The collapse of Rex Airlines is the latest demonstration of Paul Keating’s mistake with the unfettered privatisation of Qantas. Now, the Albanese government is facing a major test, trying to loosen the oligopoly of Airlines in Australia. Michael Sainsbury reports.
The first creditors meeting is slated for this week, but administrators EY and investment bank Houlihan Lokey are already hard at work trying to sell the beleaguered airline.
On Monday, Transport Minister Catherine King said the Government “would introduce rules to free up more takeoff and landing slots at Sydney airport, and make it easier for new airlines to get slots as it looks to boost competition at the country’s busiest airport.”
There have been no other words on the Government’s willingness to offer additional financial support to the airline.
The sorry saga puts the spotlight on the long-gestating Aviation White Paper that Transport Minister and Qantas Chairman’s Lounge member King has used as something of a figleaf for her inaction on making any overdue moves in the sector to increase competition, improve service and lower fares.
The current Federal government has gone after the nation’s largest supermarket chains, Woolworths and Coles, for their high prices in the face of a generational cost of living crisis.
But doing the same in aviation will be all the more difficult for a government whose leader, Prime Minister Anthony Albanese, said less than a year ago that Australia had the “most competitive aviation market in the world, bar none.”
Most competitive airline market in the world Alan … sorry, Albo?
With the second airline collapse in just two months – Rex’s journey into administration last night follows Bonza’s in May – that statement is clearly no longer true if it ever was. The Australian aviation sector is littered with the corpses of failed airlines in the face of permanent dominance by Qantas – once owned by, and often since backed, by Canberra.
The Australian Airports Association told the Senate Inquiry into Qantas in October 2023. that
The aviation sector, particularly domestic routes, lacks competition. This is a concern for consumers and the broader economy.
Is Rex Airlines about to join the long line of Australian airline failures? What’s the scam?
Pilot shortages
At present, only the loss-making part of Rex, its fleet of 10 B737s which was reported to be losing $1 million a week, has been grounded. That was the fleet leased in 2020 to ply the Brisbane-Sydney-Perth ‘Golden Triangle’, which is the bedrock of the Qantas Group’s highly profitable domestic business and one it uses its market heft to protect.
Rex’s profitable part – its monopoly regional routes, which uses 57 Saab turboprop aircraft continues to fly.
Qantas and Virgin are eyeing both the 737 planes and their flight deck crews. Qantas’ fleet of ageing 737s is desperately in need of backup aircraft and crew. The global and domestic pilot shortage is well documented and now being felt by smaller players. Qantas’ regional QantasLink and Rex itself have blamed the lack of pilots for forcing cuts on some of its routes. Pilots told MWM that Qantas was struggling to find enough experienced 737 pilots.
The Qantas domestic fleet consists of 75 B737-800s, the average age of which is 16.9 years, and the oldest is 22.5 years old. Qantas engineers and pilots have long complained to MWM that there are simply no backup aircraft, and older planes, like cars, need more frequent maintenance. Deliveries for Virgin Australia Mark II of its 737MAX aircraft from Boeing have suffered delays due to ongoing problems at the manufacturer.
Virgin hovering?
Virgin Australia has already secured three leases over aircraft from Rex and agreed to honour all prepaid tickets for the Rex Group’s direct services between domestic capital cities at no additional cost to passengers. However, according to the AFR ($), talks with Virgin Australia as a potential buyer have not led anywhere.
“If you hold a prepaid ticket for future travel on any of these routes, you can transfer your Rex booking to a similar Virgin Australia flight,” Rex said in a statement. Customers must re-book their flight by Wednesday, 14 August, or they will lose their money.
Rex’s regional business would also be a neat fit for Virgin to bulk up its relatively small regional operations. But a convenient divvying up of Rex between two companies that already control more than 90% of the market would be the worst possible result for consumers. It would also be hard to sell politically without the introduction of proper pricing and passenger protection legislation to stop gouging and provide customer guarantees.
Government to the rescue?
The government also appears to be backing some sort of rescue – at least for the regional business. A day after Rex entered voluntary administration, Catherine King said:
Rex’s continuation is in the best interest of regional Australians, the travelling public, its workers, and the aviation sector more broadly.
In our view, unlike in previous industry handouts, notably the shocking $2.5B to prop up Qantas during COVID, any cash injections should be taken as equity by Canberra. And right there would be an incentive for proper and better regulation
Still, the possible demise of Rex as a competitor in the country’s most popular – and profitable routes – while tragic, is only a sideshow. It’s a tiny percentage of the overall market. And whether Rex’s demise is the result of predatory behaviour by the industry duopoly, poor management or a combination of both, something is clearly wrong when airlines keep collapsing, and the dominant player can bank a cool $2.5B in profits only two years after being, by its own account, on death’s door.
Qantas shareholders re-Joyce, not taxpayers, passengers and staff
Poor airline performance not penalised
Over the past 12 months, cancellation rates across the industry have consistently been above the long-term industry average of 2.2%. On-time performance was also poor at 63.6% in December 2023 relative to the industry’s long-term average of 81.1%, according to an ACCC report in February this year. According to an earlier statement by ACCC Chair Gina Cass-Gottlieb:
Domestic aviation is one of the most concentrated industries in Australia, barring only natural monopolies such as electricity grids and rail networks.
“Without a real threat of losing passengers to other airlines, the Qantas and Virgin Australia airline groups have had less incentive to offer attractive airfares, develop more direct routes, operate more reliable services, and invest in systems to provide high levels of customer service.”
Qantas in particular has used its low-cost arm, Jetstar, to keep other low-cost players out of the market, funding it with higher margin business and first class fares in its mainline business and using its control of vital peak hour landing slots to keep competition at bay.
Aviation policy options
The Government has a range of options to implement an aviation policy that benefits consumers.
One option is to shake up the whole sector by forcing Qantas to split its business—either into domestic and international or by splitting Jetstar into a completely separate business, down to its fleet, maintenance technology systems, and staff remuneration—in order to let low-cost competition thrive as it has elsewhere.
This would leave Qantas, Jetstar and Virgin with between 27% and 32% of the market each.
At last year’s Senate inquiry into Qantas, former competition tsar Allan Fels told the inquiry he was “strongly in favour” of divestiture powers to split Qantas.
Another option would be to give international competitors proper access to landing slots in the ‘Golden Triangle’.
Major airlines in Europe, the United States and Asia have all been forced to compete against low-cost carriers In North America the low-cost carrier operators grew their low-cost routes by some 256 per cent over the period from 2010 to 2019. As former Bonza CEO Tim Jordan told the Senate inquiry in 2023: “In 2010 there were 58 low-cost operated routes in Australia. In 2019, just pre-COVID there was—guess what—58 low-cost operated routes in Australia.”
Immediate action (as mooted by King) into the distribution of landing slots is needed, according to former ACC chief Rod Sims, telling the Senate:
The slots are what they’ve got. If you wanted divestiture in aviation, you’d get them to divest the slots. That’s the problem.
He continued, “It’s not like in rail freight, where you have dominance on the East Coast, where you could get divestiture. Again, you’d be divesting pathways. If we’re thinking aviation, the slots are the crucial issue to open up competition. That’s why it’s dreadful that they’re being governed by the companies that are benefiting from them.”
Michael Sainsbury is a former China correspondent who has lived and worked across North, Southeast and South Asia for 11 years. Now based in regional Australia, he has more than 25 years’ experience writing about business, politics and human rights in Australia and the Indo-Pacific. He has worked for News Corp, Fairfax, Nikkei and a range of independent media outlets and has won multiple awards in Australia and Asia for his reporting. He is a fierce believer in the importance of independent media.