Taking on big boys: Rex to compete with Qantas, Virgin Australia
Undoubtedly, a crisis can be the best time to innovate and reinvent yourself as a company. Regional Express Airlines (Rex), a local domestic airline in Australia, seems to share this viewpoint. The carrier announced that it will expand the scope of its services and introduce narrow-body jet aircraft into its fleet to serve the golden triangle in Australia: Sydney-Melbourne-Brisbane.
Pre-COVID, Rex had a fleet of 60 Saab 340 turboprop aircraft, seating a maximum of 34 passengers in the airline’s interior configuration. Despite the unfavorable conditions at first glance, the domestic airline might have seen a glimpse of an opportunity to flex its muscles and punch above its weight.
Its 60 aircraft-strong fleet is unencumbered, meaning the company can do anything it wants with the assets at its hands. Thus, raising capital to acquire said narrow-body aircraft, of which Rex plans to have between five to ten jets, is much easier than if it had debts attached to its most capital-intensive assets. Furthermore, aircraft prices have tanked as well, as airlines reduced their capacity due to the free-falling demand for air travel. Retirements were accelerated and buying second-hand is more favorable than ever before.
Even new aircraft have tanked in value. For example, a Bombardier CRJ-900ER lost 13% of its value, while the average price of an Embraer E190-E2 dropped as much as 10%, indicates ch-aviation.com data.
Regional Express Airlines plans to raise $20 million (AUD30 million) to start its narrow-body operations in return for the carrier’s 15 Saab 340 aircraft. It also plans to expand its capacity by acquiring state-of-the-art ATR 42 and ATR 72 aircraft, as Rex entered into a non-binding Memorandum of Understanding (MoU) with the Franco-Italian turboprop manufacturer to renew its fleet.
“With Rex’s expansive regional network of 60 destinations, existing infrastructure in all these capital city airports, superior efficiencies and unbeatable reliability, it will simply be an incremental extension for Rex to embark on domestic operations,” stated the deputy chairman of the airline John Sharp.
While it does operate from the golden triangle cities, Rex does not connect them directly. The three airports are served by Qantas and its low-cost subsidiary, Jetstar, and Virgin Australia. Competition, despite current headwinds faced by the two Australian airlines, will be tough.
A punchy Roo
After the collapse of Ansett Australia, Qantas became the number one airline in the Land Down Under. While Virgin Australia, under the Virgin Blue banner, successfully chipped away at Qantas’ market share, the de facto flag carrier of Australia responded quickly with the establishment of Jetstar. When Virgin Australia tried to make a dent in the premium market, the two sides entered a capacity war and ultimately, Virgin Australia was hemorrhaging cash left and right. The airline was forced to enter administration in the hopes of attracting an investor, which it, fortunately, did in Bain Capital.
The freshly-bought out airline was determined to take Qantas’ market share when it overhauled its business in 2011.
“But you've got to be able to afford it. You have to be able to afford going into those things. And in the end, deep pockets win and Qantas is the deep pocket, not Virgin,” said the chairman of the company, Elizabeth Bryan.
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