It would appear as though Rex’s dream of competing with Qantas and Virgin Australia on the Golden Triangle of Sydney, Melbourne and Brisbane is over.
After leasing former Virgin Australia B737s and undertaking a bold play in 2021 to compete with the likes of Qantas on the country’s busiest routes, Rex is now facing financial uncertainty after formally appointing Ernst & Young Australia as administrators this morning.
One of the first rumbles of uncertainty was felt when the carrier declined to provide a full-year profit guidance in March due to an “uncertain economic outlook”, and then earlier this month, major ructions on the board were made public on the ASX.
Former CEO Lim Kim Hai sensationally moved to have four directors removed from the board, including long-standing leader John Sharp.
While Rex refused to comment on the unfurling events at the top, many industry observers suspected the conflict likely stemmed from its ongoing financial woes, with those theories vindicated this week with the grounding of Rex’s B737 fleet from major cities amid a cash shortage.
What is the short-term impact on travellers and the industry?
Domestic B737 flights between major airports have been grounded and customers booked on services are in the process of being contacted by Rex. At this stage, Rex’s regional Saab 340 flights are still operating and have been unaffected by the administration development. EY stressed that pre-paid ticketholders will have their tickets honoured on regional routes.
Rex customers booked on 737 services are also being encouraged to take up a Virgin Australia offer to transfer their ticket free of charge to the carriers’ 13 overlapping services.
Affected agents and travellers can contact 13 67 89 for more details about how to take advantage of the offer, which must be made by 14 August.
Why is Rex in financial strife?
One of the theories behind Rex’s downfall is the move away from its core brand offering of supporting regional Australia. While always maintaining ‘Our heart is in the country’, the decision to move in on the three east coast capitals may have stretched Rex’s resources too thin and had major knock-on impacts for its regional business.
Another area of concern has been its access to resources, with pilot and engineering shortages hindering its ability to operate a number of regional routes in recent months. Rex blamed the shortfall in pilot access on Qantas pillaging its pool of crew, however Qantas has always denied the claim.
The general increase in fuel and related operating costs, coupled with rising inflation would have applied increased pressure on the Rex business model at a time when its bottom line was already facing significant headwinds.
The carrier’s older Saab fleet is also a financial impediment to Rex, with the 30-year-old planes currently servicing regional Australia likely requiring more maintenance costs than the modern aircraft deployed by competitors. Speaking on the Fear and Greed podcast this week, aviation expert Neil Hansford suggested $2 billion would be needed for Rex to shift to a more modern fleet of turboprop planes.
Should the Federal Government step in and save Rex?
After the calamity of the Bonza collapse, there has been no shortage of calls for the Federal Government to intervene and ensure Rex does not follow the same fate. One of those people was Greens leader Adam Bandt, who took to social media to urge the Federal Government to buy the carrier and avoid another regional aviation disaster.
“Transport is an essential service, so why not protect people who rely on regional services by bringing this critical airline into public hands?” he said.
TWU National Secretary Michael Kaine has also called on the government to buy an equity stake to “protect as many jobs as possible”.
“This is another dark day for aviation, with over 600 families faced with sudden joblessness in an industry that has taken hit after hit,” Kaine said.
“We are calling on the Federal Government to act with an equity stake in Rex, and a Safe and Secure Skies Commission to provide a voice to workers, passengers and the community for aviation.
“The Federal Government has sent positive signals that it does not intend to leave regional Australia in the lurch…and an equity stake would serve workers, regional Australia and taxpayers now and into the future.
“Aviation is locked in a cycle of crises, and while the Rex administration is handled as quickly as possible, we also need a long-term fix to the unregulated market dominance that sees Qantas popping the champagne corks while competitors are squeezed out and workers are left on the scrap heap,” he concluded.
For its part, at the time of publication, the Federal Government has hinted it will step in with some form of support, but is yet to commit to anything specific.
Federal Transport Minister, Catherine King, told the ABC the government has already put some “contingencies in place”, but at this stage, it is still assessing the best way to support regional aviation and connectivity.
Responding to the crises, the Australian Travel Industry Association (ATIA) CEO Dean Long called on the government to ensure any support scheme it comes up with covers the losses incurred by travel advisors.
“We urge the Federal Government to extend any financial support beyond the airline itself to include the wider travel ecosystem, which is now picking up the pieces,” Long said.
“Many travel agents have been left with substantial outstanding amounts as a result of booking with Rex Airlines for clients.
“On top of the financial exposure is the significant increase in workload as they work to help those who have now found themselves stuck and those who have booked with Rex for future travel.
“Financial assistance is crucial to help travel businesses manage this difficult period, and we are hopeful the Federal Government will understand that,” Long concluded.
How have Virgin and Qantas reacted?
Given the lengthy war of words exchanged between Qantas and Rex, it was not surprising the Flying Kangaroo took a little longer to formulate its response than Virgin. In its statement, Qantas said Rex’s demise was a “sad day for the industry”, and that it stands ready to assist stranded passengers.
“Rex customers impacted by cancelled flights due to the grounding of their domestic jet services can contact Qantas and Jetstar to be reaccommodated on the same route as their original booking at no charge, where we have seats available,” Qantas said.
The offer mirrored an earlier VA pledge; however, it was clear which airline Rex would like its customers to contact. Above and beyond reaccommodating passengers, Rex also confirmed it is investigating codeshare and interline agreements with VA, as well as make Velocity Frequent Flyer benefits available to its customers.
Wasting little time swoop on aircraft opportunities, VA confirmed it had moved to secure leases for at least three of Rex’s B737s, which it said will be used to support capacity and respond to market growth if it accelerates faster than anticipated.
The timing has worked out well for VA, which is currently experiencing delays of deliveries for its B737 Max-8s.
“Securing these three aircraft will have the additional benefit of enabling Virgin Australia to hire more cabin crew and pilots, creating jobs that will be made available for impacted Rex employees,” VA said.
“The team at VA are thinking about everyone at Rex today, an airline with a proud and important role in Australian aviation, particularly for regional Australia,” the carrier added.
What’s next for Rex?
While we can only speculate on the future of Rex for now, an educated assumption is that, at the very least, the carrier’s plan to match VA and Qantas on the Golden Triangle is in tatters.
From the little we currently know of how the Federal Government plans to react, it would appear Prime Minister Anthony Albanese can ill-afford to allow another regional carrier to fall over and leave vast swathes of the country to be critically underserved by air.
The likelihood is there will be some form of support packaged introduced, but perhaps on the condition that Rex remerges as a smaller business focused exclusively on important regional pairs.
Considering the bad blood between Rex and Qantas, there is a greater chance of Danny DeVito winning a gold medal in the pole vault than any form of reconciliation or alliance being formed. However, VA may well look to make permanent some of its emergency concessions to Rex, consolidate some market power and forge new alliance agreements with the struggling carrier.
Only a few weeks ago, Qantas CEO Vanessa Hudson suggested the domestic market was not big enough for four major players. The more pertinent question today seems to be whether Australia can accommodate three?
