Prime Minister Anthony Albanese has blamed Regional Express’ (Rex) expansion into capital city services as the reason behind its fall into administration, as pressure on the government to help fund its regional services intensifies.
Albanese said the regional connectivity Rex provides must continue, but its decision to fly on the Golden Triangle between Sydney, Brisbane and Melbourne had been misguided. His comments have ramped up the blame game between political parties, aviation experts and industry leaders as to why two Australian airlines have hit financial woes in less than three months.
Prime Minister Anthony Albanese has blamed Rex’s business strategy for its failure, while former competition tsar Rod Sims points to years of policy failures.Credit: Andrew Taylor
“It is a tough industry, aviation,” Albanese told reporters on Thursday.
“There are a range of issues relating to Rex. One is that a regional airline made decisions to invest in routes that they hadn’t previously gone in.”
Rex fell into voluntary administration on Tuesday, less than three months after the liquidation of budget carrier Bonza. It has ceased flying to major cities, and administrator Ernst & Young said on Wednesday up to 600 jobs are at risk.
Since then, some aviation experts and industry leaders have said Australia’s population is not big enough to sustain three domestic airline businesses.
‘You can sustain three players. The biggest problem is our [airport] slot allocation system.’
Former ACCC chairman Professor Rod Sims
“It’s unquestionable that’s the case, so why the government doesn’t change the policy levels to bring that about I really don’t understand,” said Professor Rod Sims, Australia’s former competition tsar.
“All evidence from around the world is when you get routes that have this amount of traffic on them, you can sustain three players. The biggest problem is our slot allocation system.”
Although Rex has plenty of regional slots at Sydney Airport, it only managed to gain seven during the daily morning peak for domestic jet services, compared to Qantas and Jetstar’s combined 103 and Virgin’s 57 slots.
However, about 40 per cent of Rex’s domestic flights are out of Sydney, a similar percentage to its bigger rivals Virgin and Qantas, and it holds a similar peak and non-peak split when accounting for its regional slots.
Analysis from the Australian Airports Association reveals Rex’s market share on the Golden Triangle increased by 16 per cent over the past year, and it operated more than one in five intrastate flights out of Sydney Airport over the past year.
The association’s head of policy Natalie Heazlewood said the airline’s troubles were alarming and worsens competition.
“Rex was spurring much-needed rivalry against the major airlines on key intercity routes, and its exit will hurt the buying power of passengers,” she said.
The aviation industry has been waiting for changes to Sydney Airport’s slot demand management scheme for years.
Transport Minister Catherine King is preparing to unveil a white paper over the next couple of weeks, which will set the sector’s public policy until 2050. Many, including competition experts such as Sims and executives at Sydney Airport, Rex and Bonza, say the government should have enacted former productivity commission boss Peter Harris’ recommendations to overhaul the existing slot audit system when he first made them in 2020.
Getting airport slots in peak hours is not the only reason why Rex has found it difficult to make a profit on its domestic routes. It has not been able to hedge the cost of fuel, which makes up a significant chunk of an airline’s cost base, and has struggled with the ongoing global pilots shortage and access to key manufacturing parts.
Shadow transport minister Bridget McKenzie accused Albanese of protecting Qantas Airways, which controls 60 per cent of the domestic aviation market.
“For the prime minister to stand up and say that Rex doesn’t have the right, the expertise or the skill to actually compete against his favourite customer, Qantas, I think says a lot about this prime minister’s view of Qantas,” she told Sky News.
Rex received $120 million in government subsidies from the former coalition government’s Regional Airline Funding Assistance package during COVID-19. The carrier also secured $150 million from private equity group PAG Asia Capital and launched domestic operations to compete against Qantas and Virgin soon after.
At the time, the Morrison government was criticised for forking out more taxpayer money to Rex than any other airline, and King accused it of “looking after their National Party mates”. Rex’s director and former deputy chair is John Sharp, a former Nationals MP and federal transport minister.
Rex’s regional routes are not the only important asset the government will face pressure to sustain if the airline’s administrators EY cannot find a way forward. It also owns two flight training schools and holds multiple emergency services contracts in Victoria and NSW.
This complicates an already tricky problem for the Albanese government, given rival Virgin Australia did not receive any federal funding when it fell into administration in 2020. Nor did Bonza in April.
These problems would disappear if a buyer emerges for Rex in the coming weeks, a matter which is complicated by the PAG loan. Virgin boss Jayne Hrdlicka was quick to shut down the idea of a takeover, saying that Virgin has learned from its own stint in administration to stay in its lane.
“We went through our own tough times and that taught us the importance of sticking to your knitting,” Hrdlicka said.
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