REX to transition to ATRs, start domestic jet ops
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ex ABC News: Rex Airlines considers flying regional routes Virgin Australia dumped...
Full Crew 'on-deck' for this gig/article..........
Link: https://www.abc.net.au/news/2020-09-...irgin/12668060
rgds
S28- BE
Link: https://www.abc.net.au/news/2020-09-...irgin/12668060
rgds
S28- BE
REX IN TRADING HALT
Some news on REX's financing for its domestic expansion due out soon - https://www.asx.com.au/asx/statistic...idsId=02283118
Separately, Labor have apparently got their hands on some emails from 'the government' to Rex warning them about not using government grants to fund their expansion plans. There's a pay-walled story in The Fin here.
Separately, Labor have apparently got their hands on some emails from 'the government' to Rex warning them about not using government grants to fund their expansion plans. There's a pay-walled story in The Fin here.
Last edited by MickG0105; 21st Sep 2020 at 00:43. Reason: Added Fin link
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ex the AFR: Department cautioned Rex over use........
Article link: https://www.afr.com/companies/transp...0200920-p55xcl
An extract:
rgds all
S28- BE
An extract:
- Exclusive
Sep 21, 2020 – 12.00am
Airline Regional Express was cautioned by federal officials for using subsidies aimed at helping aviation players cope with COVID-19 to expand its network, fresh documents show.
Emails from early May – obtained under freedom of information laws by Labor MP for Ballarat Catherine King and distributed to The Australian Financial Review – redact the exact market in question.
But industry sources said Rex turned an existing Melbourne-Burnie service into a triangle by adding a leg that landed in King Island around the time of the email. And the new triangle has been the subject of competition complaints from rival carrier Sharp Airlines in recent months.
Rex is believed to be still running the triangular service. A map of the airline's network found on its website displays Melbourne-Burnie-King Island as a triangular service.
Rex said: "It is on open record that we have combined routes as an efficiency effort."
It would not confirm or deny whether the Melbourne-Burnie-King Island triangle was the one questioned in the email.
"We absolutely appreciate there are operational and cost efficiencies in running [the redacted route], and this was why we agreed to subsidise the service," a May 7 email from the Department of Infrastructure to Rex network head, Warwick Lodge, said.
"We have since been made aware, and you have confirmed, that Regional Express was not flying the [redacted] leg prior to COVID-19. As advised last week, the program is not designed to support airlines to enter markets they were not servicing prior to the COVID-19 crisis."
It is the first example of an airline receiving an official warning over how it applies the hundreds of millions of dollars in assistance afforded to the sector. Rex, separately, has also faced criticism from Qantas chief Alan Joyce for planning to expand with routes connecting Sydney, Melbourne and Brisbane after taking a $54 million taxpayer-funded bailout.
"They should not be using government subsidies to fund growth," Mr Joyce said earlier this month. "That doesn't feel right. That doesn't seem right."
Aviation remains one of the worst-affected sectors of the COVID-19 crisis, which has crushed travel demand and forced the government into supporting the industry.
The subsidy program referenced in the emails between Rex and the department is the Regional Airline Network Support Package, which was still in its first tranche at the time of the emails.
The scheme – initially set to expire on September 30 – has been extended to December 31. It covers the costs of running specific regional services, so airlines break-even on the flights, with the government allocating Rex more than $40 million under the program as of writing.
Department officials said it would consider two options for the future of the route in question.
They offered to continue subsidising three services per week on the original route without any cash underwriting of the newly introduced leg, or support for two weekly return services on the entire triangle.
In response, Mr Lodge said: "Rex is not agreeable with the approach of operating two return services separately for both routes."
"If the [redacted] legs are fully excluded from the RANS funding, then Rex should be entitled to operate the [redacted] routes in the most efficient way that it can."
"Rex have done everything in accordance with the scheme and what we have done with optimising [redacted] our schedules is something that was encouraged by your department," Mr Lodge said.
The emails reference actions at a second unnamed airline yet the department batted away concerns as those activities concerned routes that the airline was flying pre-COVID.
