The Regional Express (ASX:REX) share price has fallen after fresh Qantas challenge

The Regional Express (ASX: REX) share price dropped 3% after the regional airline announced it would challenge Qantas on a new city route.

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Regional Express Holdings Ltd (ASX: REX) is continuing its aggressive push out of the regions and into the cities. The company announced on its website today it would challenge Qantas Airways Limited (ASX: QAN) with a new Sydney to Canberra route starting at $99.

At today’s close of trading, the Regional Express share price was down 3% trading at $1.58. Shares in Qantas, meanwhile, were trading 1.34% lower at $5.14. In comparison, the S&P/ASX 200 Index (ASX: XJO) is up 0.5%. All ASX travel shares are down at present, as pessimism continues to linger over COVID restrictions.

Let’s take a look at the smaller airline’s expansion plans. 

Rex takes a bite of Qantas

Regional Express advised that starting 19 April, it will begin flights between the nation’s capital and the harbourside city. At the moment, Qantas is the only airline that flies directly between the two metro areas.

There will be 7 flights a day initially. If demand is strong, this could increase to 10 flights per day. Rex estimates up to 1 million people flew the route annually, pre-coronavirus.

Rex’s offering of $99 one-way is cheaper than Qantas’ lowest price for the route. The cheapest flight on the national carrier currently is $193 one-way – almost double Rex’s offering.

In today’s release, Rex deputy chair and former politician, John Sharp, had some incendiary words about the company’s competition.

We believe that on the Sydney – Canberra route alone, Rex will be bringing annual savings of between $60–$100 million to commuters when numbers return to pre-COVID levels, such is the level of fare gouging being practised.

Rex’s affordable fares will greatly stimulate more business and leisure traffic between Sydney and the national capital as the industry continues to recover.

Growing its wings

The regional carrier recently completed a $150 million private equity deal to aid its expansion into the cities. The private equity deal came after the release of its half-year results for FY21. The company made a loss of $900,000 for the period.

Regional Express avoided financial catastrophe by drawing government wage subsidies to the tune of $59.4 million. Passenger numbers fell by 71.2% due to the pandemic.

Today’s move comes after Rex entered the lucrative Sydney-Melbourne route. The corridor between Australia’s two largest cities was the third busiest in the world in 2018.

Rex will be looking to make a dent in Qantas’ colossal 74% domestic market share.

Qantas and Regional Express share price snapshots

Both airlines have made gains since the COVID-driven ASX sell-off of just over 1 year ago. The Qantas share price has increased by 57%, while Rex’s is up a massive 229%.

Rex’s share price touched a high of $2.31 in December last year. Meanwhile, Qantas still has some ground to make up since its 2020 peak of $7.12 at the start of January.

Rex has market capitalisation of $179.5 million while Qantas comes in at $9.83 billion.

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