Rex Expanding Into Jets
 

News item on radio today, mentioned that Rex were looking at acquiring ten jets to run east coast domestic service.
Interesting development if they proceed, plenty of airframes available, flight crew available etc.

Left field! One minute they want a Government bailout now they are looking to expand?!

Noted...

Rex takes fight to Qantas and Virgin
 

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.

Short memories. Qantas done the same thing a few years ago and they were doomed Then by miracle (bullish!t), turned it around :yuk: Cook the books (pay for Jetstar maintenance etc), then stop once found out and like magic... Profit :ooh:

REX thought they'd try it out too. The rest have, so why not. It's all about 'Jobs for Australians,' :yuk: not off-shoring ALL profits :ugh:

Senior Management in Aviation, get away with lies and deceit too easily in Oz... Like politicians :ugh:

​​​​​​​REX needs fleet replacement at some time. Possibly an opportune time.

Just goes to show that there is nothing new under the sun. I think Mr Lim and John Sharp realise that Virgin is probably not going to emerge from administration and that now is the time to expand. Upgrading an AOC is simpler (in a relative sense) than obtaining a new one. Just look at the experience of Virgin Blue and Impulse in 2000. Impulse were up and running with 717s before VB. As to who will fly the things well thats a whole different ball game. There will be plenty of experienced NB pilots willing to sign whatever is put in front of them to get back into the air.

AMBITIOUS ..Their average aircraft is 25 years old . They don't own an an aircraft under 20 years old . They fly only a few Jets the West Wind ,10 pax I believe. YES REX definitely needs fleet replacement some time soon

Virgin MK2 will almost certainly pull out of marginal and loss making routes, some of which which REX may be able to turn a profit on with a smaller aircraft and lower cost base. Regional jets might be a better starting point as they could replace the SAAB on longer sectors, and a lot of travel to and from regional airports is non discretionary. Trying to fill an airliner with highly price conscious bogans and make money while competing with two larger established operators doesn't always work, just ask Impulse and Tiger Airways.

Kendall Airlines had its fair share of problems when transitioning to RJs and CASA would certainly be keeping a careful eye on them.

So we have/had a few domestic jet operators all of whom cry poor on a semi regular basis, two of which have just gone under, aaaaaand now we have Rex wanting to reinvent the wheel by filling the void at an even lower cost? Good luck.

theres nothing special about flying jets. Impulse started with beech 1900s and now they fly A320s and 787s.

There are plenty of unemployed jet pilots both local and overseas Aussie expats who would jump at this, which would also satisfy any issues CASA might have with lack of jet experience in the operation.

Sounds like it would be a near full service carrier with a low cost base. This might be the kick in the pants the Aussie domestic market needs to break up the comfortable duopoly.

Out of all the things I have read on PPRUNE lately this is one I can actually see as a probable chance of going ahead. A cashed up Singaporean with a golden opportunity to almost “steal” jets in a busted market, a weakened QF and VA and plenty of 320/737 pilots who will sign up.

It’s all fun and games at the Sharp end
 

If it’s what Sharp wants it’s what he will get. Too many friends in high places. Sharp embedded himself in aviation as a consultant and lobbyist after life in politics. It would appear that his travel rort affair, approximately $9,000, ended up being a godsend as he has gone on and done very well for himself don’t you think? Mr Lim has reaped the benefits of some favourable decision making that Mr Sharp has been able to achieve in his current role at REX. Funny that....

Hotdamn that is out of left field! As others said it’s a good time go get a cheap lease but sometimes it’s best to stick with what you’re good at. 10 737/A320’s and the training, proving, marketing and every other cost associated with introducing something like this... doesn’t come cheap. Not impossible by any means, just a very expensive experiment.

Also wonder if they plan to employ off the street jet guys and cause chaos in the SAAB ranks or flow through from prop to jet when it’s all up.

I gather this is either Rex chasing some publicity since it’s all about VA and QF these days or it’s a long long long long way off seeing a Rex tailed NB jet in the sky.

But hey, jets = jobs! I hope they pull it off.

If nothing else a spoiler by REX to announce, anyone looking at VA2 would have to consider the impact of an existing operator expanding with an expected lower cost base, if nothing else REX would erode an uncertain market post CV19.
Maybe not a dealbreaker but would have to be a consideration.

Of course that assumes anyone looking at VA2 is actually looking to run it as an airline rather than just maximising any perceived assets.

Krismiler, there is no such thing as a ‘regional’ jet.

Ansett managements push to introduce the CRJ at Kendell was a sorry example of this misconception. That they attempted it with such a top heavy management structure meant that they were doomed from the beginning. The issues there were nothing to do with anything that is part of CASA‘s role and everything to do with a lack of understanding of the operation AN took over.

A jet is a jet, and it will always have different operating economics to a turboprop. If you really think “Regional jets might be a better starting point” on routes like MEL-BNE and SYD-PER then I’m not sure you understand the economics of airlines.

Sharp is the Treasurer of the National Party and has been very successful in getting support for Rex under the guise of helping Regional Australia aviation.


CASA will fall over backwards to help him get his jets on the Rex AOC. With excess VH registered A320's and B738's around, what is the hold up.

I don't. They are disgusting company in relation to treatment of their employees and the last thing the our industry needs them getting larger market share.

Disgusting company or not, they will get government support, they will get market share. Vale VA

Yep, but they will have no issue at all getting type rated applicants, most still current.

