With Australia's domestic airline industry recovering and a new player crowding into the marketplace, it is an interesting time to be watching the Australian airline scene. One way or the other, Rex's new Boeing 737 services will shake up and maybe, shake out the industry. Rex's Boeings mean new market forces are at play. One of the airlines keeping a close eye on what Rex is up to is local low-cost carrier, Jetstar.

Rex helps open up a new competitive playing field in Australia - the middle market

Australian domestic aviation is now seeing a third level of competition - the middle market. Previously, Australia did premium (Qantas and Virgin Australia) and low-cost (Tigerair and Jetstar). But the middle tier sat vacant. Now it is a relatively crowded space. Virgin Australia has altered its course and moved mid-market. And then there's Rex, firmly pitching its new Boeing 737 jet service as middle market as well.

That leaves the Qantas Group of airlines flying solo in their own market segments. Qantas stays a premium airline, charging accordingly, and seems as happy as a pig in mud, having the premium space all to itself. With Tigerair now only a memory, wholly-owned Jetstar has the low-cost market space to itself as well.

Both Rex and Jetstar say they are chasing different customer bases

Nobody ever really thought Rex's jet services would put the squeeze on Qantas. With its millions of rusted-on loyalists, corporate accounts, and government business, Qantas seemed to view Rex's move to jet services with the bemused detachment of an older brother watching his smaller sibling setting themselves up to fail.

But there was a bit of speculation Rex might be eyeballing a slice of Jetstar's cost-conscious, brand-agnostic customer base. But neither Rex nor Jetstar believes that's going to be the case. Rex's Deputy Chairman John Sharp told a CAPA Live event last week;

"I think Jetstar sees itself as a different product to what we're offering. We're offering a full-service experience and they're not.

"I don't see them, seeing themselves, as a competitor to Rex. They see themselves as a unique product in the marketplace, different divergent, different direction. They see themselves as riding above what we do."

John Sharp is right about that. Speaking at a previous CAPA Live event, Jetstar's CEO Gareth Evans said a new airline competing on the busy trunk routes would introduce a new market dynamic. And while saying he would be keeping a close eye on Rex, Gareth Evans agrees with John Sharp that the two airlines are not directly competing.

"They're middle of the market," Mr Evans said about Rex. "They are going for different customer pools.

While admitting there will be some overlap, the Jetstar CEO said, "For us, we're going to be what we were before - low fares, low-cost, and choice."

Stay informed: Sign up for our daily and weekly aviation news digests.

The Qantas Group lands in a competitive sweet spot in Australia

Whether by accident or design, things are working out quite well for the Qantas Group. The two Qantas Group airlines own their respective market spaces in Australia. The two other operators, Virgin Australia and Rex, will duke it out in the middle market. Qantas CEO Alan Joyce has long maintained there isn't room for a standalone third major domestic airline operator in Australia. Mr Joyce has predicted a corporate casualty, but he is confident that casualty won't be one of his airlines.

At the edges of any airline's customer base, there will be a percentage of customers migrating to and from the airline. They will be lured to or from the airline by factors like price, convenience, and timing. That's the overlap Gareth Evans talks about.

But as far as domestic flying in Australia in 2021 goes, the competitive heat won't be between Rex and Jetstar. Instead, all eyes will be watching the fight for customers in the middle market segment between Virgin Australia and Rex.