"I think the Rex situation is slightly different," a department official told Mr Lodge.
"We are prepared to consider two services per week for both routes, consistent with our approach on all other point to point routes. I'm very happy to discuss further, but if you are comfortable with this approach, we can look to proceed with the deed variation."
Department cautioned Rex over use of government assistance
Lucas Baird ReporterSep 21, 2020 – 12.00am
Airline Regional Express was cautioned by federal officials for using subsidies aimed at helping aviation players cope with COVID-19 to expand its network, fresh documents show.
Emails from early May – obtained under freedom of information laws by Labor MP for Ballarat Catherine King and distributed to The Australian Financial Review – redact the exact market in question.
But industry sources said Rex turned an existing Melbourne-Burnie service into a triangle by adding a leg that landed in King Island around the time of the email. And the new triangle has been the subject of competition complaints from rival carrier Sharp Airlines in recent months.
Rex is believed to be still running the triangular service. A map of the airline's network found on its website displays Melbourne-Burnie-King Island as a triangular service.
Rex said: "It is on open record that we have combined routes as an efficiency effort."
It would not confirm or deny whether the Melbourne-Burnie-King Island triangle was the one questioned in the email.
"We absolutely appreciate there are operational and cost efficiencies in running [the redacted route], and this was why we agreed to subsidise the service," a May 7 email from the Department of Infrastructure to Rex network head, Warwick Lodge, said.
"We have since been made aware, and you have confirmed, that Regional Express was not flying the [redacted] leg prior to COVID-19. As advised last week, the program is not designed to support airlines to enter markets they were not servicing prior to the COVID-19 crisis."
It is the first example of an airline receiving an official warning over how it applies the hundreds of millions of dollars in assistance afforded to the sector. Rex, separately, has also faced criticism from Qantas chief Alan Joyce for planning to expand with routes connecting Sydney, Melbourne and Brisbane after taking a $54 million taxpayer-funded bailout.
"They should not be using government subsidies to fund growth," Mr Joyce said earlier this month. "That doesn't feel right. That doesn't seem right."
Rex 'not agreeable' to department suggestions
Rex attacked those suggestions, saying it would fund the services between the east coast with capital raised on the market and called Mr Joyce "misinformed".Aviation remains one of the worst-affected sectors of the COVID-19 crisis, which has crushed travel demand and forced the government into supporting the industry.
The subsidy program referenced in the emails between Rex and the department is the Regional Airline Network Support Package, which was still in its first tranche at the time of the emails.
The scheme – initially set to expire on September 30 – has been extended to December 31. It covers the costs of running specific regional services, so airlines break-even on the flights, with the government allocating Rex more than $40 million under the program as of writing.
Department officials said it would consider two options for the future of the route in question.
They offered to continue subsidising three services per week on the original route without any cash underwriting of the newly introduced leg, or support for two weekly return services on the entire triangle.
In response, Mr Lodge said: "Rex is not agreeable with the approach of operating two return services separately for both routes."
"If the [redacted] legs are fully excluded from the RANS funding, then Rex should be entitled to operate the [redacted] routes in the most efficient way that it can."
"Rex have done everything in accordance with the scheme and what we have done with optimising [redacted] our schedules is something that was encouraged by your department," Mr Lodge said.
The emails reference actions at a second unnamed airline yet the department batted away concerns as those activities concerned routes that the airline was flying pre-COVID.
"I think the Rex situation is slightly different," a department official told Mr Lodge.
"We are prepared to consider two services per week for both routes, consistent with our approach on all other point to point routes. I'm very happy to discuss further, but if you are comfortable with this approach, we can look to proceed with the deed variation."
S28- BE
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afr.com
It is understood PAG's private equity unit emerged as the best option to raise the bulk of the funds after a comprehensive review, which also involved talks with other private equity firms.
PAG's private equity dealmakers have turned their attention to Australia in recent years, picking up Oporto and Red Rooster franchisor Craveable Brands and specialist cake retailer The Cheesecake Shop.
For Rex, a $150 million convertible note will form a big part of the group's capital structure.
