Things aren’t looking so good for Australia’s Rex Airlines, which has been growing aggressively in recent years, seemingly to its own detriment…
In this post:
Rex Airlines reportedly appointing turnaround team
Rex Airlines is Australia’s third largest airline. Historically, the airline operated a fleet of Saab 340 turboprop aircraft, in small markets without much competition. However, in late 2020 the airline decided to pursue a new strategy, and acquired Boeing 737s, with hopes of competing more directly with both Qantas and Virgin Australia, in higher demand markets.
Currently the airline has a fleet of 66 aircraft, including nine Boeing 737-800s and 57 Saab 340s. Unfortunately so far the carrier’s growth hasn’t proven to be profitable, and the company hasn’t turned a profit since the start of the pandemic.
That appears to be taking a serious toll now, as shares of Rex have been temporarily suspended on the Australian Securities Exchange, pending a material announcement. Over the weekend, there were reports that the company had called in financial services firm Deloitte.
According to these reports, there are tensions among Rex Airlines’ directors, and a turnaround team is being appointed from Deloitte to save the airline from going under. Earlier this month, Rex’s former executive chair launched a bid to remove the company’s long serving leader and former deputy chair from the board.
Here’s what Rex Airlines said in a statement on Monday:
“Rex advises the trading halt is to last until the commencement of trade on Wednesday, 31st July 2024 or until the announcement mentioned above has been made. Rex confirms that is not aware of any reason why the trading halt should not be granted or of any other information necessary to inform the market about the trading halt.”
Here’s what Transport Workers Union, representing many workers at Rex Airlines, had to say in a statement:
“Following complaints against Qantas of capacity dumping, slot hoarding and a bidding war in regional Australia, Rex has now become another victim of an unregulated aviation market. The TWU worked with Deloitte to get Virgin Australia back in the air and will work just as hard with them again to try to rescue Rex Airlines. Despite multibillion-dollar Qantas claiming there’s no room for competition, we know healthy competition is the only remedy for an industry in crisis.”
I can’t say I’m surprised by these struggles
Australian aviation isn’t easy. You have Qantas, which does well, because it has a dominant position in the market both domestically and internationally, is able to charge high fares, and the Australian government generally takes a protectionist approach with the airline.
Virgin Australia historically lost money, but the airline underwent a reorganization several years ago, and finally returned its first profit in over a decade within the past year.
But for anything other than those airlines, it’s a very tough market. For example, low cost carrier Bonza recently went out of business, but that may also have to do with the company’s shady owners.
Now we’re seeing issues with Rex, and I can’t say I’m surprised. Before Rex acquired Boeing 737s, the airline had a niche, operating in many markets that were otherwise underserved. But then the airline decided it wanted to try to replicate Qantas’ success domestically, by operating in more competitive markets.
The challenge is, any airline competing against Qantas is at a major disadvantage in terms of customer preference, ancillary revenue from its loyalty program, global network and connecting traffic, etc. So it’s not surprising to me that this experiment hasn’t worked out so well.
Australia is a large country with a small population, and that population is heavily centered around a few cities. Qantas can play the “long game” to squash competition, and I suspect that’s exactly what has happened here.
Bottom line
Rex Airlines appears to be in trouble, as the company has halted trading, and is reportedly appointing Deloitte to come up with a turnaround plan. Back in the day, the airline operated in small markets with turboprops, but then decided to expand with 737s, and compete head-on against Qantas and Virgin Australia. That hasn’t worked out too well, and now the airline is having to face that reality…
What do you make of Rex Airlines being in turmoil?
And didn't an overbearing member of the management team mess up the overhaul arrangements for the CT7 turbines on the SAABs, leading to engineless airframes sitting around?
I believe that when REX started with the jet service a few years back they were banking on Virgin going under, as Virgin was in administration then. It was a bet they took that has now gone pear shaped, partially due to Virgin surviving Administration.
Every time I have looked at REX flights on a sold-out route of QF or VA, I have been dismayed at the cost of a REX ticket. A LCC with second-rate slots, no decent lounge presence anywhere and no FF program should not even try to compete against the big hitters, and turns off potential new customers.
Stick to the routes the others ignore (plenty of them with potential) and don't go crazy with...
Every time I have looked at REX flights on a sold-out route of QF or VA, I have been dismayed at the cost of a REX ticket. A LCC with second-rate slots, no decent lounge presence anywhere and no FF program should not even try to compete against the big hitters, and turns off potential new customers.
Stick to the routes the others ignore (plenty of them with potential) and don't go crazy with pricing and you may be in with a chance. Ditch the 737s; hope they are only leased...
Deloitte is making a killing in reviving Australian airlines.
Isn't there a time when conflict of interest between their interventions comes into place?
Bonza failed because they threw huge capacity at marginal routes. Why would you operate a 737 Max 8 between Mildura (population 33K) and a secondary leisure port like the Sunshine Coast? That was just one example of their ridiculous route structure. The dodgy ownership also didn't help.
