lack of regional competition

[MaxFL360]

Just a quick question that I hope I can get answered. Why is there a big lack in competition on many regional routes, especially within NSW and SA. Look at Rex for example, they seem to have monopoly on SY-Broken Hill/Mildura and pretty much every RPT route in SA besides Port Lincoln. Why doesn't QLINK or VARA operate on this route? Is it purely a lack of demand or is there something preventing them from operating on these routes.

SY-YBHI is a 2 hour trek in a saab, surely if qlink operated a q400 and could shave 30 mins off travel time they would take a decent amount of market share.

[Cravenmorehead]

That's a pretty big question. In short nothing stops an operator with the appropriate AOC and requisite structure in place to satisfy the relevant authority from operating on or even opening up new routes. You either want to make money or perhaps compete with the other operator for whatever reason and cop a loss. Sometimes some regional routes are given a subsidy by the relevant state government, as you find in QLD, meaning they are viable to operate on.
Your question would be best answered by an accountant though, they seem to run airlines these days.......

[TBM-Legend]

Many regional routes are regulated by state governments as well as some such as in Qld, are subsidised. This is a simple matter of economics. If the pax numbers are big enough then it's open skies. Smaller numbers mean that the routes may ultimately have no service....

It's no different from other services. Myers don't have shops in smaller centres either. Airlines are businesses too....

[dubbleyew eight]

in western australia many routes are only there because of a government top up of the fares paid (a subsidy)

perth to esperance is one such subsidised route.

not enough demand to warrant burning the fuel.

[Snakecharma]

The problem with regional routes is the cost of airfares on trunk routes.

Sounds silly, but because people can buy a cheap fare on Sydney to Perth or even Sydney to London, people translate those fares into an expectation of proportionally cheaper fares on regional routes.

" I can go from Sydney to Perth for 290 bucks, here to wagga is a fraction of that distance and they want 500 bucks!"

The reality is the trunk route fares, as unprofitable as they are, are distorting the expectations of people who fly on regional routes.

This is compounded by the fact that a small regional aeroplane will always be more expensive to run on a per seat basis than a bigger jet - note I said per seat not per block.

People accuse the monopoly operators of price gouging when the reality is they are charging sustainable, profitable fares.

To do anything else would be great for the consumer, right up to the point that the operator goes broke and they have no air service.

The punters in this country have to wake up to the fact they they actually need to pay for some things, not everything is free or subsidised by people who earn over 50 k per year, despite what the old labor government used to tell them!

[MaxFL360]

good points, thanks for the feedback. So would airlines such as qlink and vara see rex as too ingrained on some of these routes and any sort of competition would be purely a loss making exercise or would filling the seats on a bigger dash8 or atr be unsustainable compared to the saab due to relatively low demand.

Also why doesnt qlink set up a permanent base in adelaide, rex have a clear monopoly, surely the demand is there with the mining/business sector to warrant some competition.

[dubbleyew eight]

forget the monopoly and competition tripe. sustainability is what is needed.

if you want safe operation then those operations must cover costs plus some profit for tomorrow.

if you saw the maintenance duckshoving that occurs when airlines need to reduce outgoing cash-flow you'd be horrified.

[hiwaytohell]

Max
History and slots!

The Q-link Dash 8 ops have grown out of many of the smaller early mover commuter airlines, and to some degree picked some of the old EastWest Routes.

Rex has evolved from Hazelton and Kendell Airlines. Both of which benefited enormously as and when Ansett exited regional routes. Hazelton also picked up some of EastWest's routes.

Along the way Q-link and Rex own some very good slots at Sydney, which for regional NSW have been effectively capped since 2001, and since VARA has come along they have picked up anything remaining worth having. So what you will see is that Q-link, Rex and VARA will use these slots for the routes with the best return.

As for South Australia there is probably only one route that could benefit from competition and I doubt it worth Q-link the cost to set-up a new base.

[tail wheel]

So would airlines such as qlink and vara see rex as too ingrained on some of these routes and any sort of competition would be purely a loss making exercise..

How many times can you cut the cake so each has some icing?

If an air route will profitably support one SAAB service at optimum minimum frequency (which is generally considered to be once per day) and a second operator - particularly with a Q400 - enters the market, both operators will cease to be profitable and history indicates that in a very short period of time, no operator will operate the air route.

Also why doesnt qlink set up a permanent base in adelaide, rex have a clear monopoly, surely the demand is there with the mining/business sector to warrant some competition.

Why would QLink set up a base? They have a slice already of $2.8 billion in red ink, why would they want more red ink and also push REX into losses?

There is only enough water in the bucket for one horse, not an entire team of horses!

[Rural]

Within the regional airline landscape the smaller regionals (with say 1 to 5 aircraft) cannot achieve the same level of efficiencies as the likes of Rex that operte around 50 aircraft.

QantasLink also would have reasonable efficiencies (in the context of regional) and they also have the added benefit of their results being somewhat hidden within the broader Qantas Group results. This helps with the secret squirrel factor...

Agree with a lot of the points raised earlier about the regionals simply not having the same efficiencies as domestic / low cost carriers, but then within the regionals there are also vast differences with economies of scale.

Airlines such as Rex have a diverse network and can spread overheads across a lot of activity, where they can sustain a loss on a route in an attempt to make it work in the longer term. For a smaller regional this can be impossible and can lead to the airline collapsing. (i.e. varying depths of pockets)

It is certainly an interesting topic and will be interesting to see how the next 5 to 10 years evolve.

[PLovett]

A couple of months ago Rex was quoted as saying that they needed 30,000 pax per year on a route to make it viable. Last year, or perhaps year before that, they publicly identified the routes that they would abandon should they encounter the same crewing problems they faced in 2007. So yes, they do support some routes with other highly profitable routes but they are also willing to abandon them should it be necessary. Put another operator on a currently profitable route and watch both go down the drain.

The whole nature of the aviation business is a move towards larger aircraft. The replacements for the 737NG and 320 will seat more than the current aircraft. Who these days are manufacturing 35 seat regional aircraft? Rex must be looking at a future problem with what do they replace the SAABs' with. Big dollars changing their whole operation to another type.

The public have no idea of the economics of airline operation. For that matter I doubt many pilots do either. QANTAS got behind the publication of an excellent book which explained in some detail the economics of operating transport aircraft and explained the whole concept of economies of scale. I was able to read a fellow pilots copy but I have not been able to find it for sale. If anyone knows of where there are copies I would gladly purchase one. As an aside, it contained some brilliant photographs.