REX to transition to ATRs, start domestic jet ops

[Traffic_Is_Er_Was]

Aren't these meant to be WA government subsidised flights

They probably are. Getting the Government to foot the bill for a percentage of a $1k airfare is a lot smarter than asking for the same percentage of a $500 airfare.

[MickG0105]

Originally Posted by anito4a

Aren't these meant to be WA government subsidised flights and therefore be at an affordable ticket price?

The WA Regional Airfare Zone Cap scheme is, as it suggests on the tin, only available to WA regional residents for personal travel on eligible routes to and from Perth. If you are a Perth resident travelling to Carnarvon, you are looking at return fares in the $750 - $1,125 range. If you are a Carnarvon resident travelling to Perth, your return fare is capped at $398.

[43Inches]

Originally Posted by MickG0105

The WA Regional Airfare Zone Cap scheme is, as it suggests on the tin, only available to WA regional residents for personal travel on eligible routes to and from Perth. If you are a Perth resident travelling to Carnarvon, you are looking at return fares in the $750 - $1,125 range. If you are a Carnarvon resident travelling to Perth, your return fare is capped at $398.

Considering there's only about 3000 residents in that area who would be in the bracket capable of possibly paying for such fares (19-75 years old), there's not going to be a lot of subsidized fares. From a marketing point of view you could probably drop that number down to less than 1000 for actual possible customers (using census data), yes there is catchment from surrounding areas, but not a lot. I'd say the majority of paying passengers would be tourists/workers flying in and out of the area. Albany and Esperance have much better population support as well as tourism. Very interesting that no one else tendered for those two, says a lot about what capacity other operators have and what they want to focus on.

[MickG0105]

The Western Australian government's Regional Airfare Zone Cap scheme covers any resident living outside the Perth/Peel region, about 550,000 people. Zone 1 ($398 capped return airfare to Perth) covers Albany, Carnarvon, Esperance, Geraldton, Kalgoorlie, Laverton, Leonora, Meekatharra, Monkey Mia (Denham), Mount Magnet, and Wiluna; Zone 2 ($598 capped return airfare) covers Broome, Exmouth (Learmonth), Karratha, Kununurra, Newman, Paraburdoo, and Port Hedland.

By the WA government's accounting "... more than 42,500 capped airfares were used by regional residents between April and June 2023. This is a five per cent increase on the third quarter results and brings the total amount of fares used during the first year of the scheme to 151,181."

The 2023-24 budget papers show that $17.143 million was spent on the scheme in 2022-23 (over $4 million more than was originally budgeted), and some $22.248 million has been budgeted for the current FY.

[43Inches]

Originally Posted by MickG0105

The Western Australian government's Regional Airfare Zone Cap scheme covers any resident living outside the Perth/Peel region, about 550,000 people. Zone 1 ($398 capped return airfare to Perth) covers Albany, Carnarvon, Esperance, Geraldton, Kalgoorlie, Laverton, Leonora, Meekatharra, Monkey Mia (Denham), Mount Magnet, and Wiluna; Zone 2 ($598 capped return airfare) covers Broome, Exmouth (Learmonth), Karratha, Kununurra, Newman, Paraburdoo, and Port Hedland.

By the WA government's accounting "... more than 42,500 capped airfares were used by regional residents between April and June 2023. This is a five per cent increase on the third quarter results and brings the total amount of fares used during the first year of the scheme to 151,181."

The 2023-24 budget papers show that $17.143 million was spent on the scheme in 2022-23 (over $4 million more than was originally budgeted), and some $22.248 million has been budgeted for the current FY.

Granted that's the entire system covering a lot of towns supported by airlines with much larger capacities. The catchment on Albany and Esperance would be quite large for locals, but Carnarvon/Monkey Mia is very small in comparison, so I doubt Rex would be making large amounts on that route from the subsidies, probably a nice route to tick over revenue for tourist seasons, but barely profitable if at all on off season. I have no idea what sort of loads they get on those, all post my time there. I know Albany and Esperance have always been decent loads for any airline that goes there, even with 50 seaters, which really does make me wonder why no others put in a bid... Maybe there's a strategic bid by players to make Rex look bad so they don't get a look in ever again, ie make their money hungry management wreck the rest of their network trying to crew Perth while neglecting the East coast sinking them further into the abyss.

