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REX to transition to ATRs, start domestic jet ops

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REX to transition to ATRs, start domestic jet ops

Old 3rd May 2021, 08:49
  #1021 (permalink)  
 
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Originally Posted by Australopithecus View Post
They aren’t clearing $9/pax because there’s still the other $10,000/hr expenses to cover. So a Mel-Syd has something like a $14,640 loss. So they are probably planning to lose a tonne of money on every flight and make it up with frequency. Oh wait...
Their leases are 25k per month for each aircraft. Is that quite cheap? Understandably that is only one cost of many.
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Old 3rd May 2021, 08:56
  #1022 (permalink)  
 
Join Date: Feb 2011
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The Australian
Regional Express Airlines will pay as little as $60,000 a month per aircraft to lease six former Virgin Australia Boeing 737s, which will be used on the lucrative Melbourne-Sydney route.

Although deputy chairman John Sharp would not discuss the leasing arrangements, it is understood the $60,000 a month cost will rise to $100,000 a month after the first 12 months.
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Old 3rd May 2021, 09:02
  #1023 (permalink)  
 
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....plus reserves, plus insurance, plus enroute and landing and terminal fees plus plus plus....
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Old 3rd May 2021, 09:47
  #1024 (permalink)  
 
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Judging by lead-in fares for the next couple of days it appears that VA have mostly sold their $39 fares whereas Rex’s cheapies are still for sale. Make of that what you will.
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Old 3rd May 2021, 09:50
  #1025 (permalink)  
 
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$60K AUD per month is dirt cheap. In 1990 a 737 cost $300,000/ month. Interest rates on commercial leases were (I think) 11%

Figure out if you'd be happy to get that kind of return on a $100 million asset. (I know, I know...they’re old aircraft but since 737s are only really good for about 20 years, you really would need about $7 million/yr average to break even. (Back of the envelope calcs)

I wonder if they are paying for engine time separately?



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Old 3rd May 2021, 10:52
  #1026 (permalink)  
 
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Originally Posted by pinkpanther1 View Post
So at around 5 SYD-MEL daily, 7 days a week that's just over $1mil lost a week on that route alone...
Tiger lost 20m in its first four months and 50m the following FY. However they had fuel at $150 and equipment costs about x10 that of Rex.

However Tiger did have a LF at 90%. Some form of revenue to cushion the blow.
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Old 3rd May 2021, 11:36
  #1027 (permalink)  
 
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Originally Posted by Ladloy View Post
Their leases are 25k per month for each aircraft. Is that quite cheap? Understandably that is only one cost of many.
Yep, a very cheap deal. And one you would expect during ‘these unprecedented times’ and having so much tin parked in deserts and around empty airports. But as has been mentioned, add ancillary costs to that and all the other bits and bobs and the grand total is a little bit more than $25k. Regardless, at $39 per passenger head and let’s say a (generous) load factor of 40%, REX are simply not making money on the 737 operation. It’s a dud. Sharp is a dud. Their so-called business strategy is the behemoth of all duds.

But wait, with JQ dropping fares to $30 Mr Sharp will be crying into a tissue on the A Current Affair hotline and over Rod Sims desk by 0900 Tuesday morning.

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Old 3rd May 2021, 20:07
  #1028 (permalink)  
 
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Originally Posted by Paragraph377 View Post
But wait, with JQ dropping fares to $30 Mr Sharp will be crying into a tissue on the A Current Affair hotline and over Rod Sims desk by 0900 Tuesday morning.
But didn't Sharp challenge the others to match him? Rod Sims will laugh him out of the office if that is the case.

https://australianaviation.com.au/20...b4eb88ba48d592

Last edited by Chris2303; 3rd May 2021 at 20:57.
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Old 3rd May 2021, 21:39
  #1029 (permalink)  
 
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According to Sharp, $30 fares between Mel and Syd are:

"This is why Rex is good for Australia and why Australia needs Rex. For the first time ever Australians can have premium reliable domestic air services at honest prices"

An honest price? It doesn't even cover the cabin crews' wages alone with the loads his airline is carrying.
Operating deliberately at a huge loss and claiming it's the standard is absolutely not "honest"

Last edited by TimmyTee; 3rd May 2021 at 22:41.
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Old 3rd May 2021, 21:44
  #1030 (permalink)  
 