Rex is a different matter, and more about frequency. Business travelers on the highly lucrative "golden triangle" routes between Melbourne/Brisbane/Sydney/Canberra are accustomed to the high frequency services of...
Bonza failed because they threw huge capacity at marginal routes. Why would you operate a 737 Max 8 between Mildura (population 33K) and a secondary leisure port like the Sunshine Coast? That was just one example of their ridiculous route structure. The dodgy ownership also didn't help.
Rex is a different matter, and more about frequency. Business travelers on the highly lucrative "golden triangle" routes between Melbourne/Brisbane/Sydney/Canberra are accustomed to the high frequency services of QF & VA, so two nonstops a day in each direction between Melbourne and Brisbane, for instance, just doesn't cut it. The yields just aren't there.
Rex's competitor is Virgin-Australia not Qantas, and Virgin has been assiduously lowering fares and undercutting Rex anytime that Rex has a competing flight.
As a frequent Rex flyer I find their 737 service impeccable, will be sorry to see them go.
Only share trading has stopped at this time, they're still flying.
"According to these reports, there are tensions among Rex Airlines’ directors, and a turnaround team is being appointed from Deloitte to save the airline from going under."
Aren't all Australian airlines already (down) under?
We have too many upper-crust, Toorak and Woolstonecraft wankers in this country who come in once every decade with Daddy’s inheritance and try to set up a competitor to QF. They think that they’re the exception to the rule that Ben succinctly outlined in this article - Australia can BARELY support two mainline, full service carriers. QF is full-service, VA is quasi-full service, with Jetstar low-cost. All the others are regional, niche carriers that stick...
We have too many upper-crust, Toorak and Woolstonecraft wankers in this country who come in once every decade with Daddy’s inheritance and try to set up a competitor to QF. They think that they’re the exception to the rule that Ben succinctly outlined in this article - Australia can BARELY support two mainline, full service carriers. QF is full-service, VA is quasi-full service, with Jetstar low-cost. All the others are regional, niche carriers that stick to their knitting and eke out a living; but God help any of them who think they will deviate from that course and not go down the road of Compass, Compass MKII, Impulse, Tiger Air, Bonza and now Rex. Australia is at once too big geographically, and far too small demographically to support any other model at all.
Fools and their money are soon parted.
And, for those who don't know, Jetstar is a wholly owned subsidiary of Qantas. It goes to show you what a different environment that is. Remember Ted or the other attempts of US legacy carriers to set up a separate low-cost brand?
Rex has been around since 2002, when a group of former Ansett employees purchased former subsidiaries Hazelton and Kendall Airlines from the liquidators after Ansett died in 2001. Both regional operators had been profitable before Ansett (and its blisteringly incompetent owners from Auckland) had taken them over. Rex went on to be a profitable operator until new Singaporean investors came up with the idea of running 737s on mainline routes. In hindsight it was a...
Rex has been around since 2002, when a group of former Ansett employees purchased former subsidiaries Hazelton and Kendall Airlines from the liquidators after Ansett died in 2001. Both regional operators had been profitable before Ansett (and its blisteringly incompetent owners from Auckland) had taken them over. Rex went on to be a profitable operator until new Singaporean investors came up with the idea of running 737s on mainline routes. In hindsight it was a big mistake.
VA has since moved downmarket after existing administration. They're largely a hybrid low-cost carrier (Y is entirely LCC with the base fare being carry-on only) with a 8-seater J cabin attached with limited domestic lounge services and a FF Program (Velocity).
Really easy to just blame Qantas.
But both Qantas and Virgin have very frequent services on the 737 routes Rex targeted. They never could compete on frequency. And I doubt they could compete on price with Jetstar.
So that didn't leave them much of any competitive advantage.
Yup, bringing in Deloitte to run an airline should find fix everything soon.
Delta will then soon be without a partner in Australia. Oh well.
I'm sure the kids fresh out of University at Deloitte will know just what to do to salvage this airline. Should be profitable in no time flat.
I can tell them now for free: ditch the 737s and go back to operating a regional airline. They probably would have been better off using their funds to replace their ageing regional saab fleet.
They could of pursued a partnership with Virgin, who have disposed of their turboprops (unlike Qantas) and therefore unlikely to compete on any routes, using Virgin's jet service between major cities as a feeder for their regional planes. They could...
I can tell them now for free: ditch the 737s and go back to operating a regional airline. They probably would have been better off using their funds to replace their ageing regional saab fleet.
They could of pursued a partnership with Virgin, who have disposed of their turboprops (unlike Qantas) and therefore unlikely to compete on any routes, using Virgin's jet service between major cities as a feeder for their regional planes. They could have even ditched their rubbish lounges in the cities too and used Virgin's as well to cut costs.
Virgin is partnered with Link Airways and FlyPelican in NSW for regional services in those states, with both operators operating similar turbo-props, making a REX partnership less likely if at all.
Yee of little faith, who poo-pooed my suggestion about Rex turning to Virgin partnership. Seems that Rex and Virgin are pursuing just that!