As new entrants into the jet market confront established incumbents Qantas Airways Ltd and Virgin Australia, Australia’s domestic aviation sector, which was held back by state border closures during the epidemic, is gearing up for a pricing war.

Regional Express Holdings Ltd (Rex) is growing on main routes, while Bonza, a low-cost start-up, will begin serving smaller leisure routes that are now unserved or underserved next year.

For the first time since Virgin purchased independent budget airline Tigerair Australia in 2013, the firms are bringing new competition to the market. Lower charges, such as Rex’s A$69 ($49) one-way tickets on its new Sydney-Brisbane route, are prompting rivals to lower their pricing as well.

“This market has never even had three large jet players in it for a sustained period,” CAPA Centre for Aviation Chairman Emeritus Peter Harbison said at a conference hosted by his firm. “Who are the winners out of all of this? The Australian travelling public.”

The domestic market, which was down to 17 per cent of pre-Covid passengers in October when Sydney and Melbourne were shut down, is recovering as governments continue to adhere to their promises to open borders despite the danger of the Omicron strain.

According to Qantas data, the airlines are vying for a slice of Tigerair’s 7 per cent market share in a domestic market that has historically yielded a profit pool of A$1 billion ($711.80 million) every year.

By January, Qantas aims to be back to pre-pandemic domestic capacity, and by April, it will have surpassed it. It now wants to capture 70% of the market, up from 62 percent earlier.

Alan Joyce, Qantas’ CEO, stated that the airline will “be competitive to defend our land” by offering the greatest goods and pricing.

On Tuesday, Australia’s competition regulator said it was closely monitoring capacity and pricing, but analysts say the unusual trading environment could make it harder to prove whether activity is anti-competitive or part of a recovery plan.

Qantas claims that rather than turning immediate profits, it wants to generate cash and get idle planes and staff back in the air, and that it has natural advantages such as a strong loyalty programme.

During the epidemic, it added approximately 50 additional domestic routes. According to Virgin CEO Jayne Hrdlicka, the airline is introducing routes like Perth-Launceston in order to maintain about a third of Tigerair’s market share.

Given that Jetstar is controlled by Qantas, Rex Deputy Chairman John Sharp said his airline will add planes and expand to more major cities, while Bonza Chief Executive Tim Jordan said he felt there would be a viable market for an independent budget carrier.

“It is about new growth, new opportunities, new markets,” Jordan said of Bonza’s plans. “It is not about stealing share from anybody.”

(Adapted from Reuters.com)

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