The government is committed to helping Rex Airlines, now in administration after its gamble to take on Qantas and Virgin on major routes came a cropper. Infrastructure Minister Catherine King this morning said “We would be reluctant to just throw money at the problem”, but otherwise left the way open to various forms of assistance.
Rex, which is majority-Singapore owned, got plenty of taxpayer assistance during the pandemic — in a way that King was critical of at the time — and has been accused of acting anti-competitively by smaller regional airlines. It continues to operate its regional services, while it looks like its push into major city routes is now over.
Economic purists would say them’s the breaks and no government response is necessary. If there is evidence that regional routes can’t be operated commercially but that it’s desirable they continue to be, a subsidy can be offered to the market, not to any one provider — regional competitors of Rex might be able to operate services for a lower subsidy than the larger airline.
The only persistent aspect of competition in Australian aviation, however, is the effort of Qantas to destroy it. There are allegations from politicians as well as Rex itself that Qantas aggressively moved into some Rex regional routes at below-cost levels as punishment for Rex challenging Qantas and Virgin on major city routes. We know from Geoff Culbert, now president of the Business Council, that Qantas blocks competition by slot hoarding and then cancelling flights. The Australian Competition and Consumer Commission extracted a $100 million fine and compensation from Qantas — which initially confected high dudgeon at the mere suggestion of misconduct — for lying to customers and selling tickets to flights it never planned to operate.
Rex is the government’s chance to terrify Qantas and curtail its gouging, lying and rorting. Labor should avoid the Morrison government’s mistake of giving taxpayer money to an airline without using it to acquire an equity stake — the $2.7 billion that taxpayers gifted Qantas during the pandemic would have purchased up to one-third of the airline’s capitalisation, depending on when it was taken in the early stages of the pandemic. Its bailout of Rex should involve taking a substantial equity stake, with the aim of the airline continuing to operate major city services as well as its regional network.
That would outrage Qantas, but continue to put competitive pressure on it to stop its gouging and anticompetitive conduct, with the threat that the government could increase its investment in Rex and expand its capital city operations in the future.
The government’s re-entry into aviation after an absence of more than 30 years isn’t a particularly desirable option, but it’s the least worst one on offer to deal with Qantas’ persistent anticompetitive behaviour. Regulation has demonstrably failed. Coupled with the uncertain economics of aviation in Australia outside the Melbourne-Sydney corridor and a lack of effective competition laws, it has allowed Qantas to abuse its customers and workers over an extended period.
There’s a stronger case for this kind of government intervention than anything in the billions of dollars already committed under Labor’s Future Made In Australia boondoggle, advertised as worth $22.7 billion. For a tenth of that, the government could provide years of competitive tension on major aviation routes via a stake in Rex — a key market crucial to the Australian economy and community.
Labor’s investments in manufacturing (which include handouts to foreign companies; the Singaporean ownership of Rex thus shouldn’t be a problem) will have no competition benefits — indeed, in the case of solar panels, the government is spending $1 billion to encourage the local manufacture of a product for which there is currently a worldwide glut courtesy of Chinese government subsidies.
Why would Labor spend billions in markets where there are no competition problems, while making a virtue of not intervening, for far less, in a crucial market characterised by a lack of competition? It’s time to put the fear of competition, if not God, into Qantas.
Is it a good idea for Labor to acquire equity in Rex? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
