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Australia aviation competition gearing up: Can everyone survive?

George Woods:

Anna, what about the nature of the recovery? We’re sitting here on Zoom today, do you see this as being a consumer-led recovery?

Anna Wilson:

Look, I think in terms of forecasting or recovery in demand, I think that basically all forecasts will be either lucky or wrong in some respects because the key drivers are mostly the pandemic and the government’s response to it. Border closures are essentially the main thing that’s affecting domestic travel, which is by and large the most important aspect of demand. And I think probably what we’re seeing is that current levels of demand probably reflect this uncertainty as much as the explicit border closures themselves. We’re quite loss averse humans, and we really do not like to lose, and much more than we’ll like any equivalent size gains. So by and large, I would suggest people are responding to that and waiting to see which means they’ll book light, but it also means they’ll potentially avoid travel, which is what Cameron was pointing at in terms of seeing intrastate travel movement. But I think over time, passengers might start to become more comfortable with cancellation arrangements that airlines have in place. And when they feel more comfortable that they’ll get their money back, that they’ll be able to rebook.

I think then you’ll see more demand emerging and maybe things heading back not to necessarily pre[1]COVID levels, but to something that’s more keen to what we’re used to as that uncertainty or the fear of the uncertainty declines. And I guess one more other observation I would make to build on Cameron’s point, I think generally people are presuming there’s been a massive change in demand from business travelers. I think time will tell how much that might have changed in the sense that we presume you can do meetings and conferences over Zoom like we are now, and you certainly can, but there’s an aspect of business which doesn’t do well in this kind of world. And that’s winning new business, and their face-to[1]face interaction is actually critical. You don’t remember people that you’ve met on a Zoom call, but you do when you’ve met them face-to-face.

And I think at the moment, we’re seeing that business demand might’ve been a little bit pent up. People are enjoying a change in pace working from home. As to whether, and to what extent, business demand will be dampened, I think we’ll know more in about a year’s time when you can start to see that more serious… I guess you would say that desire to start winning work for different businesses and expanding and keeping their client bases and stuff like that. As that emerges, I think airline travel and face-to-face interactions will become more important again.

George Woods:

Thank you, Anna. So we’re facing this uncertain environment with demand coming back slowly. It raises the question then as to how are we going to see the industry play out with three airlines for brands operating creating in the market, particularly on the main line network. And this has been tried before. There’s been a lot of start-ups over the years that have tried to challenge the main line market. Maybe, Rod, you must’ve seen a lot of the various airlines that have come and gone over the last few years, big and small. What are the lessons from the past? Who got it right and who got it wrong?

Rod Sims:

Look, George, I’ll just make one quick comment in response to Anna, I think it’s going to depend very much with the travel on whether airlines particularly are making it very clear if the booking changes, you’ll get a refund. Even if the government hasn’t canceled something, you’ll get a refund. I think that’s going to be really important for the travel industry to underpin that consumer and business traveler confidence. Oh, look, there’s a fantastic history in aviation in terms of companies that have come and gone, obviously Ansett is the one everybody remembers, but we’ve had other entrants to be the third player that didn’t last. I guess the key point I’d make without getting too much into the history, George, is that Rex is an interesting player. It’s been here a long time. I think it’s mainly the build-up of Hazelton and Kendell, which had been around for a very long time. It’s got its own base in terms of its regional network. I think it’s still quite profitable.

It’s obviously low cost given the nature of the airlines. So it’s a slightly different beast than others that have tried to be the third or indeed second player in some ways. I think the key point I’d make is that it’s really important we let the market play this out, and that means people shouldn’t, I think, get… Look, it’s quite fun to speculate what will happen with Rex and what will happen with Virgin for that matter. But at the end of the day, we must make sure that what government and perhaps others do it, doesn’t try and preordain that outcome. And obviously the thing uppermost in my mind is slot management. If Rex is going to operate on the nine routes, Melbourne-Sydney, also Sydney-Brisbane, Melbourne-Brisbane, it needs slots, particularly, obviously in Sydney Airport.

And we’ve just got to make sure that we haven’t grandfathered the slots in such a way that Rex can’t get in there. Now I think in the short term, Rex is fine, but obviously we’ve got an 80% rule for other slots, but I’ve no doubt that Qantas and Virgin we’ve got someone sitting there making sure they use 80% of the slots, even if they have to cancel a flight over here and put one in over there. Obviously, that’s what they’re doing. So I just think the current review being done by the Department of Transport into slot management, particularly at Sydney Airport is just fundamental. We just cannot cement the current slots. So my strong message is, let the market play out. My subsidiary message is Rex is coming off a successful low-cost background. I don’t know whether they’ll succeed in what they’re trying to do, but I would think that they’re as well placed, or probably better placed than anyone else who’s tried it to pull it off.