Qantas, Virgin domination needs to be questioned

Another airline has gone into voluntary administration. Hundreds of jobs in limbo. And the Qantas and Virgin duopoly continues to reign supreme. In other words, it’s business as usual for Australia’s aviation industry.

Rex, which has served regional Australia for 22 years providing links with communities and their economies into capital cities, entered the intercity market after COVID-19 lockdowns. Credit: Andrew Taylor

Regional Express (Rex) is not the first airline to unsuccessfully challenge the market power of Qantas, and to a lesser extent, Virgin, and it will not likely be the last.

A succession of contenders in the Australian domestic aviation market, generally from regional backgrounds, have sought to break into the lucrative “golden triangle” Melbourne-Sydney-Brisbane routes that produce the bulk of profits for Qantas and Virgin.

We all know how that ended for Bonza, Air Australia, OzJet, and others.

Rex, which has served regional Australia for 22 years providing links with communities and their economies into capital cities, failed to read the tea leaves when it followed the lure of the intercity market after COVID-19 lockdowns in 2021. Its most recent major domestic route, between Melbourne and Perth, was only launched last month.

It pursued a starry eyed notion that by ramping up capital city services and competing with Virgin’s mid-tier share, it could turn the reigning duopoly into a holy trinity. This ill-fated move appears to have ultimately put them in the red.

Rex lacked the capital and planes to pull it off, having struggled to get more than a 5 per cent foothold in the market.

The result was perhaps inevitable given that the two incumbent airlines dominate the airport slots, which allocate times and frequency that airlines can take off or land. Virgin, in particular, fiercely protected its piece of the pie, matching Rex’s intercity discounted fares.

The consequences of Rex’s troubles are notable. Regional centres, some of which are frequently accessed by fly-in, fly-out doctors, miners and other workers may not be easily or immediately replaced, while about 600 jobs are potentially at risk.

Regional routes for these communities cannot be jeopardised and must be prioritised, as they have been in the wake of Rex’s announcement that it was entering voluntary administration: all flights between capital cities have been grounded while regional flights continue.

However, long-suffering passengers on the capital city routes, who share stories of delays, cancellations, lost luggage and high fares, are also entitled to feel frustrated by the lack of alternatives to Qantas and Virgin.

The Transport Workers’ Union wants the federal government to step in, however, Prime Minister Anthony Albanese has pointed out, the airline has already received substantial public funding.

It may be tempting to bemoan Rex’s change of approach, putting it down to overreach, but questions have to be asked about the continual lack of competition in the domestic aviation market.

Rex has received a disproportionate amount of government support over the years, including $120 million during the COVID-19 pandemic from the former Morrison government, which was criticised at the time by Transport Minister Catherine King for “looking after their National Party mates”. (Rex’s director and former deputy chair is John Sharp, a former Nationals MP and federal transport minister.) The airline also received a $150 million injection from PAG Asia Capital.

King is now in the hot seat, facing pressure to salvage Rex’s regional routes, multiple emergency services contracts and two flight training schools, if the airline’s administrators EY cannot find a way forward.

But King may not be in such a position if Anthony Albanese or his predecessors had heeded calls from former productivity commission boss Peter Harris in 2020, along with many other competition and aviation experts, to overhaul the existing slot system, which the established airlines have used to entrench their control of the market.

Successive Labor and Liberal governments have been complacent about tackling this competition stranglehold.

Unlike in Europe, where the highly competitive market has produced a plethora of budget airlines that offer multiple services at heavily discounted prices (but generally lower quality services), the Qantas/Virgin dominance over Australia’s capital city services has kept prices stubbornly high, but without the advantage of significantly improved quality.

The allocation of slots is crucial to an airline’s intercity domestic success given Australia’s smaller market size, its unique geography of a densely populated east coast spanning three capital cities and the limitation of Sydney Airport’s curfew.

New and nimble airlines seeking to offer Australian customers more choices for flights between Melbourne, Sydney and Brisbane will have no chance of success without a fairer slot system. It will leave them with little hope of surviving the vagaries of geopolitics, the oil price, economic contractions and cut-throat competition that make it difficult for many airlines to stay afloat.

The government is currently preparing to unveil its aviation white paper over the next couple of weeks, which will establish the sector’s public policy over the next 25 years. Let’s hope this finally results in meaningful change for Australian passengers.

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