Australian airline Regional Express (Rex) is reversing its decision to walk off a range of regional routes. This follows a decision by the Australian Government to keep subsidizing regional flying until September 30.

Funding continues, so Rex will keep on flying

In February, Rex announced it would exit five of its longstanding regional routes. That included Sydney - Bathurst, Sydney - Cooma, Sydney - Lismore, Sydney - Grafton, and Adelaide - Kangaroo Island. Rex said it would wind up flights once government subsidies ended on March 31.

The Australian Government's Regional Airline Network Support (RANS) program supports airlines to maintain a basic level of connectivity across their network of regional routes throughout the travel downturn.

Running since the end of March 2020, RANS underwrites eligible services on a shortfall subsidy basis, with the cost offset by remaining commercial revenue from passengers and freight. RANS has proved lucrative for Rex. In the six months to December 31, Rex picked up almost US$46 million in government funding.

It is a lot of funding for a relatively small airline. In February, Qantas boss Alan Joyce said that Rex had received proportionally seven times the government funding Qantas got.  Last month, before RANS was extended, Rex said;

"We are announcing the cessation of services to the five routes once the government support through the RANS program is discontinued at the end of March."

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Rex picks a fight with Qantas

At the time, Rex caused a stir by taking a swipe at Qantas. With international flights suspended, the big Australian airline had put a fresh emphasis on regional flying. That included moving onto eight routes Rex had previously enjoyed a monopoly on. Rex was deeply unimpressed. It linked Qantas' incursion onto its turf as another reason it was quitting Bathurst, Grafton, Cooma, Lismore, and Kangaroo Island once RANS funding ended.

"The expected drag on Rex’s financial position from the losses on the above eight routes will mean that Rex will be unable to continue subsidizing marginal routes that we have serviced for the past 20 years," Rex said in a statement at the time.

But Qantas was only flying on one of the routes Rex was quitting. Qantas dismissed it as a classic Rex temper tantrum. "Rex’s idea of competition is that it’s something that happens to other people, because they believe they have an enshrined right to be the only carrier on some regional routes," said Qantas' John Gissing.

It was all good fun. Unless you happened to live in one of the five towns Rex was exiting.  Monday's announcement that Rex would backtrack on its previous announcement to end flight to Bathurst, Grafton, Cooma, Lismore, and Kangaroo Island suggests it was always about the money rather than any competitive threat.

In a statement, Rex attributed the extension of RANS until September 30 as behind its decision to keep flying on these five routes. But what happens in September?

Rex puts an interesting twist on an otherwise conventional business model

In addition to RANS, government funding has always been part of the Rex business model. They use that funding to fly to otherwise commercially unviable regional and remote towns. It is similar to the Essential Air Services Program in the United States. There's nothing wrong with harnessing subsidies to provide a service.

But what distinguishes Rex is its willingness to walk off a route if it doesn't get its way. If funding is threatened or another airline comes onto a route, Rex isn't shy about exiting and doing so in a public way. February's verbal brawl with Qantas adhered to that pattern.

But now the Australian Government has coughed up more funding, flights will continue - for a while at least.

Meanwhile, Rex confirmed it would start flying Sydney - Port Macquarie and Sydney - Coffs Harbour. Beginning March 28, Rex will offer up to three return services a day on both routes. These are both busy regional routes on which Qantas has long enjoyed the biggest market share. The irony of Rex pushing onto Qantas turf while complaining about Qantas pushing onto Rex turf is inescapable.