Either Rex or Virgin will perish: Qantas boss

The Australian domestic aviation market is not big enough for 3 airlines, according to Qantas Airways Limited (ASX: QAN) chief Alan Joyce.

In March, Regional Express Holdings Ltd (ASX: REX) is starting flights between Australia’s 3 biggest cities – Sydney, Melbourne and Brisbane.

With the newly private Virgin Australia and Qantas already operating, Joyce doesn’t think all 3 can survive a post-COVID price war.

“This market has never sustained three airline groups and it probably won’t into the future,” he told the Reuters Next conference.

“You can be guaranteed that Qantas will be one of them. It’s who else is going to be in the market place post this and into the future that’s going to be interesting.”

Regional Express is traditionally a rural and regional carrier but decided last year to enter the big city market.

Last month Rex received bureaucratic approval to fly Boeing 737-800NG aircrafts, preparing it for a March launch into the lucrative Sydney-Melbourne-Brisbane triangle.

Before the coronavirus pandemic arrived, Sydney-Melbourne was the second busiest air route in the world, behind Seoul-Jeju in South Korea.

History is on the side of Joyce’s opinion, with companies like Ansett and Virgin falling into financial trouble even as the second player.

Joyce himself worked at Ansett in the 1990s.

As a fightback against Rex, Qantas has started flying some rural routes. This prompted the smaller incumbent to complain to the competition watchdog for flooding the market.

The Qantas share price is up 0.2% at the time of writing while the Regional Express share price has dropped 2.39%.

COVID-19 resurgence puts Qantas back 3 months

Qantas last month forecast it would return to more than 60% of pre-pandemic levels of domestic operations by Christmas and almost 80% in the March quarter. Its budget brand Jetstar even predicted it would exceed pre-COVID activity by March.

Then a resurgence of the virus struck in Sydney, Melbourne and Brisbane.

“This latest outbreak has probably set us back three months,” Joyce said. 

“Our forecast now is for the third quarter for the financial year… we will be at 60% of pre-COVID domestic capacity levels.”

The airline predicts it would then reach 80% of pre-virus operations during the quarter ending June.

Internationally, the Australian Government is yet to reveal any plans to reopen borders. But Qantas last week started selling tickets for July onwards.

“We have the flexibility to manage that schedule depending on what the decision is going to be.”

Joyce reiterated his previous comments passengers would require to show proof of vaccination before boarding a Qantas plane.

The Australian Government will start distributing coronavirus vaccines next month with a plan to have the entire population done by October.

More reading

• Qantas (ASX:QAN) sells international flights for July
• Does the Rex (ASX:REX) share price have enough tailwind to keep soaring in 2021?
• 5 things to watch on the ASX 200 on Monday
• The ASX sectors hardest hit by COVID-19 in 2020
• 2020 ASX recap of the year we’ll never forget

Motley Fool contributor Tony Yoo owns shares of Qantas Airways Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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