Somebody once told me that airlines can either run RPT or Charter, but never be good at more than one. Rex used to be very good at RPT, but have chased so many tenders they may have forgotten what price/reliability sensitive passengers want from RPT and have shifted to be almost a charter operator. If the heart of Rex in the South East Aus collapses they will not have the revenue to do anything else, and no pilots will want to live in the areas they have tenders on the money they pay. Focus is everything and it looks like QF group have focused on Rexs heartland, and Rex have just let them take it... It will be almost impossible to get those passengers back once QF gets properly established.

[Deano969]

What QF took from ZL is more than offset by ZL now running to PQQ and CFS along with DPO
IMO REX sees itself more like an emerging QF or VA
Keeping solid regional only and moving away from underperforming places like Lizmore, Grafton, Taree, Cooma etc all the while building their jet network
Regionals will still play a part, but their move is away from servicing low volume places better served by the likes of Pelican, shame Pelican has ties with VA or REX could have worked with them so they both could have benefited off each other

[43Inches]

Originally Posted by Deano969

What QF took from ZL is more than offset by ZL now running to PQQ and CFS along with DPO
IMO REX sees itself more like an emerging QF or VA
Keeping solid regional only and moving away from underperforming places like Lizmore, Grafton, Taree, Cooma etc all the while building their jet network
Regionals will still play a part, but their move is away from servicing low volume places better served by the likes of Pelican, shame Pelican has ties with VA or REX could have worked with them so they both could have benefited off each other

Hmm, I can see QLink have moved back into South Australia in several Rex ports, and are operating ABX-MEL, WGA-MEL, BWT-MEL, GFF-SYD, OAG-SYD, MIM-SYD, MQL-SYD, plus BDG-SYD, which would have been an ideal Rex route. Then theres all the increased capacity on other competitive routes. Not sure how PQQ, CFS and DPO have offset the losses, considering MIM, BWT, GFF were Rex goldmines at one point and now running at 1/3rd what they were with triangulations when the competition flies direct... sad really. I think they have really dropped the ball and QF have seen that they are willing to compromise these routes to prop up tendered routes in other states, which without the mass revenue from the other routes will become loss making rather than cash cows as the cost of operating these routes exceeds the tender amount.

Then there's the crew issue...

The main thing that killed the regionals in the US was locking into fixed price deals with the majors, and had no out clauses for when costs spiraled. If they had independence in price setting they could adjust, but thinking fixed price tenders and charters are long term options can get you into deep water fast.

[PoppaJo]

IMO REX sees itself more like an emerging QF or VA

Can you elaborate on what you actually mean by that?

[43Inches]

Rex does not want to be any of those, QF is a massive corporation that is almost impossible to build up to in todays environment. It's just lucky QF has not had any serious competition since it 'shared' the market with Ansett, which is why many outside airlines have tried to white ant QF with supporting failing airlines such as VA just to drain some revenue from the Roo to stop them competing in Asia. QFs main competitor is itself, in that no one else can really bother them, just their own management tend to get in it's way. Onto VA, you have a basket case within a basket case, it's struggled to know where it fits in the market, it's been propped up by multiple internationals to drain cash from the Australian domestic market so QF doesn't run away with it, and now its in the hands of Bain, with an unknown future. I have to say VAs planes are looking very tired at the moment, some really need a paint, and some other thing showing real signs of restricted cash flow. Are they profitable, who knows, its all behind closed doors, and more importantly are they profitable because they are feeding off whats left or profitable with the means to maintain and build capital to keep operations ahead of the game.

[Deano969]

Originally Posted by PoppaJo

Can you elaborate on what you actually mean by that?

