The Rex Factor in Australia’s National Airline Market

May 14, 2020 Updated: May 14, 2020

In a market-disrupting move, regional carrier Regional Express Airlines (Rex) has announced that it is considering the feasibility of scaling up its domestic operations as Virgin Australia scrambles to save itself through voluntary administration.

“We may well have a three-airline market,” Rex’s deputy chairman John Sharp told The Australian Financial Review.

The Rex board released a statement to the ASX (pdf) on May 13 that said several parties had come forward with offers to financially back the airline.

“The Rex board … has begun talks with potential partners to extend its operations to establish domestic operations, in addition to its regional services.”

Rex estimates that it requires about $200 million to make it happen. The board will make a decision in the next 8 weeks, and if it goes ahead they aim to commence operations in March 2021.

“We have been talking to half a dozen private equity and investment banking entities about investing in this new venture,” Sharp told the AFR.

Rex’s operations would be somewhere between Qantas and Jetstar, but not cost as much. It would lease about 10 narrow-bodied jets, which is four fewer than Tiger Airways’ fleet.

Sharp said it’s a good time for the move, saying, “We are doing this because we see an opportunity. We have the advantage of having successfully run an airline for 18 years.”

Rex was founded in 2002 after major Australian airline group Ansett failed. Rex now flies to 60 regional destinations and turns a profit every year (pdf), even as other national airlines saw major losses.

“The most significant aspect of this is we will be the only capital city operator that is debt-free,” Sharp said.

In contrast, Virgin Australia currently owes $7 billion to more than 12,000 creditors. The airline was founded in 2000 and flies to a number of cities, countries, continents, but has not made a profit for several years.

The Queensland Labor government announced this week that it is preparing a bid to buy a stake in Virgin, following its previous offer of a $200 million bailout and calls for the federal Coalition government to buy a stake in the airline to prop it up in order to protect the jobs of its 10,000 employees.

In response, Prime Minister Scott Morrison on Thursday reiterated the position he’s maintained—that Virgin must find a market-based solution to its problem.

“We want a competitive aviation market here in Australia. We want to see these two airlines flying and competing and giving a great deal to the flying public and to ensure that the freight keeps moving around this country,” Morrison said.

Morrison said Virgin’s employees are looking forward to the airline emerging able to “stand on its own two feet and employ the thousands of Australians that it does and be successful.”

As Virgin Australia went into voluntary administration in late April, it engaged Deloitte, and suspended trading on the ASX on April 14. Virgin Australia stood down 8,000 staff in March to try and stay afloat but went into freefall on the back of strict travel bans caused by the CCP (Chinese Communist Party) virus, commonly known as novel coronavirus.

Follow Caden on Twitter: @cadenpearson