The Rex Factor in Australias National Airline Market

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,” Rexs 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.

Rexs 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 its 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 hes maintained—that Virgin must find a market-based solution to its problem.

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