Australia’s Rex In Turmoil, As Airline Halts Trading

Things aren’t looking so good for Australia’s Rex Airlines, which has been growing aggressively in recent years, seemingly to its own detriment…

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.

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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?