Australian carrier, Regional Express, has moved to slap down speculation it is interested in non-core regional routes flown by Virgin Australia. This came after allegations this week that the airline was eyeing off some routes and thinking of entering into a consortium to recapitalize Virgin Australia.
REX squeezes money from marginal regional routes
Regional Express, better known as REX, flies 57 Swedish built Saab 340 turboprop aircraft across 59 regional routes around Australia. While not exceptionally well known in the larger cities, the airline provides a valuable service linking rural and regional communities. But it’s a tough business, eking out a profit on these marginal routes.
Although REX usually manages to make a slender profit, the airline is known for running on the smell of an oily rag. As the 2020 pandemic began to bite, REX fought hard for government assistance. In late March, REX won the lion’s share of a USD$129 million regional airline assistance package after threatening to shut the airline down.
Although Singaporean entrepreneur Lim Kim Hai holds a 17.25% stake in the airline, REX isn’t cash-rich. In the year ending 30 June 2019, REX had total revenues of USD$206.5 million. The airline had an after-tax profit of USD$11.4 million. The pandemic and subsequent travel downturn have seen REX withdraw its 2020 profit forecast.
REX’s Vice-Chairman says his airline has ability but not money
Against this background, speculation that REX had the financial capacity to join any consortium interested in recapitalizing Virgin Australia was a stretch. In mid-April, REX Vice-Chairman John Sharp was asked on ABC Radio if the airline was in a position to replace Virgin Australia.
“There’s no question a company like REX would have the ability to run a company like Virgin, it’s a question of whether we have enough capital to do it and I would suggest to you that we aren’t in a position at this stage. We don’t have the capital to take on the liabilities of running a company as large as Virgin,” Mr Sharp said.
The Vice-Chairman also threw this into the mix;
“Certainly, REX could step up and offer more services between some of the destinations that Virgin flies now. We don’t operate large commercial jetliners, we operate turboprop aircraft, small and medium-sized regional aircraft, and so we could step up and offer some services.”
But what regional routes would REX be interested in?
Earlier this week, The Australian newspaper floated the idea of REX joining a consortium in a bid to recapitalize Virgin Australia and take over some of Virgin Australia’s existing “non-core” regional routes.
A regional route can be defined as a route that services an airport outside the capital cities. By definition, this includes large airports like Newcastle, Cairns, Gold Coast, and Launceston. But it also includes tiny airports like Charleville, Thargomindah, and Narrandera. Virgin Australia has stuck to the larger regional airports while REX specializes in the smaller airports. There is some, but not a lot of overlap.
REX slaps down suggestion it will take over Virgin Australia regional routes
Given REX’s financial limitations and only operating one aircraft type, the SAAB A340s (which can seat about 34 passengers), what existing Virgin Australia routes would REX have been looking at?
We put this question to REX who told us;
“Virgin Australia has almost no regional routes that are suitable for our fleet of Saab 340.”
The key word here is “almost,” but REX is right. There are very few routes Virgin Australia flies that REX does not that are suitable for a 34 seat turboprop. It makes media suggestions that REX is making a play for some of Virgin Australia’s regional routes unlikely. REX has neither the pockets or aircraft capability to make the higher traffic regional routes work.
REX has survived and made money because it knows its limitations and sticks to it, keeping it simple, keeping it lean, running one aircraft craft, and sticking to its core business. It is unlikely to make the mistake of other airlines and stray from this well worn and proven path.