The demise of Rex airline’s flights between capital cities highlights how the aviation system is set up to favour Qantas and Virgin, Australia’s former competition tsar says.
The cash-strapped carrier has appointed administrators and grounded Boeing 737s on its intercity routes but its regional services remain operational.
A potential federal government bailout has been flagged as key ministers stressed the importance of the budget regional carrier being able to service the nation’s regions.
But the former Australian Competition and Consumer Commission chair Rod Sims said criticism of Rex’s decision to compete with major operators Qantas and Virgin on capital city routes ignored public policy failures.
The prime minister, Anthony Albanese, on Tuesday criticised Rex’s decision to expand and fly capital city routes in 2021, in light of funding it receives from various governments – including to subsidise regional routes.
“One of the things that I expressed concern about was that no conditions [have been attached to Rex’s government funding],” Albanese said. Rex had “moved away from their traditional role” of being a regional airline into flying to capital cities, he said.
However, Sims said any suggestion that only two airlines could service key routes was “nonsense”. Australians would keep paying more for flights until the government addressed systemic problems in the industry, he said.
“The government outsources the management of the slots at Sydney airport to a company that’s majority-owned by Qantas and Virgin, it is just unbelievable,” he told ABC radio on Thursday.
“When [Rex] wants those key slots they must have to be viable, they have to go and ask that from Qantas and Virgin.
“The government sets this system up for failure, it sets this system up for a duopoly and therefore sets the system up for higher airline prices than Australians should be paying.”
To run a service, commercial flights require a take-off or landing slot, and access to Sydney airport is heavily restricted. Just 80 slots are available each hour, though this maximum is rarely reached, and the airport operates an 11pm-6am curfew.
Access to Sydney airport, particularly in peak times, is crucial for an airline to establish a network in the “golden triangle”, the lucrative corridor between Melbourne, Sydney and Brisbane.
Rex and recently collapsed budget airline Bonza have both complained of not being able to secure peak slots at Sydney.
The ACCC, Sims and airline and airport chiefs, including from Sydney airport, have alleged Qantas and Virgin strategically schedule flights – thereby occupying a slot, before cancelling it – purely to retain a slot and prevent competitors launching rival services.
Critics point to the cancellation rate on the Sydney-Melbourne route – as high as one in 10 flights – as proof of so-called “slot hoarding” by Qantas and Virgin.
Industry figures anticipate the loss of some Rex routes will inevitably lead to higher ticket prices for travellers. An Australian Airports Association report said air fares on flights between Melbourne and Perth dropped by 40% when Rex began flying the route, adding 46,000 seats a year in extra capacity.
The federal transport minister, Catherine King, has said the government is working closely with administrators to ensure the airline’s survival.
But she has faced opposition criticism for leaving a review of demand-management slots at Sydney airport sitting on her desk for years. The Morrison government also failed to act on the recommendations, delivered in 2021.
King said the government was working through a suite of significant slot reforms announced in February.
Helen Bird, a Swinburne University law and corporate governance specialist, said a government bailout of Rex would need strict conditions and could even require it to take a seat on the board.
“Whoever is the new investor, be it government or otherwise, is essentially taking up fixing a corporation that got to where it is because of poor governance and poor management,” she said.
A failing company would not attract unconditional funding “unless you saw it as an essential service, which it is in regional Australia, and you said, ‘Well, if we are going to give that kind of money as a government we’ll need to have a shareholding stake,’” she said.
“We haven’t done that in the past, certainly with Qantas, and the government gave lots of money to Qantas during Covid.”
The University of Sydney professor Rico Merkert said Rex was making considerable profits on its regional flights and it might not need government support.
“On many of the routes there was little to no competition, allowing Rex to generate high yields and sustainable profit margins,” the Institute of Transport and Logistics Studies deputy director said.
“The aircraft were old and they would have had to replace them at some point but that was in the planning, including electrification projects.”
In February, Rex reported a net loss of $3.2m for the first half of the 2023/24 financial year as it burned through money spent on its major city services.
