From AFR (
https://www.afr.com/companies/transp...0200511-p54rvs)
Regional Express Holdings will capitalise on
the turmoil from Virgin Australia’s collapse and invest $200 million launching capital city services to compete with Qantas, Jetstar and Virgin Mark II.
In a move that could harm the sale price achieved by Virgin’s administrators, the regional airline operator is working on a business plan that includes leasing 10 narrow-bodied jets as well as employing new pilots, cabin crew and ground staff.
Virgin's administrator, Vaughan Strawbridge, has called for indicative bids for Virgin to be lodged by Friday. Industry sources say the business was worth about $1 billion depending on the amount of secured and unsecured debt.
Several consortiums have shown interest. They include Canadian infrastructure investor Brookfield, Wesfarmers, private equity companies
Bain Capital and
BGH Capital and distressed debt specialist Oaktree.
Rex’s deputy chairman John Sharp said the move by Rex to start a new capital city airline would require about $200 million in capital investment.
This would be achieved through the sale of new shares in Rex, which has been listed on the ASX since 2005. The company is controlled by executive chairman Lim Kim Hai and his business partner and Rex founding shareholder, Lee Thian Soo.“We have been talking to half a dozen private equity and investment banking entities about investing in this new venture,” Mr Sharp told
The Australian Financial Review.
“We are working with those parties and will narrow that down to one in the next three weeks or so. The most significant aspect of this is we will be the only capital city operator that is debt-free.”
Three-airline market
Mr Sharp, a pilot and former transport minister in the Howard government, said competition would be good for consumers and the economy. “We may well have a three-airline market,” he said. Mr Sharp said the new Rex capital city operations would be a cross between Qantas and Jetstar but with a lower cost base. “This will be halfway between a full-service airline and a low-cost airline,” he said.
The plan is to start flying between Sydney, Melbourne, Brisbane, Adelaide and Perth early next year when the airline industry comes out of the coronavirus freeze. Rex has already had discussions with the Civil Aviation Safety Authority about amending Rex’s Air Operator’s Certificate to include jet aircraft and not just turbo-prop aircraft.
Cheap leases
Mr Sharp said this was a good time to lease narrow-bodied jets such as Boeing 737s or Airbus A320s because of the distressed state of the global aviation market. “We plan to lease a fleet of about 10 aircraft and hire new pilots, cabin crew and ground staff,” he said.
Mr Sharp said Rex would leverage its existing management and corporate infrastructure to run the new services. “The domestic aviation market is not going to go back to what it was three months ago so we are ready to scale up in line with demand,” he said. “We are doing this because we see an opportunity. We have the advantage of having successfully run an airline for 18 years,” he said.
Mr Sharp said Rex was confident of being able to fly in and out of Sydney because it was the third-largest holder of slots at Sydney Airport. “We will bring a much lower cost base to the capital city routes,” he said.
Mr Sharp said Rex would be able to compete with Virgin and Jetstar on the price of tickets because of its lower cost base. “For example, a Virgin captain is paid about $240,000 a year compared to about $200,000 for a Jetstar captain,” he said. “We would not want to pay anything more than Jetstar is paying. Even if we do go to Jetstar’s level we will still be 20 per cent cheaper than Virgin.”
Rex, which was founded in 2002 out of the wreckage of Ansett, flies to 60 regional destinations. It has a fleet of 60 Saab 340 aircraft and has made an operational profit every year since 2004.
The Saab 340 aircraft flown by Rex seat 34 people which is the right scale for the regional routes. There is no competition on 85 per cent of the routes flown by Rex.