Meaning REX don't see a future in being a stand alone regional that serves every tin pot airport that no one else bothers to serve
Prior to VA going busto, they were somewhat happy being the above and they had a reasonable association with VA happily pushing passengers to each other
When VA failed there were 2 factors leading to their foray into their jet age
1) They could be the next VA similar to when AN sent busto
2) REX had no other player left to interline to and from for their passengers transiting beyond state capitals

So point 1 a bit of opportunistic greed and point 2 a matter of survival against QF / Link that could do eg. Dubbo to Melbourne on the one ticket

Now the see themselves as a smaller version of QF / VA
Their plan I believe is
Grow jet operations to around 30 over the next few years
Offer hourly on the triangle
Cover all state capitals
Jets into regional ports such as CNS, TSV, MKY, ROK, BDB, MCY, OOL, BNK, CFS, CBR, HBA, LST
Keep larger regional operations and drop (as they have) marginal ones
Keep their customers on the one ticket from regional to other state destinations
Replace SAABs with ATRs or now more likely Q400s as they now have a few on fleet through NJE and it looks like they will start them out west

A smaller version of QF or a version of VA but with their on regional network as a feed allowing for pilot progression from training / cadet through props to jets

In the background dabbling in FIFO and contract ops

Can't see them doing ULC or buying out an established Bonza
Can see them doing something with QR on international if they get their Oz ownership level right though
Not just to Doha either, I can totally see QR birds with ZL paint doing Asia, NZ and US

This is not fantasy as they are already having talks
For QR
Expanded network with more metal to Oz
REX pilot academy for a source of experienced pilots
A better and more cost effective alternative than a VA buy out
For REX
A way to counteract the losses of pilots to QF and others
A career path from academy to props, jets and widebodies that is well managed
A strong financial backer
International feed

[PoppaJo]

The day I see Rex flying to LAX and DOH is the day I’ll move to mars.

[MickG0105]

On the basis that the average subsidy under the Regional Airfare Zone Cap scheme was a shade under $115 per fare, there's likely to be very little upside to the participating airlines.

Regarding Rex more generally, I have little doubt that they see themselves in a variety of different ways. They may well see themselves as God's airline; based on current numbers it looks very much as though they only make a quid on Sundays.

The cold, hard facts of the matter though are that the regional business that used to return low- to mid-single digit net profits has been wrecked. What should have been the base upon which they built their domestic jet operation has instead become, to use their own words, "a drag on the Group's performance". With a third of the regional fleet parked up, it is hard to see how that predicament might have improved.

Domestic jet operations had some four months in the black before slumping back to loss making. Something pretty dramatic happened to Rex's passenger revenues in the first six months of this year; the full extent of that will be revealed in a week or so. And they certainly don't appear to have a cogent plan for their fleet additions; they increased their fleet capacity (and fleet-based fixed-costs) by around 14 percent recently but are still operating the same number of flights as they were four weeks ago.

They are going to be leaning hard on NJE to keep some air in their life preserver. And here it is worth remembering that Rex only owns half of NJE; the other half is owned by LKH and friends.

[MickG0105]

Originally Posted by PoppaJo

The day I see Rex flying to LAX and DOH is the day I’ll move to mars.

If that comes to pass, I'll fly you there.

[PoppaJo]

Originally Posted by MickG0105

If that comes to pass, I'll fly you there.

