Australian airlines now dominate Vanuatu's skies, so why does its government want to reboot Air Vanuatu?

Brendan Dilly, a resort owner in Vanuatu, says the collapse of the country's national airline was "the best thing that ever happened" to the local tourism industry. Far from lamenting the airline's demise in May, he hopes it never resumes international flights.

So, when the Vanuatu government announced plans to rebuild a new Air Vanuatu and reinstate international routes, he was deeply disappointed. "I don't think anything has hindered this country more than Air Vanuatu," he said. "The failure of Air Vanuatu has been hugely detrimental to this country."

Mr. Dilly said Air Vanuatu failed to pay his resort for accommodation provided to stranded tourists when the airline collapsed, leaving him owed "a substantial amount of money." "We'll never see that money again," he said. He also noted the airline's frequent cancellations and delays damaged the country's tourism sector. "For us personally, it's been millions of dollars in opportunity cost. For the country, it's probably hundreds of millions of dollars."

When Air Vanuatu entered voluntary liquidation in May 2024, the country's business and tourism sectors had hoped it marked a new chapter for the troubled airline. Australian airlines entered the market and now dominate the tourist hotspot. However, just months later, when it exited liquidation in October, Air Vanuatu was handed back to the government, which has announced plans to restart international services. The question now is why Vanuatu's politicians are so keen to play a role in aviation and want to revive a failed airline.

Despite initial fears that the collapse of Air Vanuatu would harm Vanuatu's tourism industry, Mr. Dilly says the number of Australian tourists has "increased dramatically" in the past year. Virgin Australia has been operating flights from Australia to Vanuatu since 2004, and Air Vanuatu's collapse prompted Qantas and Jetstar to also join the route, operating up to nine return flights per week. The Vanuatu government also adopted an "open skies" policy, allowing foreign airlines to use the route to attract tourists. The Vanuatu Tourism Department told the ABC that international visitor numbers were 18% higher in August 2024 than in the same period in 2023, when Air Vanuatu was still operating international flights. "In my opinion, the benefit of Qantas and Virgin coming into Vanuatu is 1000 times more beneficial to the country than the country starting another international airline," Mr. Dilly said.

Last year, Ernst & Young Australia was appointed as liquidator of Air Vanuatu, which allowed the airline to resume domestic operations and transfer shares to the shareholders of AV3, a private company owned by the Vanuatu government. The sole shareholder of AV3 is the Vanuatu Ministry of Foreign Affairs, making the restructured Air Vanuatu similar to its pre-collapse ownership structure, when three senior ministers were shareholders. Glen Craig, managing partner of regional consultancy Pacific Advisory, believes the "new" Air Vanuatu will be "tainted" without new shareholders. He said, "As far as we can tell, the assets, management and shareholders of AV3 and Air Vanuatu are the same, which is a bit like 'Groundhog Day'."

In an interview with the ABC, then-Vanuatu Deputy Prime Minister, Matai Seremaiah, confirmed that Air Vanuatu would continue to operate domestic flights and re-enter the international market. Vanuatu has since had a snap election and negotiations are underway to form a new government, and it is unclear if the new government will take the same approach to Air Vanuatu. Commentators say restoring regular air services between Vanuatu's islands should be a priority for the next government. The Vanuatu Tourism Department says the restored domestic flights are still irregular. "Sadly, the majority of tourism businesses on the outer islands are still facing a lack of reliable air connectivity, which continues to impact their bookings and revenue," the department said in a statement to the ABC.

Resort owner Mr. Dilly welcomed the decision to restore domestic flights but believes re-entering the international market would "stuff things up." Pacific Advisory's Mr. Craig agreed. "If they just stick to the domestic business, we would be supportive… but stay away from international," he said. Mr. Craig believes "national pride" is behind the government's desire to restart international services. "I think there are a few politicians whose parties were involved when Air Vanuatu was first set up. They take it very personally that it went broke and can't let it go, it's nothing more than ego," he said.

Air Vanuatu's only Boeing 737 aircraft had been out of service for a long period prior to the airline's collapse. A report by Ernst & Young found the airline was in financial distress, faced massive debts, and was unable to pay for the spare parts needed to keep its Boeing 737 aircraft flying. Aviation consultant George Faktaufon, who has worked for Pacific Air and the Association of South Pacific Airlines, said a lack of accountability has plagued Air Vanuatu's operations. "I think there is a desperate desire [by the government] to maintain some form of air transport, particularly within Vanuatu… unfortunately, ego comes at a price," he said.

Mr. Faktaufon believes Vanuatu is not the only country facing this situation. "The Pacific Island airlines are severely underfunded," he said. "Most of the routes they operate are not viable, and their operating costs are very high compared to their revenue." Mr. Faktaufon believes the only way Air Vanuatu could resume international operations is through collaboration. "The solution is for the airlines to work together, and I think that has to be driven by the government because they are the shareholder," he said.

Air Vanuatu was in a dire financial situation when it entered liquidation – it owed creditors more than $US99 million. For the developing nation, the situation has been further exacerbated by a deadly 7.3 magnitude earthquake last month, which is estimated to cost at least 29 billion vatu ($US374 million) to recover from. Mr. Craig believes Air Vanuatu's re-entry into the international market will expose the government to "huge financial losses." "We're all for the government keeping a silent shareholding, a non-management control, 10 or 15%, as long as it doesn't come with any financial obligation to the people of Vanuatu because we don't have the funds for it," he said.

Mr. Craig said despite the "reputational damage" Air Vanuatu has suffered, an international company has expressed interest in the troubled airline. Panaf Group, a German-based aviation consultancy, contacted the Vanuatu government after learning of Air Vanuatu's situation. The company buys shares in airlines and provides them with management advice. Board member Oliver Lackmann said the company plans to unite national airlines in the South Pacific region. "The airlines of small island states all have the same problem – they are too small, there is no economy of scale, [and the operations] are too complex for the airlines, which means they struggle to make money," he said. "We are really looking at setting up centres of excellence that can be used by all these airlines, which would be potential partners in the alliance."

Mr. Lackmann said their long-term plan for Air Vanuatu would be to get the airline back into the international market. "We are willing to invest in the airline in all areas. We are actually already in some interesting talks with other partners, which shows that there is a need to join forces, which is very attractive to us." Aviation consultant George Faktaufon said while "centres of excellence" are "not a new concept," they are a good idea. "I hope it will come to fruition somehow," he said.