The company recorded $328.1 million turnover in the year to June 30 – a year heavily affected by the COVID-19 pandemic – and a $19.4 million loss. It was in a net cash position at June 30, according to a preliminary final report handed down to shareholders last month.
Law firm Baker McKenzie advised Rex, while MinterEllison did the legal work for PAG.
Rex shares were halted from trade on Monday morning to allow the convertible notes deal to be finalised. The company's shares last traded at $1.09, which valued the group's equity at $120 million.
Rex's new services are expected to build on its existing infrastructure in capital city airports, deputy chairman John Sharp said in June, and would seek to fly passengers between capital cities on Australia's east coast.
The mooted expansion comes at a time when most Australian aircraft is grounded as a result of border lockdowns and travel restrictions.
https://www.afr.com/street-talk/asia...0200921-p55xjs
Asian PE giant to bankroll Rex expansion plans
Rex had been exploring ways to fund the expansion, including raising equity from new and/or existing shareholders, selling aircraft or a deal with a financial investor. Rex told investors in July it had term sheets from three different lessors about a sale-and-leaseback of its 60 unencumbered aircraft for $30 million.It is understood PAG's private equity unit emerged as the best option to raise the bulk of the funds after a comprehensive review, which also involved talks with other private equity firms.
Asia-based heavyweight in private equity
PAG is a big player in private equity and investment management in Asia, with about $US40 billion in assets held on behalf of institutional investors from all over the world.PAG's private equity dealmakers have turned their attention to Australia in recent years, picking up Oporto and Red Rooster franchisor Craveable Brands and specialist cake retailer The Cheesecake Shop.
For Rex, a $150 million convertible note will form a big part of the group's capital structure.
The company recorded $328.1 million turnover in the year to June 30 – a year heavily affected by the COVID-19 pandemic – and a $19.4 million loss. It was in a net cash position at June 30, according to a preliminary final report handed down to shareholders last month.
Law firm Baker McKenzie advised Rex, while MinterEllison did the legal work for PAG.
Rex shares were halted from trade on Monday morning to allow the convertible notes deal to be finalised. The company's shares last traded at $1.09, which valued the group's equity at $120 million.
Rex's new services are expected to build on its existing infrastructure in capital city airports, deputy chairman John Sharp said in June, and would seek to fly passengers between capital cities on Australia's east coast.
The mooted expansion comes at a time when most Australian aircraft is grounded as a result of border lockdowns and travel restrictions.
https://www.afr.com/street-talk/asia...0200921-p55xjs
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Hmmmmm.....?????
Hmmmm-
Just 'a' question- so where, does the 'said' truck with $54M arrive (for free) in all of this 'Accounting'......?????- then, the 'said' $40M of under-written operations......, just 'a' question...????
Do, NOT get Bomby ......, just a question?????, is all.
rgds/be well all
Section28
The company recorded $328.1 million turnover in the year to June 30 – a year heavily affected by the COVID-19 pandemic – and a $19.4 million loss. It was in a net cash position at June 30, according to a preliminary final report handed down to shareholders last month.
Do, NOT get Bomby ......, just a question?????, is all.
rgds/be well all
Section28
Hmmmm-
Just 'a' question- so where, does the 'said' truck with $54M arrive (for free) in all of this 'Accounting'......?????- then, the 'said' $40M of under-written operations......, just 'a' question...????
Do, NOT get Bomby ......, just a question?????, is all.
rgds/be well all
Section28
Just 'a' question- so where, does the 'said' truck with $54M arrive (for free) in all of this 'Accounting'......?????- then, the 'said' $40M of under-written operations......, just 'a' question...????
Do, NOT get Bomby ......, just a question?????, is all.
rgds/be well all
Section28
There was a serendipitously coincidental alignment between the recognised value of the government grants and the valuation of the asset impairment write down 'in anticipation of difficult trading conditions in the next two years'. Apparently those anticipated difficult trading conditions didn't preclude funding an expansion with a capital raising leveraged at 125 per cent.
I'm not seeing this end well for the Regional Express Group.
Last edited by MickG0105; 21st Sep 2020 at 12:49. Reason: Typo
Hi Mick,
Any comment on this from AJ?
