Australian airlines gear up for price war as new challengers enter market

Australia's domestic airline industry, held back during the pandemic by state border closings, is gearing up for a price war as new entrants into the jet market challenge dominant incumbents Qantas Airways Ltd and Virgin Australia.

Regional Express Holdings Ltd (Rex) is expanding on major routes while low-cost start-up Bonza will target thinner leisure routes that are unserved or underserved from next year.

The companies are bringing fresh competition to the market for the first time since Virgin bought independent budget carrier Tigerair Australia in 2013. Lower fares, like Rex's A$69 ($49) one-way tickets on its new Sydney-Brisbane route, are leading others to drop prices.

"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, down to 17 per cent of pre-COVID passengers in October, when Sydney and Melbourne were locked down, is on its way back as states are so far sticking with plans to open borders despite the threat of the Omicron variant.

The airlines are scrambling for a piece of now-closed Tigerair's 7 per cent market share in a domestic market that historically produced a profit pool of A$1 billion ($711.80 million) a year, according to Qantas data.

Qantas expects to return to pre-pandemic domestic capacity by January and surpass it by April. It is now aiming for 70 per cent market share, up from 62 per cent previously.

Qantas Chief Executive Alan Joyce said the airline would "be competitive to defend our turf" with the best products and fares.

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

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