Rex - Regional Express (ZL, Wagga Wagga) has filed a complaint with the Australian Competition and Consumer Commission (ACCC) alleging that rival Qantas (QF, Sydney Kingsford Smith) is "flooding the regional airline market with additional excess capacity to eliminate weaker regional competitors".
The regional specialist accused Qantas of using its COVID-related federal subsidies "to finance a strategy that will destroy incumbent regional operators" by choosing to add capacity on loss-making routes. In particular, Rex identified a number of services where the demand can barely support a single operator and where Qantas now chose to compete with Rex. It listed services from Sydney Kingsford Smith to Orange, NS (65,000 passengers per year before COVID) and Merimbula (36,000), from Adelaide International to Kingscote (41,000) and Mildura (5,500), and from Melbourne Tullamarine to Mount Gambier (36,000).
"It is clear that Qantas is very worried about Rex’s entry into the domestic market as it is well aware of Rex’s superior efficiencies and on-time performance. Qantas is trying to weaken Rex by attacking its profitable regional operations even at the cost of heavy losses for itself. Rex believes these actions are clearly anti-competitive," the airline said.
It called upon the federal government to cease any subsidization of Qantas until it changes its strategy and to strengthen the ACCC's mandate to protect competition.
In an interview with Reuters, ACCC chairman Rod Sims said the regulator was analysing the complaint. However, he underlined that for the ACCC, the biggest concern was to ensure that Rex would retain access to slots at the country's main gateways once demand picks up after the pandemic. Sims also underlined that it was difficult to evaluate whether routes identified by Rex are truly loss-making considering the current state of the market.
For its part, Qantas denied dumping capacity and said it saw market potential in these services.
"We’re focused on adding new routes to regions that we think have genuine growth potential. We expect these additional flights to stimulate demand to these towns. This is vital at a time when regional tourism needs a boost," John Gissing, Chief Executive of the airline's regional brand Qantaslink, said.
Rex has a history of legal disputes with Qantas. Before the pandemic, it accused the flag carrier of poaching its pilots, thereby causing staff shortages in the regional market.
Meanwhile, the regional carrier has been scolded by the Australian Securities and Investments Commission (ASIC) for its failure to inform the market of its plans before they were leaked to the media.
"[It failed] to disclose to the market that it was considering the feasibility of commencing domestic operations, such as flying to capital cities, in addition to its regional operations. This information was first released publicly to a journalist on May 11, 2020," ASIC said.
As a penalty, the airline has since been barred from raising funds using reduced-disclosure rules until December 14, 2021. It will have to use full-disclosure prospectuses until then.
"Rex clarifies that these restrictions only mean that Rex must issue a full prospectus in order to raise funds from certain investors. Rex maintains a different view from ASIC and is considering its position in relation to ASIC's decision. These restrictions themselves do not impede the proposed transaction with PAGAC Regulus Holding Pte Ltd (PAG) for the issue by Rex of up to AUD150 million Australian dollars in convertible notes," the airline said, adding that it was not planning any other fund-raising activities in 2021.