Take me on a Rex 777X

[Slippery_Pete]

Originally Posted by Deano969

Meaning REX don't see a future in being a stand alone regional that serves every tin pot airport that no one else bothers to serve
Prior to VA going busto, they were somewhat happy being the above and they had a reasonable association with VA happily pushing passengers to each other
When VA failed there were 2 factors leading to their foray into their jet age
1) They could be the next VA similar to when AN sent busto
2) REX had no other player left to interline to and from for their passengers transiting beyond state capitals

So point 1 a bit of opportunistic greed and point 2 a matter of survival against QF / Link that could do eg. Dubbo to Melbourne on the one ticket

Now the see themselves as a smaller version of QF / VA
Their plan I believe is
Grow jet operations to around 30 over the next few years
Offer hourly on the triangle
Cover all state capitals
Jets into regional ports such as CNS, TSV, MKY, ROK, BDB, MCY, OOL, BNK, CFS, CBR, HBA, LST
Keep larger regional operations and drop (as they have) marginal ones
Keep their customers on the one ticket from regional to other state destinations
Replace SAABs with ATRs or now more likely Q400s as they now have a few on fleet through NJE and it looks like they will start them out west

A smaller version of QF or a version of VA but with their on regional network as a feed allowing for pilot progression from training / cadet through props to jets

In the background dabbling in FIFO and contract ops

Can't see them doing ULC or buying out an established Bonza
Can see them doing something with QR on international if they get their Oz ownership level right though
Not just to Doha either, I can totally see QR birds with ZL paint doing Asia, NZ and US

This is not fantasy as they are already having talks
For QR
Expanded network with more metal to Oz
REX pilot academy for a source of experienced pilots
A better and more cost effective alternative than a VA buy out
For REX
A way to counteract the losses of pilots to QF and others
A career path from academy to props, jets and widebodies that is well managed
A strong financial backer
International feed

Wow Deano, I want some of whatever you’ve been smoking!

If (and it’s a big if) they can financially survive the next 2-3 years, then their only future lies in cannibalising the SAAB pilots to fly a slowly expanding jet operation.

The fundamental problem here is that
a) they went cheap with engine maintenance during COVID and it’s massively bitten them in the ass, and
b) the pilot shortage is real and there’s no avoiding it for them.

You say they’ll use AAPA to feed 30 jets and also Q400s, but you miss the fundamental problem. They’ve had AAPA all along, and they’re still desperately short of pilots right now. They’re clambering out the door. You can’t just click your fingers over night at AAPA and spit out 50-100 pilots per year who won’t leave. They need AAPA instructors, more GA aircraft, SAAB check and trainers, SAAB sim instructors, 737 trainers and sim checkers. Where are they going to get all of them from, when the majority of them are resigning to fly e-jets and 717s and join mainline?

Rex pilots will have a golden ticket to mainline when their recruiting kicks off again shortly, because they’re one of the few airlines producing good pilots that aren’t from a subsidiary. The trickle rates into mainline have been glacial from subsidiaries and that’s likely to get even worse. Qantas know that taking pilots from Rex means they aren’t passing in their own yard.

I have no idea why Rex are announcing courses of more Chinese pilots. It may be a good money spinner, but they should be cancelling them and training as many as possible for Rex themselves.

What I see is the SAAB operation closing down. Eventually they’ll realise they just can’t crew the thing, and so they’ll sell the airframes and use it to feed the jet operation with pilots - those that don’t end up at mainline.

And then we can all sit back and listen to another John Sharp whinge with victim media statement.

When your 50+ year old TREs are all leaving to go to Atlas, you really have to ask yourself why. Perhaps decades of ruling with an iron fist is finally coming home to roost.

[43Inches]

The SAAB operation would be fine if they had just stuck to their traditional routes and focused on what they do best. It would not have taken much negotiation to come to some agreement with existing pilots to continue to operate a reliable tight schedule in NSW, VIC and SA. However management have pretty much just ignored the pilot issue and made the situation much worse than it should be by treating people with no respect.

At the moment management inaction on pilots is costing the company probably over $100 million in revenue. There's the cancellations, reduced schedules, competition stealing loyal customers, customers defering travel or going by other methods, the list gos on. $100 mil is probably only the tip of the lost revenue iceberg.... We know the customers are there, a mate at QLink said they are getting reasonable loads on all the Rex routes.

[Ladloy]

Last I heard, cadets were breaking their 7 year contract around the 2-3 year mark for greener pastures. Paying out $120000 to leave. Cadets are usually command ready around the 3-4 year mark.

