Dr Tony Weber write this one, will be interesting to see what happens.
As a Novocastrian it would be wrong of me not to comment on 2 new aviation markets on which new ULCC Bonza expects to fly over the coming period, that being NTL-MCY (Newcastle-Sunshine Coast) and NTL-PPP (Newcastle-Whitsundays).
To determine the expected demand on these city pairs, I draw insight from a model of demand called the gravity model. The gravity model essentially says that pax volumes differ across city pairs because of the combined population and income per capita of the city pairs and the distance between them. Immigration patterns may also play a role in driving city pair demand (the number of people living in Newcastle originally from the Whitsundays or the Sunshine Coast and vice-versa) as will the extent of business trade flows between the city pairs.
The combined populations will be the biggest driver. In the case of Newcastle Airport the catchment is not straightforward to understand. It clearly includes Newcastle and surrounds and the Hunter Valley. But it may also include half the central coast (south of the airport) and as far north as Forster-Tuncurry. The population catchment may not fall terribly short of 1m. The population catchment of the Sunshine Coast is in the order of 350k and the Whitsundays is around 35k. The NTL-MCY sector length is 697km and the NTL-PPP sector length is 1,401km. Tourism data over 2019 indicates that the size of the Hunter+Central Coast-Sunshine Coast overnight tourism market is around 230k pax movements per year. A daily flight on a 186-seat aircraft at a 90% seat factor (around average for a ULCC) involves carrying 122k pax.
This means that Bonza on NTL-MCY would have to capture around 50% of the pre-Covid total market (all transport modes) or capture a lower percentage of the current market and stimulate the residual required demand. In my view this is not inconceivable. The meat in the demand and route (NTL-MCY) viability sandwich is whether the yield (RASK) that Bonza would need to target to sufficiently stimulate the market is above CASK.
Assuming Bonza is similar to a Spirit ULCC, it's CASK on NTL-MCY will be around 9.2 US c/ASK. Assuming an EBIT margin of 10% this means it would require a RASK of around 10.2 US c/ASK. At a 90% seat factor this implies an average airfare target at a AUD/USD = 0.7 of around A$113 one-way. I estimate that this is not too far away from the explicit cost per pax of a family of 4 driving from NTL to MCY. This route would certainly seem viable to me. The risk will be if profits earned on the route invite entry by a ruthless competitor (I place this probability at 99.9%).
Tourism data indicates that the size of the Hunter+Central Coast-Whistundays market in 2019 was around 40k pax movements. To generate a viable daily service on NTL-PPP requires Bonza to materially stimulate this market. Without boring you with the RASK and CASK detail, I dare say that this route will pose a challenge for Bonza.
I wonder if the A220 is better suited for these routes?