REX (Regional Express Airlines) might be about to pull the rug out from under both Virgin Australia and Qantas and launch itself as the third major domestic carrier in Australia. Making a reveal this morning to media, the airline plans to raise AUD 200 million to lease ten new aircraft and additional support staff.
What are the details?
For many years, Australia has had a duopoly domestic airline industry with two mainline carriers operating domestic routes, and then a few smaller regional airlines linking country towns. Originally it was Qantas and Ansett Australia, with the latter going bankrupt in 2002. This bankruptcy allowed Virgin Blue to transform itself from a small, low-cost carrier in the country into a rival to Qantas itself (along with a rebrand as Virgin Australia).
With Virgin Australia recently entering voluntary administration (due to the aviation crisis), it seems that history is about to repeat itself. REX is throwing its hat into the ring as a potential new contender for the role of the second mainline carrier.
This plan is less farfetched than it sounds.
What is the REX opportunity?
REX operates an extensive countrywide network of regional routes, flying from big cities out to smaller country towns. As Australia is so big, this is an essential connection for most regional centers as otherwise, it could take more than a day to drive to the nearest international airport.
REX operates these routes with a fleet of 110 aircraft, the biggest of which is a Saab 340 that can carry 34 passengers.
Typically many of these flights operate directly (not non-stop) between destinations, landing at small towns along the way. REX does technically run between the major capital cities such as Sydney and Melbourne, but not non-stop.
So why doesn’t REX merely operate one or two direct flights between airports it already serves? Looking at the map above, you can see that the airline operates already between Sydney, Melbourne and Adelaide, just through other towns. It has the slots, and with a few more appropriate aircraft, it could fill in the gap left by Virgin Australia.
How will this happen?
Speaking to ABC Radio this morning, Rex deputy chairman John Sharp mentioned this idea.
“Presently, Rex flies to the regional centres to all the [mainland] capital cities in Australia,” told ABC radio on Tuesday morning. The proposition is to fly between them and provide a domestic air service in place of the ones once provided by Virgin.”
Later, the deputy chairman mentioned to Sydney Morning Herald that investment banks had approached REX with funding. They had been raising interest for purchase for Virgin Australia and thought, why not merely fund solvent REX instead (Virgin Australia has debts of around AUD 6 billion).
REX plans to acquire AUD 200 million ($128 million) in funding to lease ten Boeing 737s or A320s (potentially from Virgin) to operate these routes. This funding would be double the value of the airline as it stands. REX has not revealed much about its onboard service on these new aircraft, only that it would be in between Qantas and Jetstar, with some premium seating at the front of the cabin.
These ten aircraft (leased cheaper during the aviation downturn) would make a small dent in the airline landscape of Australia and thus would not be too much of a risk for the airline. It could be a fantastic start for things to come.
Sharp finished his round of media interviews that REX will make a decision “in the next three weeks or so.”
What do you think about this plan? Do you think it is a smart move for REX? Let us know in the comments.