Rex Airlines collapse: Why it's so hard for a third carrier to survive in Australia

An aviation expert says the Australian market is “simply too small” for a third carrier to sustain itself following the collapse of regional airline Rex.

After attempts to compete with Qantas and Virgin Australia and tap into metropolitan markets, Regional Express fell into voluntary administration on Tuesday evening.

While flights to and from regional cities will continue, Boeing 737 jets flying between Melbourne, Sydney and Brisbane immediately ceased operations.

University of NSW aviation lecturer Ian Douglas said as high traffic routes, Australia’s capital cities were among the most “valuable city pairs on the planet” and were an increasingly “difficult” market to break into.

“We’re in a situation where it’s a very difficult ask to get a third carrier in the market,” Dr Douglas told NewsWire.

“It’s almost a bit surprising that there’s a viable second one in some ways.”

As Qantas secures two-thirds of the market operating between major cities and Virgin Australia services two-thirds of the remaining traffic, Dr Douglas explained there was very little room for Rex to capture the “better paying corporate traffic”.

“What you’re essentially doing is saying I’m going to be a carrier selling to leisure travellers, people who are more cost conscious, less time focused … I’m not going to get as much money for doing that,” he said.

“I’m flying the same aircraft … they burn the same fuel, they’ve got the same navigation charges, the same airport handling fees, so the cost doesn’t change, the revenue changes.”

Dr Douglas said Rex was attempting to “elbow their way” into a highly competitive market without the tools that Qantas and Virgin have at their disposal, such as international alliances.

Rex’s collapse comes just three months after regional carrier Bonza fell victim to Australia’s heavily concentrated aviation industry after only 15 months in operation.

Dr Douglas said Rex’s entry into voluntary administration was unlikely to impact airfare structures or seat availability for passengers travelling between Melbourne, Sydney and Brisbane.

“Rex was a relatively small player, and the other carriers are easily in a position to service that market as they want to and meet the demand,” he said.

Addressing fears Rex’s downfall could further isolate regional areas of Australia, Dr Douglas said it was “enormously important” that remote regions across the country continued to have access to east coast education, markets and medical care.

“You’re talking about the difference between an hour or two flying and a day or more of driving,” he said.

“It’s really an essential service.”

Rex’s collapse follows internal instability after the company’s biggest shareholder and executive chair Lim Kim Hai was unexpectedly replaced by deputy chair John Sharp.

Following the board shake-up, Mr Lim moved to request the removal of Mr Sharp and three other directors from the board and sought the addition of two new positions.

Mr Douglas said while in hindsight it was easy to say “recent board upsets” should have been a “warning sign”, Australia should have “expected something was happening”.