[43Inches]

The fundamental problem here is that
a) they went cheap with engine maintenance during COVID and it’s massively bitten them in the ass, and
b) the pilot shortage is real and there’s no avoiding it for them.

Don't forget that a heap of engineers walked out the door for much the same reason the pilots are leaving. So the backlog of maintenance is hamstrung by a lack of engineers as well as flying stymied by lack of pilots.

I think the whole dynamic of retain staff, or reduce the business is hitting home. Rex is in the simple position of not having looked after it's staff, now that they have options they will leave in droves until the company does something, the staff will not initiate negotiations as they don't care about the future of a company they can leave behind for greener pastures. It is entirely in managements court to offer something of an olive branch to make up for years of adversarial IR practice. Either move now, or shut the business down while it still has some cash, as the staff bleed will not abate anytime soon. I think shareholders will be very interested as to what management has done to retain staff... it might be worth a few of the free shareholders turn up to the AGM and query this.

If I had the cash I would do what management did at the start and buy out and revive the old Kendell and Hazos part of the operation, re-hire all the disaffected pilots on better lifestyle oriented contracts and upgrade the fleet. Offer better recognition for long term employees and make it a decent lifestyle choice for older pilots, not a flow through tube for new pilots (and other staff). Flick off the QLD and WA routes and focus on the main engine of the company in SE Aus.

[PoppaJo]

Originally Posted by Ladloy

Last I heard, cadets were breaking their 7 year contract around the 2-3 year mark for greener pastures. Paying out $120000 to leave. Cadets are usually command ready around the 3-4 year mark.

The day of spending 7/8 years in GA are over just like the days of spending 5-10 years in Rex.

CPL Ticket to GA to Rex to Virgin under 5 years. You will not find a better time to get a CPL , the time is now.

Do you works for you, not what works for some of these businesses stuck with mindsets in the 80s ‘we own you’

[ebt]

Originally Posted by Slippery_Pete

Wow Deano, I want some of whatever you’ve been smoking!

If (and it’s a big if) they can financially survive the next 2-3 years, then their only future lies in cannibalising the SAAB pilots to fly a slowly expanding jet operation.

The fundamental problem here is that
a) they went cheap with engine maintenance during COVID and it’s massively bitten them in the ass, and
b) the pilot shortage is real and there’s no avoiding it for them.

Agreed, and I will add in point (c) - they will not be able to get 737NGs as cheaply and as quickly as they originally thought they would.

Lease rates on NGs are going up month by month, and it is only continuing as the global supply chain issues hold up the roll-out of the Maxes and Neos, while the P&W issue has carriers with big GTF-powered fleet scrambling for capacity. The first six frames Rex got were at Covid rates and PBH agreements, but in time those will roll off and the owners will jack up the rents to the current market rates, or just take them back and give them to someone that will - and there are no shortage of airlines chasing NGs with green time on their engines.

Even assuming they get to 10-12 737s over the next six months, that is still at far too small a scale to be delivering acceptable returns on their cost of capital, which has also increased due to interest rate rises. That leaves Rex vulnerable if QF or, more likely, VA decides that they want to attack the small slice of the market that they have. For now, both the big ones are making good money and don't have the spare capacity to really try and flood the market with seats to drive Rex out, being able to do so at lower (all-in) unit costs than Rex.

Rex Jet is stuck in startup mode. How long have they been promising to get a loyalty scheme together? When will they get their national network happening?

Yes, hindsight is 20/20, and if LKH knew where things were going to end up, he may not have gone into the larger market. But at the same time, I get why he did, so the issue is now to try and make the best of the situation, and that will require some decisions to be made about what the company actually wants to be: A regional airline with a Tigerair-esque appendage among its other associated businesses, or a sub-scale but full-service airline?

And while I'm on a rant - why bother with the Antarctica stuff? Oh that's right, it's The Hon's pet project from when he owned a slice of and was on the board of Skytraders.