Australian regional airline, Regional Express, has declared a Force Majeure event on its government-contracted services in Queensland. The airline is walking away from regulated routes operated under contract with the Queensland government and its regular passenger routes in the state. Services will cease tomorrow, 1 April 2020.
REX walks out of Queensland
In a statement released this morning, Regional Express (better known as REX) said;
“With cash fast running out and no immediate prospect of a workable solution from the
Queensland State Government, Rex has no choice but to declare a Force Majeure event for
the Contract and suspend all services on Queensland regulated routes indefinitely until it has
the ability to service the contract in a commercially viable manner.”
Sydney based REX operates a fleet of 57 Saab A340 aircraft, with a focus on regional and rural routes in southeastern Australia. The airline provides a valuable service for people living outside the bigger cities and usually rustles up a small annual profit.
The airline is also known for being short-tempered and choleric when dealing with competitors, governments and external stakeholders. To some extent, this morning’s announcement is par for the course.
REX has had a busy week buzzing the government
As the downturn in demand began to bite, REX appealed to the Australian government for financial help and announced a series of network reductions. The airline stepped this up early last week when it announced it would suspend all services except for government-regulated routes in Queensland.
Government-regulated routes are those that are financially subsidized by the government, in this case by the government of Queensland state. The idea is to ensure a minimum level of passenger services into isolated towns.
Queensland is 1.853 million km2 and Australia’s most decentralized state with its five million residents scattered far and wide. REX was paid to operate routes such as Townsville-Winton-Longreach and Townsville-Hughenden-Richmond-Julia Creek-Mount Isa.
Governments at both state and federal levels come under ongoing pressure to maintain transport services to remote areas, no matter how uneconomic. Operating these services is a handy niche for REX.
Last week, with REX leading the chorus, a group of small regional airlines approached the Australian government seeking financial help.
At the same time, Australia’s competition czar, the Australian Competition and Consumer Commission eased the normal rules and let REX, Qantas and Virgin Australia co-operate and share revenue on ten regional routes, helping to ensure a bare-bones service kept going.
Small regional airlines win an assistance package
Then, just last weekend, REX and other small regional airlines received a USD$185 million assistance package from the Australian government. Deputy Prime Minister Michael McCormack said the government would work with each relevant airline to disperse the funds. The aim was to keep services running to 138 remote and rural communities. Just three days ago, REX was applauding the move. REX Chairman, John Sharp said in a statement;
“All regional communities and residents should be extremely grateful to the Coalition Government for its commitment to the future of the regional cities. This meaningful assistance package not only seeks to keep essential air services going, but also tries to prevent the existing regional aviation providers from collapsing.”
Despite having flagged cancellations and network cuts, on the weekend, REX said it could now continue operations and keep flying to its 59 destinations.
A lot can happen in three days
So, great news. Remote and rural communities get to keep their air services and REX employees get to keep their jobs. But that was Saturday, it’s now Tuesday, and this is REX.
In this morning’s statement, REX said;
“While the Federal Government has announced several assistance packages for airlines, no
concrete details have been forthcoming and more importantly, not a single cent has been
disbursed. Further, the Federal Government is only funding a minimum essential service of
one return weekly flight per route, and this reduced schedule approach was rejected by the
Queensland State Government.”
Accordingly, REX is pulling out of services in Queensland from tomorrow.
A two-pronged attack from REX
Note that REX is launching a two-prong attack here. It is having a go at the federal government for not moving fast enough on Saturday’s assistance announcement. It is also having a crack at the Queensland state government for not coming to the party on Queensland regulated routes. REX says;
“Rex first requested consideration from the Queensland Government on 19 March 2020 and
has since then made numerous appeals. In the meantime, Rex’s financial position and cash
flow has seen a further sharp degradation due to the spectacular drop of patronage arising
from travel being limited to essential travel only, as well as the border control measures
being implemented across Australia.”
The airline is activating the Force Majeure clause in its contract with the Queensland government. To rub salt into the wound, it is also walking away from all its other routes in Queensland.
What’s the read on this? First, while governments are never the most nimble of beasts, the various tiers of Australian governments are doing a reasonable job all round in fairly trying times. Second, this is a classic REX dummy spit move. Third, it may get a response from both the Queensland and federal governments today and result in a later reversal of the decision. Fourth, the big losers here are the people of central and western Queensland.
Is REX right to walk away from Queensland? What do you think? Post a comment and let us know.