Airline price war drives Melbourne to Sydney fares down to $39 in bid to boost domestic tourism


A price war has erupted between domestic airlines, with tickets for flights between Melbourne and Sydney selling for as low as $39.
Qantas’ budget airline Jetstar, Virgin and Regional Express (Rex) have put thousands of domestic flights on sale.
Rex sparked the price war when it revealed it had slashed the price of its Sydney-Melbourne route to only $39.
Virgin and Jetstar soon followed, offering fares at similar prices on what is currently the seventh busiest flight route in the world.
Rex deputy chairman John Sharp said he hoped the sale would reignite the domestic market and boost tourist numbers between the two major cities. It comes after both cities were excluded from the government’s discount tickets measure intended to stimulate the tourism industry.
“Peak tourism bodies reported yesterday that flagship stimulus programs from state and federal governments have not benefited Melbourne and Sydney,” Sharp said.
“This will now change as Rex’s ‘cheaper than the bus’ fares will see airfares between the two cities even lower than the federal government-sponsored Tourism Aviation Network Support program fare and will jump-start leisure and business travel.
“I believe this initiative will singlehandedly revive a moribund travel and hospitality industry in the two cities.”
Having launched the opening salvo in the price war, Sharp said he expected his rivals in the industry – including Virgin Australia, Qantas and Jetstar – to follow suit.
“The resulting copycat moves from our competitors will mean that there will be hundreds of thousands of $39 fares available.”
In announcing the cheaper fares, Virgin said in a statement it would include baggage, seat selections and status points with the discounts.
“Virgin Australia is committed to providing travellers with some of the most competitive airfares in the market,” it said.
A senior industry analyst at IBISWorld, Tom Youl, told the Guardian that Rex’s initial move was intended to shake up the industry.
“Its a good marketing move, makes a bit of noise and they’ll try and take a bit of a market share – on this route specifically – off the incumbents like Qantas and Virgin.”
Youl said the move was also intended to boost demand, with airlines hoping that with a little push, passenger numbers could return to pre-pandemic levels.
“They’re trying to reinvigorate demand, especially in the domestic market. I think there’s still a bit of nerves, a bit of hesitancy. People are a little bit more careful with their money, and there’s a fair amount of price sensitivity out there.
“So it looks like Rex are playing into that price sensitivity a bit, trying to get people flying again, because there are still some concerns and nervousness around about Covid,” Youl said.
“But it’s about getting people in the air again, getting people moving again.”
Youl did not expect the cheaper prices to last long, as the industry recovers from the effects of the pandemic.
“With the losses airlines have undertaken in the past 14 months now, there is likely to be careful increases in capacity, and therefore pretty limited instances of really cheap flights.
“Over the medium term, we will see prices likely to return to a normal level, or perhaps even higher than that. Unless Rex really continues to go hard at Virgin and Qantas, which they very well might do.
“Domestically, we’re more likely to see prices settle at a higher point than pre-Covid.”
Revenue in the domestic airline industry is forecast to decrease by 37% in the 2020/21 financial year and recover by 51% in the 2021/22 year.
In the 2018/19 year, the domestic industry was worth about $14bn, but will be worth around half that, at $6.5bn, in this financial year.
But Youl said the recovery was likely to be strong, with the industry expecting revenue to climb to $10bn at the end of 2021/22 and then $11.3bn in 2022/23.
Rex’s offer is available until 28 August, while Jetstar’s fares are also available until the end of August. Virgin will continue to offer the cheaper fares until December.


Source: Civil Aviation Authority – Qatar