Small cap aviation play Rex tells Orange: Support us or we’ll have to withdraw
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Yesterday Qantas launched its second regional New South Wales route in less than a month and much smaller aviation player Regional Express (ASX:REX) is not happy.
Australia’s flagship carrier Qantas launched a flight between Sydney and the New South Wales regional city of Orange — a route up until now Regional Express had a monopoly on.
Back on January 17, Qantas announced flights to the North Coast town of Ballina. However Ballina was already serviced by its low cost subsidiary Jetstar as well as Virgin Australia and FlyPelican.
Naturally for both Ballina and Orange, the “Red Roo” boasted about the local economies and demand for flights.
Having ended New Zealand regional services through Jetstar NZ last year, the routes provide a role for the subsequently expatriated turboprop aircraft.
But Regional Express is not happy and plans to complain to the Australian Competition and Consumer Commission (ACCC). The basis of its complaint includes the Ballina route as well as two others out of Adelaide — to Wyalla and Kangaroo Island.
A spokesperson for Regional Express told Stockhead that the Orange route would further support its case.
“We believe that Qantas’ recent actions do not reflect competition on merits which the law requires, but rather an attempt to abuse their dominant market power and financial strength,” the spokesperson said.
However, Regional Express pledged to keep flying the Orange route but to drop its flights to Ballina.
The company said it would be “catastrophic for the community of Orange” if this happened but it was up to Orange to keep supporting the airline.
“Rex will be loathed to [withdraw], but will have to do so if the Orange business community is not supportive of Rex,” Regional Express said.
“Qantas has no slots during the peak business demand periods and are only offering unwanted fringe slots to another community and the Orange business community will suffer enormously.”
Qantas, however, said Rex just feared the change from being price makers to price takers.
“Rex is clearly uncomfortable with us bringing competition to the route,” QantasLink CEO John Gissing said.
“As the sole operator between Sydney and Orange, they have been able to charge what they wanted for decades.
“Having another carrier on this route will create more competitive airfares and absolutely stimulate more demand for people to visit Orange.”
Regional Express shares have dropped 18 per cent in three months since it announced a 20-30 per cent drop in profits.
Qantas’ relations with the ASX’s other aviation small cap, FIFO charter operator Alliance Aviation (ASX:AQZ) is better. Qantas owns a 20 per cent stake in the airline.
However the ACCC has been monitoring this situation more closely as the Red Roo eyes a full takeover in the long-term. The regulator has publicly raised concerns this could reduce competition.