Any comment on this from AJ?
"They should not be using government subsidies to fund growth," Mr Joyce said earlier this month. "That doesn't feel right. That doesn't seem right."
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ex the ASX: REX ANNOUNCES EXCLUSIVE NEGOTIATIONS REGARDING FUNDING.......
ASX link: https://www.asx.com.au/asxpdf/202009...x75swx579p.pdf
Is subject to 'Due Diligence'.
rgds
S28- BE
Is subject to 'Due Diligence'.
22 SEPTEMBER 2020
ASX RELEASE
REX ANNOUNCES EXCLUSIVE NEGOTIATIONS REGARDING FUNDING FOR ITS DOMESTIC MAJOR CITY JET OPERATIONS
Regional Express Holdings Ltd ACN 099 547 270 (Rex) has signed yesterday evening a long-form term sheet and is in advanced exclusive negotiations with PAG Asia Capital (PAG), a leading Asia-Pacific focused investment firm, regarding an investment by PAG of up to AUD150 million to be used exclusively to support the launch of Rex’s domestic major city jet operations scheduled to commence on 1 March 2021 (FUNDING).
ASX RELEASE
REX ANNOUNCES EXCLUSIVE NEGOTIATIONS REGARDING FUNDING FOR ITS DOMESTIC MAJOR CITY JET OPERATIONS
Regional Express Holdings Ltd ACN 099 547 270 (Rex) has signed yesterday evening a long-form term sheet and is in advanced exclusive negotiations with PAG Asia Capital (PAG), a leading Asia-Pacific focused investment firm, regarding an investment by PAG of up to AUD150 million to be used exclusively to support the launch of Rex’s domestic major city jet operations scheduled to commence on 1 March 2021 (FUNDING).
S28- BE
G'day CS,
I think he's dead right. There's something decidedly amiss when an airline
I think he's dead right. There's something decidedly amiss when an airline
- gets nearly 20 per cent of its previous year's revenue just handed to it as 'last resort' grant funding,
- takes a significant P&L write down 'in anticipation of difficult trading conditions in the next two years', and then
- launches an expansion the cost of which is greater than its current market capitalisation.
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What corporate market are they actually targeting? The lack of any solid frequency might be an issue unless they are planning flights on the hour in peak.
The Tiger traffic will just flow to the Star or they won’t go.
I know they have been around for a bit and they might claim they know the ropes, but 10 aircraft not done before can burn a lot of cash very quickly.
They will face the same PR headwinds as Tiger with a small fleet, they don’t exactly have a system to transfer delayed or cancelled pax to other carriers or its own subsidiary. They are a tightarse regional carrier, as if they will want to fork out tens of thousands to bump pax to Virgin or the Roo.
The Tiger traffic will just flow to the Star or they won’t go.
I know they have been around for a bit and they might claim they know the ropes, but 10 aircraft not done before can burn a lot of cash very quickly.
They will face the same PR headwinds as Tiger with a small fleet, they don’t exactly have a system to transfer delayed or cancelled pax to other carriers or its own subsidiary. They are a tightarse regional carrier, as if they will want to fork out tens of thousands to bump pax to Virgin or the Roo.
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'Money for nothin' and chicks for free'- it is all go, run the 'due diligence' ruler over it, apply bulk money and light the sucker March 2021, easy.
rgds all
S28- BE
Last edited by Section28- BE; 22nd Sep 2020 at 05:58. Reason: Sorry to borrow a line 'Mick'- but, that Dire Straights infusion was Too bloody Good/Funny...... ta
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ex The SMH: 'Golden triangle' dogfight: Rex creates headaches by taking on......
SMH article link: https://www.smh.com.au/business/comp...22-p55xzp.html
An extract:
September 22, 2020 — 12.01pm
One of the more interesting and delicate issues to watch as the economy emerges from the pandemic is how the Australian Competition and Consumer Commission responds to the efforts to recover lost volumes by companies with market power.
Given how concentrated many major segments of the economy are, the differences between pro-competitive and anti-competitive behaviours are likely to be quite blurred.
