Airfare searches reveal cheap seats between the two major capitals for most dates in March.
Rexs prices are notable because it is a full-service airline, unlike Jetstar and the now-defunct Tiger Airways. Business class seats are $199 during the sale.
Rex is giving Australias domestic aviation market its biggest shake-up in 20 years by disrupting the dominance of major airlines Qantas and Virgin.
Rex will start flying three Boeing 737s, previously used by Virgin, between Sydney and Melbourne in March before adding Brisbane to its network at Easter. The golden triangle between Sydney, Melbourne and Brisbane is one of the most profitable routes in global aviation and makes up 40 per cent of the Australian airline market.
Peter Harbison from CAPA Centre for Aviation said the three-way price war was pretty remarkable.
Theres been nothing like this for quite some time, he said. Its going to be very, very bloody for a while.
Theres obviously not enough demand to fill the seats available, which is a worry.
Mr Harbison said repeated border closures at short notice had clearly burnt travellers confidence about flying interstate.
Thats got to be resolved not just for the airlines but the economy generally. If were shutting down a market with a days notice because of one case, were going to have a lot of problems for the next nine months.
Airlines and tourism operators have previously expressed confidence in a backlog in demand for travel, but Mr Harbison questioned this theory.
If the pent-up demand is so massive, how come theyre having to discount? Because theyre obviously not selling the tickets. Thats prompting them to do this, he said.
Australian aviation has a long history of failed third airlines, but Mr Harbison said Rex was a different proposition.
Theyre already in the market and they have connectivity in the market. And theres plenty of [landing] slots at the major airports.
In December, new Virgin chief executive Jayne Hrdlicka flagged a price war with super competitive fares and said it will have never have been cheaper to travel in this country.
Qantas boss Alan Joyce predicted last month that one of Virgin or Rex would fail because this market has never sustained three airline groups and it probably wont into the future.
Competition watchdog boss Rod Sims said Rex was an interesting player that would have to differentiate [from] rather than copy other airlines.
I dont know whether theyll succeed in what theyre trying to do, but I would think that theyre as well-placed or probably better placed than anyone else whos tried it to pull it off, Mr Sims told a CAPA Live virtual event on Wednesday.
Its really important we let the market play this out.
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