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Getting ready to travel around Australia again?

by Ross Greenwood
25 May 2021

Ross tells us whats up with the airlines.

REX AIRLINE STOUSH SPARKS PRICE WAR

For decades, all of us have taken for granted our ability to fly interstate and overseas. It’s been so easy – and affordable – to jump on a plane for business or leisure.

But 12 months of a pandemic that has closed borders has changed all that.

Australia’s population growth rate has fallen to its lowest level since the First World War. International students – previously Australia’s third largest source of foreign money coming into Australia – has dried up completely.

But worse than that, our airlines and aviation industry are now in a struggle for business, profit and survival.

It’s turned into a war of words between airline executives – and a price war for consumers.

Tensions are simmering between Australia’s three major carriers. With Qantas borrowing and burning money, and Virgin fresh out of voluntary administration, the market for domestic airlines has blown wide open.

Enter Regional Express, or REX. The traditional carrier to the rural regions of Australia has spotted the market disruption as an opportunity. Its new Sydney-to-Melbourne and Melbourne-to-Canberra routes has ignited a price war. Consumers are reaping the benefits.

But the move from REX hasn’t come without consequences. Qantas in December announced it is also opening new regional routes – an action that REX believes is anti-competitive. Qantas’ justification is that it has spare capacity in its staff and aircraft: that it is creating competition to Rex.

But tensions have since boiled over between Qantas chief executive Alan Joyce, and REX deputy chairman, John Sharp. Both have written op-ed articles in national newspapers taking shots at each other. Qantas has even created a website to rebut things that Sharp has said about Qantas.

Sharp describes Qantas’ move into regional routes as retaliatory.

“Qantas decided to move into our regional routes in a non-rational way, into ports that we’ve been operating as a sole operator for 20-30 years […] They’re doing it because they want to punish us. And that’s the reason why we see Qantas, as an adversary,” he told me in an exclusive interview.

Sharp claims Qantas’ move to fly to the regions can’t be profitable. He cites the recent announcement that Qantas is facing a $2-billion loss for the financial year.

“Just the other day Qantas announced they’re flying from Melbourne to Burnie (in Tasmania’s north). Now, we’re the only operator going from Melbourne to Burnie, and we average 862 passengers a month on that route. And so, you know, it’s hardly enough to keep one airline going. It’s certainly not enough to keep two.”

It is Sharp’s firm belief that Qantas’ move into regional routes will lessen competition long term – but the ACCC has thrown out these claims. 
“What they’re trying to do is to get Rex to bail out, to give up operating on these routes, and to create a position where Rex’s cost structure is such that it can’t sustain any of its regional operations.”

Despite the blow from the consumer watchdog, Sharp says Rex won’t be backing down. 

The airline is expanding into even more routes – it recently announced new flights between Sydney and Coffs Harbour, Port Macquarie and Canberra. 

With the pressure on for REX, Qantas and Virgin, passengers have emerged from the stoush as the clear winners.

“Qantas has been gouging the customers – the passengers have been charging twice what they were, two sometimes three times what they ought to. And Rex is seeing the opportunity […] We’re actually growing the market. We’re stimulating the market because nobody was offering a fare like we’d offer on the Sydney, Melbourne route $39 for economy. Nobody offers that price until Rex comes along and stimulates the market.”

The big issue for Qantas, Virgin and Rex is that history tells us that three domestic airlines cannot all survive (that said, there is also Jetstar, owned by Qantas, competing for its own slice of the market).

But John Sharp says REX should not be mistaken for the underdog in this fight.

“We haven’t been able to sustain more than two operators in the past, but what people forget is Rex has been around for nearly 70 years. We’ve been around a long time, we’re not a start-up. 

“All these years we’ve been flying from the regions to the capital cities. And all we’re doing now is flying between the capital cities. 

“While it’s a big move in some ways, it’s not that big a move for us because we’ve already got the people, we’ve already got the systems, We’ve already got the skills and capabilities to operate a domestic airline.”