in 2025 with almost 9 million seats - more than on China’s top Beijing-Shanghai route - according to data compiled by OAG.

That has helped fatten profit margins. Qantas’ domestic unit reported an operating profit margin of 16 per cent in the six months ended December 31, while its low-cost arm Jetstar posted a 22 per cent margin for its domestic business.

In the US, second-quarter operating margins ranged from 2.7 per cent at American Airlines to 9.4 per cent at Delta Air Lines, according to data compiled by Bloomberg.

VietJet declined to comment, while representatives for Qantas and Virgin had no immediate response.

More than three?

There are indications that there may be other new entrants beyond Koala, Zinc and VietJet. The challengers, and how they can avoid competition with Qantas and Virgin, were a key topic of debate at an aviation conference in Adelaide last week.

“We’re talking about potentially more than three,” Matthew Schroder, general manager of infrastructure and transport at the competition regulator, said during a panel discussion.

“They may not be serving the same sectors. You can get different types of models that aren’t directly competing with others.”

Koala aims to avoid Qantas and Virgin by striking deals with foreign airlines to provide domestic charter flights for their passengers in Australia. Koala chief executive Bill Astling said last week he’s in talks with more than 10 overseas carriers.

When it comes to pricing, the new entrants look more likely to compete with Jetstar than with the higher-end Qantas and Virgin brands, said Chrystal Zhang, an associate professor of aviation at RMIT University.

VietJet in particular has already shown overseas it can operate a successful low-cost model that includes cheap fares, she said.

At Sydney’s main airport, new slot manager Airport Coordination has reserved 2252 slots for a carrier identified only as “YY,” according to published allocations for October 2026 to March 2027.

The unnamed entity is VietJet, according to a person familiar with the allocation, who asked not to be named because the information isn’t public, confirming an earlier Sydney Morning Herald story. The allocation to “YY” is distinct from VietJet’s 307 publicly disclosed international slots for the same period.

The Vietnamese carrier has an order book of almost 400 Airbus SE and Boeing Co. planes that will need to be deployed.

Past failures

Yet Australia’s aviation landscape is littered with the tombstones of airlines that tried and failed to crack the domestic duopoly. Rex collapsed in 2024 after a costly expansion into capital city routes. Short-lived budget carrier Bonza failed the same year after an ill-fated foray into little-served holiday routes.

“Nothing in the current crop suggests it will end differently this time,” said Josh Gilbert, lead analyst for the Asia Pacific region at eToro. “Any new entrant has to win customers on price, and the moment fares drop low enough to pull travellers away from the incumbents, the margins stop stacking up.”

The loyalty programs operated by Qantas and Virgin Australia also create competitive advantages that are often underestimated, he added.

The programs lock in corporate travellers and can persuade everyday flyers to pay a few dollars more for a flight, he said.

“A startup with a handful of aircraft simply can’t compete with that,” Mr Gilbert said. “Scale wins, and right now only two airlines have it.”

This originally appeared in Bloomberg.