Loss-leading to rekindle customer activity is probable in some of the sectors, particularly the consumer-facing sectors, while the temptation for informal collusion, or managed competition, to maximise profit recoveries and regain and maximise market shares will also be strong.
Rex's plans to fly the Golden Triangle will add another element to the competitive dynamics of the domestic industry as it emerges from the pandemic.
These aren’t normal circumstances and the ACCC will be confronted with the challenge of determining which behaviours are rational responses to the legacies of the pandemic in the short term, while trying to ensure they don’t lead to a structural loss of competitive intensity in the longer term.
Nowhere will the tensions between the efforts to salvage and rebuild businesses decimated by the pandemic and the long term consequences for competition be more acute than in aviation, where the entire global industry is essentially on life-support, awaiting the re-opening of economies. Airlines are highly operationally and financially leveraged businesses, with relatively small shifts in costs and volumes leading to either significant profits or substantial losses.
At the moment most of the industry is grounded, much of it is being kept technically alive via government assistance and there is little prospect, even for domestic airlines, of a return to pre-pandemic normal for some years. The time-frame for a large-scale resumption of international aviation is far more extended.
The plight of the industry, and its economics, makes the ACCC’s approach to policing competition issues in the sector particularly interesting. In some respects it provides a concentrated insight into the issues that will emerge across the economy.
Last week the commission produced its first report on its monitoring of the domestic air passenger industry.
It’s curious that airlines have been singled out for special monitoring, including their provision of monthly reports to the ACCC of their capacity, load factors and revenues for each of their routes along with qualitative information such as board papers. The ACCC’s normal powers to demand information, which include its ability to both request information and interrogate individuals, ought to have been sufficient.
The monitoring, however, is at the direction of the federal government, which instructed the commission in June to monitor prices, costs and profits in the sector for the next three years to protect competition in the sector.
In June, of course, Virgin Australia was in administration. While its pleas for a government cash bailout had been refused, it appears its subsequent request for protection from Qantas if and when it (Virgin) emerged from administration was successful.
Virgin has subsequently been acquired by private equity group Bain Capital and will emerge from administration with a vastly different balance sheet and cost structure. Its previous creditors have been essentially wiped out, large numbers of aircraft leases have been terminated or renegotiated, thousands of jobs have been shed and the administration has enabled it to re-do other contracts with suppliers.
When the market does reopen properly, Virgin will fly fewer planes on fewer routes and its second brand, Tiger, won’t fly at all. Qantas has said – and Virgin has agreed - that, as a result, it expects its domestic market share to rise from around 60 per cent pre-pandemic to about 70 per cent.
Complicating the ambitions of both Qantas and Virgin – and adding another element to the competitive dynamics the ACCC will have to grapple with – are the plans by regional carrier Rex to enter the “golden triangle” routes between Sydney, Melbourne and Brisbane.
It’s not clear how Rex expects to survive a three-cornered contest bookended by Qantas and a Virgin now backed by Bain, with its formidably deep pockets.
Rex announced on Tuesday that it is in advanced negotiations with an Asian private equity giant for an issue of convertible notes that could raise up to $150 million. If the first $50 million tranche were converted, PAG Asia Capital would own 23 per cent of Rex. If the fully $150 million were converted it would hold 48 per cent.
The Singapore-owned Rex, a recipient of about $60 million of taxpayer funds to maintain its regional routes (the far larger QantasLink and Virgin presence in the regions went largely unrewarded), has said it will buy or lease planes (some, ironically, from the former Virgin fleet) to compete with the incumbents.
While that’s not good news for either Qantas or Virgin – the triangle routes are arguably the world’s most profitable domestic routes and the core of the carriers’ profitability – it’s probably worse for Virgin and Bain than for Qantas, whose loyalty program and dominance of business travel makes it less vulnerable. It also has Jetstar to deploy against price-driven competition.
In fact, the entrant of a third party will help Qantas to a degree because, if Rex lowers ticket prices to build its presence, it provides cover for the Qantas group to match those prices and use its dual brands and its greater capacity and frequency to meet the competitive threat. That’s not anti-competitive behaviour.