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Would someone with a bit of Knowledge of the relevant laws be able to clarify, is this kind of practice even allowed? To sell fares that rex knows are completely unviable, surely this breaches some sought of competition regs?
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Old 3rd May 2021, 22:06
  #1031 (permalink)  
 
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Originally Posted by TimmyTee View Post
According to Sharp, $30 fares between Mel and Syd are:

*This is why Rex is good for Australia and why Australia needs Rex. For the first time ever Australians can have premium reliable domestic air services at honest prices"

An honest price? It doesn't evem cover the cabin crews wages alonen with the loads his airline is carrying.
Operating deliberately at a huge loss and claiming it's the standard is absolutely not "honest*
If it is such a good thing then one would expect airfares to stay consistently at $30 for say the next 12 months, on every route?

Sharp sounds a little ‘Bransonesque’. When the billionaire tosser set up Virgin Blue he was dribbling crap like ‘Australia has been held ransom to an evil duopoly for too long’ and ‘this is for Australians, you deserve cheap airfares’. Perhaps old mate Sharp has been reading ‘Losing my Virginity’ or is he just using his political BS skills?
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Old 3rd May 2021, 22:22
  #1032 (permalink)  
 
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Originally Posted by pinkpanther1 View Post
Would someone with a bit of Knowledge of the relevant laws be able to clarify, is this kind of practice even allowed? To sell fares that rex knows are completely unviable, surely this breaches some sought of competition regs?
The legality of pricing strategies under the Competition and Consumer Act 2010 largely comes down to a matter of intent. Generally it's not illegal to sell an item 'below cost', particularly if that decision forms part of a legitimate marketing strategy such as attracting new customers and gaining market share. Similarly, it is not illegal for Qantas and Virgin to match Rex's prices so long as their intent is simply to protect their business.

It would have been illegal if Qantas had have rolled out $39 fares that started a week before Rex launched and then carried on selling them till say the end of the year. That would likely meet the three elements of the test for predatory pricing, specifically that Qantas:

a. had substantial market power,
b. that the pricing strategy had an anti-competitive purpose, and
c. that the very low prices were sustained.

The fact that it is Rex who is leading the charge on low prices essentially absolves Qantas and Virgin from any entanglements when they price match. Just another master-stroke from dumb as a bag of hammers Sharp and Co. in Rex's self-induced exsanguination.
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Old 3rd May 2021, 22:48
  #1033 (permalink)  
 
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Thanks for the explanation Mick.

also:

Originally Posted by MickG0105 View Post
exsanguination.
triple word score
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Old 3rd May 2021, 22:58
  #1034 (permalink)  
 
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Originally Posted by MickG0105 View Post
The legality of pricing strategies under the Competition and Consumer Act 2010 largely comes down to a matter of intent. Generally it's not illegal to sell an item 'below cost', particularly if that decision forms part of a legitimate marketing strategy such as attracting new customers and gaining market share. Similarly, it is not illegal for Qantas and Virgin to match Rex's prices so long as their intent is simply to protect their business.

It would have been illegal if Qantas had have rolled out $39 fares that started a week before Rex launched and then carried on selling them till say the end of the year. That would likely meet the three elements of the test for predatory pricing, specifically that Qantas:

a. had substantial market power,
b. that the pricing strategy had an anti-competitive purpose, and
c. that the very low prices were sustained.

The fact that it is Rex who is leading the charge on low prices essentially absolves Qantas and Virgin from any entanglements when they price match. Just another master-stroke from dumb as a bag of hammers Sharp and Co. in Rex's self-induced exsanguination.
Thanks for the explanation. So essentially, Rex is doing Qantas and Virgin a favour? They can beat these low price wars and do so quicker if rex is giving them the tools! Hilarious.
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Old 4th May 2021, 02:47
  #1035 (permalink)  
 
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Originally Posted by pinkpanther1 View Post
Would someone with a bit of Knowledge of the relevant laws be able to clarify, is this kind of practice even allowed? To sell fares that rex knows are completely unviable, surely this breaches some sought of competition regs?

Loss leaders occur everyday in supermarkets and in other places to entice customers to spend or to clear surplus or old inventory. That does not breach the TPA. Airline seats are inventory, but as the saying goes you cannot sustain a business by selling $10 tickets for $9......
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Old 4th May 2021, 03:07
  #1036 (permalink)  
 
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Originally Posted by MickG0105 View Post
The legality of pricing strategies under the Competition and Consumer Act 2010 largely comes down to a matter of intent. Generally it's not illegal to sell an item 'below cost', particularly if that decision forms part of a legitimate marketing strategy such as attracting new customers and gaining market share. Similarly, it is not illegal for Qantas and Virgin to match Rex's prices so long as their intent is simply to protect their business.

