Airline pricing war in the offing as Rex sets up Melbourne-Canberra

An aggressive expansion from Rex Airlines is driving down the cost of air travel.

An aggressive expansion from Rex Airlines is driving down the cost of air travel. Photo: Getty

Australians flying between Melbourne and Canberra will soon be able to nab one-way tickets from Regional Express for as little as $69.

The regional carrier will launch a twice-daily return service between the two cities on June 10 as part of a broader push to steal market share from rivals Qantas and Virgin.

And it’s likely to trigger another pricing war.

Former Qantas chief economist Tony Webber told The New Daily Rex was exploiting a “once-in-a-generation opportunity to get into some of these bigger markets” with Tiger no longer operating and Virgin seriously weakened by the pandemic.

The UNSW aviation lecturer said that explained half of the rationale behind the aggressive expansion, and growing hostility towards Qantas accounted for the other half.

“It’s obviously very, very good for consumers,” Dr Webber said.

The regional carrier’s new route between Canberra and Melbourne will allow consumers to pick up a one-way economy fare for $123 less than the lowest airfare available in May, according to government statistics.

Rex deputy chairman John Sharp said such price falls were possible because Qantas had “perfected the art of price gouging”, with return flights between the two cities sometimes costing more than $900.

“This will now change with Rex’s entry,” Mr Sharp said.

“We are sure that both Qantas and Virgin Australia will immediately match our fares as they have done every time, [and] we estimate that Rex’s entry will save Canberrans over $150 million a year in lower fares once travel returns to pre-COVID levels.”

Rex’s expansion will add more than 200,000 seats every year to the Canberra-to-Melbourne route, on top of the more than one million seats already available, according to government data.

Rex has accused Qantas of ‘capacity dumping’ on regional routes.

Dr Webber said Rex’s move would boost capacity between the two cities by more than 20 per cent and likely drive down yields for the airlines by about 10 per cent.

“Most markets grow at about 5 per cent per year … so you’re talking about four years of growth prospects coming onto that market instantaneously,” he said.

“So there’s going to be really some significant yield decline on that route, which will really damage profitability for every carrier on that route – Virgin, Qantas and Rex.”

The move marks another bold move from Rex.

Earlier this month the airline launched a $39 flight between Melbourne and Sydney that saw Virgin match its price within hours.

Last month it set up a Sydney-Canberra route after Qantas had set up flights on nine routes where Rex previously had a monopoly.

The regional airline has separately accused Qantas of flooding country routes with excessive loss-making flights in a bid to put pressure on its business – allegations that Qantas denies.

Dr Webber said it was hard to say whether adding flights into Canberra was a good move for Rex, but noted it was very different to its “current modus operandi” and therefore constituted a major, albeit “educated” risk.

“Some of those Canberra routes will be relatively lucrative, and they’re a good hedge against the economy,” he said.

“Those types of routes tend to do reasonably well even in a weak economy, because it’s full of politicians.”

Stay informed, daily
A FREE subscription to The New Daily arrives every morning and evening.
The New Daily is a trusted source of national news and information and is provided free for all Australians. Read our editorial charter
Copyright © 2024 The New Daily.
All rights reserved.