Virgin shift could be Qantas, Jetstar free kick, warns ACCC

Fierce rivalry between Australia’s airlines is making flying cheaper but as a reborn Virgin shifts its offer, how long will it last?

The latest examination of Australia’s airlines by the competition watchdog has found fierce rivalry among carriers is delivering cheaper fares to consumers on more routes.

But the Australian Competition and Consumer Commission report warned that the shift by Virgin Australia to a mid-market position could leave Qantas facing less competition for premium customers, and give Jetstar a free rein in the budget space.

The report focused on a number of issues currently facing airlines, including border closures, route networks and Rex’s allegations of predatory behaviour by Qantas.

In the December 2020 quarter, passenger numbers were at 41 per cent of pre-COVID levels, up from just 13 per cent in the September quarter, the report showed.

Despite the relatively low number of travellers, the number of routes being flown reached 142 in December compared to 156 pre-COVID, with the Qantas Group servicing 113, slightly more than in 2019.

Qantas’s entry into a number of regional routes, some of which were also being flown by Rex, was seen as positive for travellers rather than predatory, as alleged by the smaller airline.

AFLW players Isabel Huntington of the Bulldogs and Kaitlyn Ashmore of the Kangaroos with Virgin CEO Jayne Hrdlicka. The ACCC says Virgin’s shift to the mid-market may make life easier for both Qantas and Jetstar. Picture: Supplied.

The report suggested if the move was detrimental for Rex, it would not be able to expand into additional routes such as Sydney-Melbourne in competition with Qantas.

“Rex’s recent expansion into the domestic network … does not suggest that the entry of Qantas on particular routes is impeding Rex from competing across the broader network,” the report said.

“To the contrary, competition appears to be increasing not decreasing.”

ACCC chairman Rod Sims said it was an issue they would continue to watch closely particularly as Qantas flew more regional routes.

“We still want to look at whether they’re making cash profit on these routes, what’s the overall impact to the Rex network,” Mr Sims said.

“We’re not dismissing the issue in a broader sense. This has just got a long way to play out.”

Domestic flying remains key

The report indicated airlines would continue to revise their broader networks in response to consumer demand, to try to maximise revenue in the domestic market.

Mr Sims said that was to be expected for as long as international borders remained shut and business travel was low.

“The competitive process can be vigorous and robust as airlines enter new routes,” he said. “While the process may have commercial consequences for individual airlines, at this stage domestic airline competition appears to be increasing rather than decreasing.”

At this point, consumers were emerging as the winners, as a result of airfare wars that recently saw prices fall as low as $29 one way on Sydney-Melbourne.

Such rivalry was expected to continue particularly between Virgin Australia and Rex, who were both targeting price-conscious business and leisure customers.

“This may leave Qantas facing less competition for premium customers, and through its Jetstar brand, for budget holiday customers as well,” Mr Sims noted.

Rex is making moves on capital city routes. Picture: Joe Corrigan.

The report came as Qantas announced the commencement of three flights a week from both Sydney and Brisbane to Norfolk Island from March 19.

The flights are being offered as part of a three-month contract between Qantas and the federal government to maintain passenger and freight connectivity.

Qantas Domestic and International chief executive Andrew David, said the flights would also provide a new holiday destination for many Australians.

“We’ll be promoting these new flights to millions of our frequent flyers across the country, with seamless connections from our large domestic network through Sydney or Brisbane, who will have the opportunity to earn and redeem points on flights to Norfolk Island,” said Mr David.

“With international borders closed, we know Australians are looking for new holiday experiences and Norfolk Island is a destination that has so much to offer.”

Fares from Sydney start from $412, and from $390 from Brisbane.