It’s not clear how Rex expects to survive a three-cornered contest bookended by Qantas and a Virgin now backed by Bain, with its formidably deep pockets. Others – Southern Cross, Compass (twice) and Impulse among them – have tried to crack the duopoly in the past and failed.
It’s obvious that as the market opens up, even without Rex adding to the intensity, Qantas and Virgin would have initially scrambled to attract whatever volumes there were before the market settled down. There’s no revenue or profit in having planes sitting on the ground.
In the initial land grab for returning customers there could be some loss-leading, although rational competition – and Qantas and Virgin have vowed to be rational – would see capacity returned and fares priced at levels where the cash generated at least covered the variable costs of putting the planes into the air.
It is that period of gradual resumption of flying and the necessary incentives to convince passengers to travel again that will be the messiest and most challenging for the ACCC, particularly if it is something other than direct competition between Qantas/Jetstar and Virgin.
It will have to determine what’s rational pro-competitive behaviour in a market that history suggests will only sustain two players and which will be in the earliest phase of start-up from a pandemic-induced depression.
Aviation isn’t the only sector where these sorts of questions and issues will be at play but its nature and imminent structure will magnify, and confuse, the competition policy considerations of its attempt to re-emerge from the worst of the pandemic.
rgds all/be well
S28- BE
An extract:
Opinion
Opinion
'Golden triangle' dogfight: Rex creates headaches by taking on Qantas and Virgin
Stephen Bartholomeusz
Senior business columnistSeptember 22, 2020 — 12.01pm
One of the more interesting and delicate issues to watch as the economy emerges from the pandemic is how the Australian Competition and Consumer Commission responds to the efforts to recover lost volumes by companies with market power.
Given how concentrated many major segments of the economy are, the differences between pro-competitive and anti-competitive behaviours are likely to be quite blurred.
Loss-leading to rekindle customer activity is probable in some of the sectors, particularly the consumer-facing sectors, while the temptation for informal collusion, or managed competition, to maximise profit recoveries and regain and maximise market shares will also be strong.
Rex's plans to fly the Golden Triangle will add another element to the competitive dynamics of the domestic industry as it emerges from the pandemic.
These aren’t normal circumstances and the ACCC will be confronted with the challenge of determining which behaviours are rational responses to the legacies of the pandemic in the short term, while trying to ensure they don’t lead to a structural loss of competitive intensity in the longer term.
Nowhere will the tensions between the efforts to salvage and rebuild businesses decimated by the pandemic and the long term consequences for competition be more acute than in aviation, where the entire global industry is essentially on life-support, awaiting the re-opening of economies. Airlines are highly operationally and financially leveraged businesses, with relatively small shifts in costs and volumes leading to either significant profits or substantial losses.
At the moment most of the industry is grounded, much of it is being kept technically alive via government assistance and there is little prospect, even for domestic airlines, of a return to pre-pandemic normal for some years. The time-frame for a large-scale resumption of international aviation is far more extended.
The plight of the industry, and its economics, makes the ACCC’s approach to policing competition issues in the sector particularly interesting. In some respects it provides a concentrated insight into the issues that will emerge across the economy.
Last week the commission produced its first report on its monitoring of the domestic air passenger industry.
It’s curious that airlines have been singled out for special monitoring, including their provision of monthly reports to the ACCC of their capacity, load factors and revenues for each of their routes along with qualitative information such as board papers. The ACCC’s normal powers to demand information, which include its ability to both request information and interrogate individuals, ought to have been sufficient.
The monitoring, however, is at the direction of the federal government, which instructed the commission in June to monitor prices, costs and profits in the sector for the next three years to protect competition in the sector.
In June, of course, Virgin Australia was in administration. While its pleas for a government cash bailout had been refused, it appears its subsequent request for protection from Qantas if and when it (Virgin) emerged from administration was successful.
Virgin has subsequently been acquired by private equity group Bain Capital and will emerge from administration with a vastly different balance sheet and cost structure. Its previous creditors have been essentially wiped out, large numbers of aircraft leases have been terminated or renegotiated, thousands of jobs have been shed and the administration has enabled it to re-do other contracts with suppliers.
