The Australian Department of Infrastructure, Transport, Regional Development, Communications, and the Arts has issued a request for tender (RFT) to provide air passenger and cargo services for five years to the country's Indian Ocean Territories, namely Christmas Island and Cocos Islands. The contract is currently held by Virgin Australia Regional (VA, Perth International).

"This offers an opportunity for an operator to establish and maintain regular services to, from and between the Indian Ocean Territories destinations on a risk-averse basis, with the Commonwealth underwriting any shortfall between the cost of service provision and revenue generated for the contracted period," the RFT notice reads.

However, the RFT notes that respondents should provide a solution that meets both the needs of the island communities and minimises the financial impost for the Commonwealth.

The department wants an operator who can provide a scalable service delivery model from Perth to Christmas and Cocos Keeling Islands whilst minimising the need for underwriting and being capable of matching supply with demand, including providing surge capacity.

Virgin Australia Regional currently operates twice-weekly A320-200 flights, with one rotation flying Perth - Christmas Island - Cocos Islands - Perth and the second operating Perth - Cocos Islands - Christmas Island - Perth (with a refuelling stop at Learmonth en route to Cocos Islands). The department says it is open to alternative configurations if warranted.

Toll Aviation (TFX, Brisbane Archerfield) operates a separate fortnightly freighter flight to both airports using a B737-300(F). The only other commercial air service to Christmas Island is currently operated from Jakarta Soekarno-Hatta by Altitude Airways albeit on a purely commercial basis.

In the 12 months to June 30, 2023, Virgin Australia Regional carried 32,276 passengers on its Indian Ocean Territories flights - a monthly average of 2,698. In the same financial year, the airline carried 67.2 tonnes of freight in the bellyhold.

A recent Australian government survey of Indian Ocean Territory residents found the five flight issues rated as the most important were (in order) pricing, reliability, seat availability, baggage limits and service, and speed of recovery services. Pricing and reliability are also considered priority issues for freight. Most respondents indicated support for an LCC service if it lead to fare reductions. There was a strong preference for direct flights to/from Perth, with some limited support for additional seasonal service options to northern Australia destinations such as Broome, Karratha, and Port Hedland.

While the tender is open to any entity capable of providing the required services, the documentation notes that tenderers who are non-Australian entities may fall afoul of the government's cabotage policy, which generally precludes foreign entities or foreign airlines from operating Australian domestic sectors, other than in exceptional circumstances.

The department wants to start the contract by February 2025, with service delivery from November 1, 2025. until June 30, 2030, with two two-year extension options to be exercisable at the department's sole discretion.

Tenders will close at 1200L (0200Z) on June 14, 2024.