An airline price war has erupted on flights between Sydney and Melbourne after Regional Express (Rex) released $49 fares that triggered a hasty response from Qantas and Virgin.
Rex, until now a regional airline, is seeking to muscle into the capital city market and disrupt the Qantas and Virgin duopoly by flying between Melbourne and Sydney.
Rex will begin flying the route next month and, on Wednesday, announced $49 flights during March, which include checked baggage, seat selection and a snack.
As airlines scramble to lure travellers back into the skies, Virgin quickly matched the $49 sale while budget carrier Jetstar, which is owned by Qantas, is advertising some seats during March for $44.
Airfare searches reveal cheap seats between the two major capitals for most dates in March.
Rex’s prices are notable because it is a full-service airline, unlike Jetstar and the now-defunct Tiger Airways. Business class seats are $199 during the sale.
Rex is giving Australia’s domestic aviation market its biggest shake-up in 20 years by disrupting the dominance of major airlines Qantas and Virgin.
Rex will start flying three Boeing 737s, previously used by Virgin, between Sydney and Melbourne in March before adding Brisbane to its network at Easter. 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.
Peter Harbison from CAPA Centre for Aviation said the three-way price war was “pretty remarkable”.
“There’s been nothing like this for quite some time,” he said. “It’s going to be very, very bloody for a while.
“There’s obviously not enough demand to fill the seats available, which is a worry.”
Mr Harbison said repeated border closures – at short notice – had clearly “burnt” travellers’ confidence about flying interstate.
“That’s got to be resolved – not just for the airlines but the economy generally. If we’re shutting down a market with a day’s notice because of one case, we’re going to have a lot of problems for the next nine months.”
Airlines and tourism operators have previously expressed confidence in a backlog in demand for travel, but Mr Harbison questioned this theory.
“If the pent-up demand is so massive, how come they’re having to discount? Because they’re obviously not selling the tickets. That’s prompting them to do this,” he said.
Australian aviation has a long history of failed third airlines, but Mr Harbison said Rex was a different proposition.
“They’re already in the market and they have connectivity in the market. And there’s plenty of [landing] slots at the major airports.”
In December, new Virgin chief executive Jayne Hrdlicka flagged a price war with “super competitive” fares and said “it will have never have been cheaper to travel in this country”.
Qantas boss Alan Joyce predicted last month that one of Virgin or Rex would fail because “this market has never sustained three airline groups and it probably won’t into the future”.
Competition watchdog boss Rod Sims said Rex was “an interesting player” that would have to “differentiate [from] rather than copy” other airlines.
“I don’t know whether they’ll succeed in what they’re trying to do, but I would think that they’re as well-placed or probably better placed than anyone else who’s tried it to pull it off,” Mr Sims told a CAPA Live virtual event on Wednesday.
“It’s really important we let the market play this out.”