When the market does reopen properly, Virgin will fly fewer planes on fewer routes and its second brand, Tiger, won’t fly at all. Qantas has said – and Virgin has agreed - that, as a result, it expects its domestic market share to rise from around 60 per cent pre-pandemic to about 70 per cent.
Complicating the ambitions of both Qantas and Virgin – and adding another element to the competitive dynamics the ACCC will have to grapple with – are the plans by regional carrier Rex to enter the “golden triangle” routes between Sydney, Melbourne and Brisbane.
It’s not clear how Rex expects to survive a three-cornered contest bookended by Qantas and a Virgin now backed by Bain, with its formidably deep pockets.
Rex announced on Tuesday that it is in advanced negotiations with an Asian private equity giant for an issue of convertible notes that could raise up to $150 million. If the first $50 million tranche were converted, PAG Asia Capital would own 23 per cent of Rex. If the fully $150 million were converted it would hold 48 per cent.
The Singapore-owned Rex, a recipient of about $60 million of taxpayer funds to maintain its regional routes (the far larger QantasLink and Virgin presence in the regions went largely unrewarded), has said it will buy or lease planes (some, ironically, from the former Virgin fleet) to compete with the incumbents.
While that’s not good news for either Qantas or Virgin – the triangle routes are arguably the world’s most profitable domestic routes and the core of the carriers’ profitability – it’s probably worse for Virgin and Bain than for Qantas, whose loyalty program and dominance of business travel makes it less vulnerable. It also has Jetstar to deploy against price-driven competition.
In fact, the entrant of a third party will help Qantas to a degree because, if Rex lowers ticket prices to build its presence, it provides cover for the Qantas group to match those prices and use its dual brands and its greater capacity and frequency to meet the competitive threat. That’s not anti-competitive behaviour.
It’s not clear how Rex expects to survive a three-cornered contest bookended by Qantas and a Virgin now backed by Bain, with its formidably deep pockets. Others – Southern Cross, Compass (twice) and Impulse among them – have tried to crack the duopoly in the past and failed.
It’s obvious that as the market opens up, even without Rex adding to the intensity, Qantas and Virgin would have initially scrambled to attract whatever volumes there were before the market settled down. There’s no revenue or profit in having planes sitting on the ground.
In the initial land grab for returning customers there could be some loss-leading, although rational competition – and Qantas and Virgin have vowed to be rational – would see capacity returned and fares priced at levels where the cash generated at least covered the variable costs of putting the planes into the air.
It is that period of gradual resumption of flying and the necessary incentives to convince passengers to travel again that will be the messiest and most challenging for the ACCC, particularly if it is something other than direct competition between Qantas/Jetstar and Virgin.
It will have to determine what’s rational pro-competitive behaviour in a market that history suggests will only sustain two players and which will be in the earliest phase of start-up from a pandemic-induced depression.
Aviation isn’t the only sector where these sorts of questions and issues will be at play but its nature and imminent structure will magnify, and confuse, the competition policy considerations of its attempt to re-emerge from the worst of the pandemic.
S28- BE
Last edited by Section28- BE; 22nd Sep 2020 at 09:07. Reason: Formatting....
The one thing none of the news outlets or politicians have ever mentioned is that this recession (as opposed to the one we had to have) is not a “structural” recession. Take away COVID and the economic fundamentals are extremely good. The bounce back will be aggressive.
REX thinking they have the reserves to become a player in the domestic/regional “vacuum” left by Virgin is an overstatement. If they looked at the manoeuvring happening on the east coast to cut them off at the knees, they would pull the pin on the jet dream.
REX thinking they have the reserves to become a player in the domestic/regional “vacuum” left by Virgin is an overstatement. If they looked at the manoeuvring happening on the east coast to cut them off at the knees, they would pull the pin on the jet dream.
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Wages growth was already low, productivity growth low, GDP held up only by immigration, mortgage stress and debt levels increasing.
The entire house of cards is held up by digging things out of the ground.