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Qantas share price is facing this new challenge in FY21

The Qantas Airways Limited (ASX: QAN) share price recovery just got a little trickier even as it takes the dubious honour of being a rare capital raising loser.

It appears that Regional Express Holdings Ltd’s (ASX: REX) ambition to be a thorn in the side of Qantas took a big step forward.

The Australian Financial Review reported that the tiny regional shuttle is buying around 10 Boeing 737s from Virgin Australia Holdings Limited (ASX: VAH).

I’ll explain why this is something Qantas shareholders will want to keep a close eye on later.

Placement under water

While around 75% of S&P/ASX 200 Index (Index:^AXJO) companies that raised emergency funds during the COVID-19 crisis are trading well ahead of their placement price, the same can’t be said for Qantas.

Some examples in the 75% group include the Flight Centre Travel Group Ltd (ASX: FLT) share price and National Australia Bank Ltd. (ASX: NAB) share price.

Near monopolistic power eroded

But the cap raise is water under the bridge. The challenge that investors weren’t counting on facing as we flew into the COVID-19 pandemic was increasing competition.

In fact, Qantas supporters rejoiced when archrival Virgin became an early casualty of coronavirus and plunged into administration.

This should leave the Flying Kangaroo with near monopolistic power, even if the wounded Virgin were to be revived. As it turns out, Virgin is rising from the ashes, albeit as a shadow of its former self.

One competitor becomes two

But Qantas now has to fend off a new challenger in Rex, which is going after some of Qantas’ most profitable domestic routes.

Rex only used to fly to regional towns in small propeller aircraft. The COVID-19 crisis presented it with an opportunity to expand its business as the heavily restructured Virgin looked to sell its passenger jets.

The new fleet will allow Rex to offer flights connecting Australia’s major cities, including the highly profitable Melbourne-Sydney connection.

I suspect Rex may prove to be a formidable competitor to Qantas too given Rex’s track record in running a tight ship through good cost control.

Capital raising on the cards?

The other key question is whether Rex may also contemplate plying short-haul international routes that the Boeing 737s are well suited for.

There’s no word on how Rex plans to fund the aircraft purchase, although it’s reported that the small cap is looking at striking an aircraft leasing agreement. A cap raise is certainly not out of the question either.

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Motley Fool contributor Brendon Lau owns shares of National Australia Bank Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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