It would have been illegal if Qantas had have rolled out $39 fares that started a week before Rex launched and then carried on selling them till say the end of the year. That would likely meet the three elements of the test for predatory pricing, specifically that Qantas:

a. had substantial market power,
b. that the pricing strategy had an anti-competitive purpose, and
c. that the very low prices were sustained.

The fact that it is Rex who is leading the charge on low prices essentially absolves Qantas and Virgin from any entanglements when they price match. Just another master-stroke from dumb as a bag of hammers Sharp and Co. in Rex's self-induced exsanguination.
There is also the issue of the directors' duty of care to the shareholders. Directors cannot deliberately pursue a strategy that worsens the wealth of the shareholders and, if found to be acting against their fiduciary duties, they can be personally liable for losses. I would imagine class action lawyers are already paying careful attention to the behaviour of ZL's directors and may look to launch an action if the losses continue.
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Old 4th May 2021, 03:23
  #1037 (permalink)  
 
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Originally Posted by 1A_Please View Post
There is also the issue of the directors' duty of care to the shareholders. Directors cannot deliberately pursue a strategy that worsens the wealth of the shareholders and, if found to be acting against their fiduciary duties, they can be personally liable for losses. I would imagine class action lawyers are already paying careful attention to the behaviour of ZL's directors and may look to launch an action if the losses continue.
True but the good faith and best interest obligations on Directors are notoriously low bars to clear. And bear in mind that Rex's majority shareholding sits in the hands of half a dozen people headed by Lim. It would not be difficult to manufacture majority shareholder approval for any strategy that they want to run. Moreover, price point competition is a legitimate 'break in' tactic despite the overpowering whiff of desperation associated with this effort.
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Old 4th May 2021, 03:48
  #1038 (permalink)  
 
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Originally Posted by MickG0105 View Post
True but the good faith and best interest obligations on Directors are notoriously low bars to clear. And bear in mind that Rex's majority shareholding sits in the hands of half a dozen people headed by Lim. It would not be difficult to manufacture majority shareholder approval for any strategy that they want to run. Moreover, price point competition is a legitimate 'break in' tactic despite the overpowering whiff of desperation associated with this effort.
Getting a majority vote from a few large shareholders won't relieve the BoD of its responsibilities. It would be minority shareholders who didn't have board representation who would initiate an action against the BoD not the larger shareholders who the court would say had Board influence Class action lawyers are skilled in grouping these small shareholders together and getting funding from US investors who fund the claim action and take lots of the upside if they win.
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Old 4th May 2021, 05:38
  #1039 (permalink)  
 
Join Date: May 2016
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Originally Posted by 1A_Please View Post
Getting a majority vote from a few large shareholders won't relieve the BoD of its responsibilities. It would be minority shareholders who didn't have board representation who would initiate an action against the BoD not the larger shareholders who the court would say had Board influence Class action lawyers are skilled in grouping these small shareholders together and getting funding from US investors who fund the claim action and take lots of the upside if they win.
No one batted a class action eyelid as VA's board embarked on a decade of trashing shareholder value and VA had something like five times as many ordinary shareholders as Rex.

Never say never but I just can't see Rex shareholders going down that path - where's the pay day for a litigation funder? Rex's market cap is less than $150 million and less than half of that is in the hands of minority shareholders.

If it was to happen, it'd be on Rex's grave - the race will be well and truly run by then.
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Old 4th May 2021, 06:59
  #1040 (permalink)  
 
Join Date: Aug 2019
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This onerous and ambitious jet foray by REX was only on the basis that Virgin disappeared, hoping for an Ansett-like collapse.

Now we have a price war where a meal and coffee at the terminal costs more than the fare itself. I’d imagine an A320 load of $30 fares + ancillaries would still bring in some sort of profit for Jetstar, but $39 fares on REX with single digit pax is just a nightmare.

If sustainability is of the question, methinks it’s going to be a very painful blow for those at REX, PAG will essentially own half the operation very soon. Wonder how the 737 and 340 crews are feeling at the moment, nerve wracking stuff going on...
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