Virgin Australia's new boss Jayne Hrdlicka has predicted a return of airline price wars on flights between the country's three largest cities as Virgin and Qantas fight to retain market share against new competitor Regional Express.
"It will have never have been cheaper to travel in this country," Ms Hrdlicka told a CAPA Centre for Aviation online event on Wednesday.
Jayne Hrdlicka says airfares will have never been cheaper. Credit: Attila Csaszar
The former Jetstar boss, who private equity firm Bain Capital parachuted into the top job last month after it bought Virgin out of administration, said Rex had a good business flying in regional and remote parts of Australia and it might seem logical for them to launch flights between Sydney, Melbourne and Brisbane.
"But I think they should expect it's going to be super competitive because we’re all rebuilding the market [after COVID-19]," she said. "Prices will be very sharp for a long time to ensure that everyone re-settles in the marketplace in the way they intend."
Rex will start flying three Boeing 737s between Sydney and Melbourne in March before adding Brisbane to its network and growing its fleet to between eight and 10 aircraft by the end of 2021 in what will be the biggest shake-up of the domestic aviation market since Virgin's launch 20 years ago.
The "golden triangle" between Sydney, Melbourne and Brisbane is one of the most profitable routes in global aviation and makes up 40 per cent of the Australian airline market.
But Ms Hrdlicka said Virgin would not give up the roughly one-third market share it had prior to going bankrupt in April and neither would larger rival Qantas and its budget arm Jetstar, meaning profit-making on the lucrative routes would suffer for "a long period of time".
"Virgin Australia has no intent of backing off that market share," she said.
"We’re well funded, we’ve got the strongest balance sheet in the marketplace right now and this is a long game. Nobody’s trying to make a lot of money in the first 18 months or the first two years, we’re trying to build the business."
After being largely grounded for most of 2020, domestic flying is bouncing back rapidly after the reopening of state borders with Virgin expecting to be at 60 per cent of its pre-COVID capacity by January and Qantas expected to hit 70 per cent by Christmas.
Qantas and Virgin waged a two-year price and capacity war until a 2014 ceasefire after the smaller airline threatened Qantas' dominant market share which left their finances in tatters.
Rex, which flies to 59 remote and regional destinations with its fleet of turboprop aircraft, has said it would use its lower cost base to offer Qantas-level service at Jetstar prices.
Virgin announced on Wednesday it had recut its long-delayed multibillion-dollar order with Boeing for a new fleet of its grounded 737 MAX, which were set to arrive in the middle of next year. Virgin will now buy only 25 of the larger MAX 10 variant, with delivery to start in 2025, and it has cancelled 23 smaller 737 MAX 9s. Boeing's best-selling short-haul aircraft has been grounded since March last year following two crashes that killed 346 people but the US aviation authority cleared it to re-enter service last month.
Business Briefing
Start the day with major stories, exclusive coverage and expert opinion from our leading business journalists delivered to your inbox. Sign up here.