Australian regulator launches capacity dumping inquest

The Australian Competition and Consumer Commission (ACCC) is being dragged into a continuing war of words between Rex – Regional Express (ZL, Wagga Wagga) and Qantas (QF, Sydney Kingsford Smith) over route capacity strategies. In a statement on May 10, 2021, regional carrier Rex applauded what it claimed was the ACCC’s move to “scrutinise massive capacity dumping on domestic and regional routes” by Qantas, its low-cost subsidiary Jetstar Airways (JQ, Melbourne Tullamarine), and Virgin Australia (VA, Brisbane Int’l). Rex Deputy Chairman John Sharp claimed there had been a concerted effort in March 2021 on the domestic network by Qantas, Jetstar, and Virgin to increase flights between Melbourne and Sydney by an identical 80% over February’s capacity directly targeting Rex’s services which launched on March 1. ”Load factor in February was only 55%, way below the breakeven load factor of over 75%,” Sharp said. “Since the start of the pandemic, Qantas has started or announced it will compete with Rex on nine new regional routes, all of which currently struggle to support one operator, let alone two carriers. Even at pre-COVID levels, these routes could not sustain two carriers running a full regional schedule, which explains why Qantas did not enter these routes in the last 20 years,” he said. “Just last week, Qantas was at it again, unveiling plans for Melbourne Tullamarine – Burnie flights, a marginal route at the best of times and certainly not one which can be viably serviced by two operators,” he charged. Qantas – in a special page on its website to debunk Rex’s allegations – says: “We don’t start routes if we don’t think they will be commercially viable for us. In fact, in the second half of the calendar year 2020, 99% of the time we were able to fly, we generated positive cash flow. We know that extra capacity and lower fares increase overall travel demand, which is good news for the regional communities we operate to.” In a recent op-ed in the Australian Financial Review, Qantas Chief Executive Alan Joyce said Rex was “well known for throwing tantrums when things don’t go their way”. “The frequency with which Rex makes baseless criticisms of Qantas points to it being a key part of their strategy,” he said. ACCC chairman Rod Sims told a parliamentary inquiry on March 17: “If Qantas has the aircraft, it’s incurring the fixed costs, it realises it can make a cash contribution by flying somewhere – it’s a bit hard to call that predatory”. In its third Airline Competition in Australia report released on the same day, the ACCC found that Rex’s expansion with promotional fares into major intercity routes such as between Melbourne and Sydney had provoked immediate responses from its competitors. “With three carriers on Australia’s busiest route, competition has been vigorous, and consumers are the beneficiaries of this.” “The competitive process can be vigorous and robust as airlines enter new routes. While the process may have commercial consequences for individual airlines, at this stage, domestic airline competition appears to be increasing rather than decreasing,” the ACCC found. It said the return of interstate flying had assisted Virgin Australia most notably as it had increased its share of total passengers from 20% to 24% over the December quarter. The Qantas Group, consisting of Qantas, Jetstar, and QantasLink, remained dominant with 74% of the market in December 2020. Qantas and Jetstar have launched 26 new domestic and regional routes since June 2020, while the international fleet remains grounded due to COVID-19 travel restrictions.