Qantas, Virgin ready to rumble as Rex flexes its muscles

Rex’s plan to muscle in on the lucrative Melbourne-Sydney route has Virgin and Qantas in a tailspin.

Rex will use a fleet of six Boeing 737s on Melbourne-Sydney routes from March 1.

Simmering tensions between Australia’s major airlines are set to erupt into a bare-knuckle battle in 2021 as Regional Express attempts to grab a share of the country’s most lucrative route — Melbourne to Sydney.

Last year, more than nine million people travelled between Australia’s biggest cities by air, suggesting there is room for a third operator on the route.

For the Qantas Group, the route is worth an estimated $1.2bn a year, making it the second-most lucrative in the world, behind British Airways’ London-New York run. But neither Qantas nor Virgin Australia is about to make room for Rex, which will initially operate six 737s, compared to Virgin Australia’s 44, and Qantas and Jetstar’s 96 narrow-body aircraft currently in service.

Although publicly dismissive of Rex’s entry into the market from March 1, privately Virgin Australia CEO Jayne Hrdlicka is treating the threat seriously.

After telling the CAPA Centre for Aviation on Wednesday “you couldn’t put (Virgin and Rex) in the same conversation”, an email to staff suggests otherwise.

Outlining the need for all to make sacrifices for Virgin Australia’s long-term future, Ms Hrdlicka said travel behaviour had changed and fares would be lower for some time. “On top of that, we have the entry of Rex who fully intend to take our position in the market and which we cannot allow to happen,” she wrote.

To that end, Virgin had matched Rex’s launch fares on Melbourne-Sydney of $79 one-way and planned to reopen lounges in the cities on December 15.

While it would suit Qantas for Virgin Australia and Rex to battle it out for the 30 to 35 per cent of the passengers who don’t want to fly with Qantas or Jetstar, CEO Alan Joyce was unlikely to stay out of the fight.

 

CAPA Centre for Aviation executive chairman Peter Harbison said Qantas would go after Rex from the beginning, while maintaining pressure on Virgin Australia. “They’d rather see one competitor in the market than two,” Mr Harbison said. “There’s a world of difference between two competitors and three. When you’ve got three in the market it becomes unpredictable.”

He forecast a “prolonged ­battle” as each airline establishes their territory in the post-COVID world.

“Qantas is pretty much ­invincible in this process. It’s got such a strong market position, double brand, a really powerful frequent flyer program,” he said.

“Virgin is going to struggle but they are pretty much cashed-up now, as long as (new owners) Bain Capital has got the appetite to get into what’s going to be fierce ­contest. Rex have got the benefit of a regional market to feed into the domestic routes, and as long as they can stick to schedule with only six aircraft, they should do OK.”

Qantas and Virgin Australia are already slugging it out over top tier frequent flyers, with each ­offering gold tier status to convince the other’s most loyal passengers to switch camps.

And in a major coup for Virgin, Ms Hrdlicka this week announced the appointment of Paul Jones, who spent the past nine years working for Qantas, most recently as chief operating officer.

One of the architects of Qantas’s plan to outsource the jobs of 2000 ground handling workers, Mr Jones was expected to start with Virgin in the first half of 2021 in the role of chief customer and digital officer.

Mr Harbison said it was clear the biggest winners from the three-way tussle would be passengers, with a greater variety of products and cheaper airfares.