Qantas (ASX:QAN) dobbed in to ACCC by rival

Independent airline accuses giant rival of flooding the market with below-cost flights to kill off competition.

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Regional Express Holdings Ltd (ASX: REX) has dobbed in Qantas Airways Limited (ASX: QAN) for alleged anti-competitive practices.

Rex traditionally services regional and rural destinations but in March will start flying between Sydney, Melbourne and Brisbane in direct competition with Qantas, Jetstar and Virgin Australia.

In response, Qantas is planning to start some regional routes that it had not serviced before.

Rex on Friday accused its larger rival of “choosing to incur huge losses” on rural routes to “destroy incumbent regional operators”.

“The ACCC has been alerted to these actions,” stated Regional Express.

“Rex believes these actions are clearly anti-competitive and particularly unconscionable at a time when Qantas is receiving almost $1 billion of federal [government] assistance, while laying off thousands of workers under the pretext of reducing losses.”

All airlines are currently receiving government grants to keep services operating on economically unviable routes during the COVID-19 downturn.

Regional Express called for the federal government to stop providing Qantas this subsidy if it “persists with this opportunistic behaviour”.

The Motley Fool has contacted Qantas for comment.

The ACCC confirmed to The Motley Fool that it is aware of Rex’s concerns, with a caveat.

“The ACCC is tasked with protecting the competitive process, not individual competitors,” a commission spokesperson said.

“We are well placed to act if we have concerns that particular conduct may have an anti-competitive purpose or effect.”

Not enough demand for 2 airlines, says Rex

Rex cited Qantas’ announcement of a Sydney to Orange service as an example of deliberate loss-making.

“The Sydney–Orange market, which is barely big enough for one operator, [had] pre-COVID patronage of 65,000 annual passengers,” the company stated.

“Since its start of operations on 20 July 2020, at the height of the pandemic in Australia, it managed an average of only 10 passengers per flight, even for only 2 return services a week!”

The meagre annual patronage of other routes Qantas is starting on, according to Rex, are:

  • 41,000 for Adelaide-Kangaroo Island
  • 36,000 for Sydney-Merimbula
  • 36,000 for Melbourne-Mt Gambier
  • 5,500 for Adelaide-Mildura

Such incursions into its heartland, Rex warned, would have a “long-term negative impact” on regional areas.

“Unlike Rex, which has a long track record of providing a sustainable air service to regional and remote communities around Australia, Qantas is well known for quickly dropping a route once it no longer serves its strategic objectives,” Rex stated.

“If Qantas succeeds in driving Rex away from these routes, there is every possibility they will never have a regional service again when they are no longer relevant to Qantas.”

Regional Express’ share price has risen almost 50% since the start of October as its plans to fly between big cities ramped up. It’s currently down 6.37% in morning trade, to sell for $1.91.

Qantas shares were also down 4.9%, trading at $4.85 at the time of writing.

Corporate regulator Australian Securities and Investments Commission earlier this week reprimanded Rex for disclosing sensitive information to a journalist before telling the ASX.

The airline is now banned from releasing reduced-content prospectuses for raising capital on the exchange.

Rex has publicly disagreed with ASIC’s decision and reasoning.

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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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