They could breed their own as such. They will pay substantially lower A320/737 rates vs the market, would they want to take on those who will cause union problems in the future? There are a few operators here that are fairly selective with who they take and where they came from.

It won’t be a career job so no point joining expecting long term wage increase to market levels. It will always be a bottom of the barrel remuneration. 100k FO, 160k LHS. Suck it up or simply leave for China.

There were operational problems with the CRJ at first but that had a lot to do with how they were introduced. No surprises that TJ was a big part of that problem. The early Kendell pilots were set up to fail as they did their endorsement in Canada, their line training in South Africa then were expected to operate to Ansett procedures for their check ride! This time around there won't be any parent company dictating how the operation will be introduced and there will be more than enough experienced pilots to handle the expansion.

is it EBA time at REX?

Lookleft makes a very succinct observation regarding the CRJ shenanigans. Well said. And yes, come what may, hopefully the big angry man Teejay will have no active part in REX’s plans.

Well that’s interesting, also we’ve had enquires from a Brisbane based company for ground equipment, suit A220/320.
Could be an interesting couple of months.

& here we all thought Rex would be flying Essendon/Bankstown.

Rex move makes perfect sense, but could also be a singaporean move to scare off all other bidders. SQ might pick up bits of VA very very cheaply including non-unionised staff

more like an interesting couple of weeks. This announcement is well timed to scare off other bidders.

Rex already flies into BNE, SYD, MEL & think there might be a few VA staff looking for jobs, as long as they are prepared to work for less & go non-unionised.

Rex already has operations that cover the country. Not too difficult to imagine that being pulled together to create an extensive domestic network.

If it's A320 there won't be to many VA pilots in the mix. Good news for the the Airbus Tiger crew though.

REX may win the battle but could lose the war. There are a few more costs involved with running jets than just pilot salaries. You could have the cheapest crews but the cost of fuel/airports/catering/enroute charges etc won't change. Also they won't be able to throw a tantrum at major airports about fees like they do in the country either. It will be interesting in how they handle that side of things. Aerobridge access is another thorny issue in Australia. I doubt they would want to be busing up to 360 people every sector

Plenty of expats too. I'm guessing many have or will be displaced.

No mate, just you and all your alter egos.

Archerfield ?

I wasn't referring to main trunk routes, I was thinking of secondary routes which struggled with a B737 and VA cost base but might be doable with a smaller aircraft. Some of the legs in the REX network are already quite long and might be suitable for a jet at certain times which would increase utilisation. Going straight into full size airliners might not be a wise move depending on how the post virus situation pans out, I'm sure they don't want to become another Air Australia.

So the company crying poor only a month ago, now suddenly has $200m to blow.

plenty of cash around for good ideas.

Wonder what Rex would do to retain Virgin frequent flyers ? Offer some sort of deal to velocity trustees, so points could be used on rex jet services ?

Maybe some sort of a % deal or strictly limited ff seat availability initially ?

Why would they want to take on the liability? There is no upside.

Exactly Normie!

And there’s a lot more to running a successful domestic airline than just pilot costs!

$ 200 million won't go far to launch and sustain a "ten aircraft" competitive operation.

What these comments by REX will do is effectively scupper a VAH resurrection, especially in the context of the administrators handling of the insolvency process with unrealistic targets and debt expectations.

The good thing is props can’t fall off jets - smart move...

Well considering that Velocity will most likely end up in the toilet as a creditor to Virgin, my answer to your question is absolutely nothing.

:D

Qantas would smash them. So would Virgin Mk 2 if it gets up. Look at Rex's track record. They move in on someone else's turf like in WA but when Q/link move into there turf such as in SA they chuck a wobbly. Pull out of KI and threaten the same for Whyalla claiming unfair competition. Constantly whining about airport fees etc ,always looking for taxpayer/ratepayer assistance and screw their workforce to boot.
If they went and played with the big boys on trunk routes it would be Compass all over again....I give them 6 months.
However what they may like to consider is smaller jets on their long routes such as Sydney- Broken Hill etc, that might work.

Their Saab's could easily complement the jets when loads are light and they can't fill A 737/A320. I reckon they've got a winner here!

Loving the commentary on here... 🤦‍♂️

Personally I’m not surprised. There’s been rumours of this for years BUT the recent Lim Kim comments RE the Virgin Administrators was taken the wrong way by most of you I think. Reading between the lines I thought he was disappointed the administrators weren’t cutting VA down to a smaller size so Rex would buy them.

But looking at it from a practical view (no emotion unlike some):

- already have staff, offices, parking areas, slots in all the capital cities.
- enough redundant 320/737 crew floating around to fill at least initial staff positions (especially training and checking).
- 737/320 lease rates would be low right now and Rex could probably get a better deal than current operators
- fuel is cheap and unlikely to go up in the next 2-3 years
- Rex management has plenty of experience running an airline. Yes no jets but it’s just another aircraft that needs filling. They know revenue management, cost control, maintenance, etc. It’ll be adding to what they do.
- they already have feed from a regional network which may fill +10% of their seats from day 1.
- all indications are that they’d stick to linking BNE/SYD/MEL/ADL/PER. With a small route network covering existing Rex bases, they’ll keep their costs reasonably low.

PLUS it looks like being funded by new equity in Rex via the sharemarket. This means no debt to service, which will keep their costs down significantly.

So given all the above I’d argue their costs may come in close to Jetstar. They certainly won’t be chasing the full service market so that should allow them to make a decent profit out of a small network.

It may just be a shot across the bow to any new operators in Aust, but it does have a very good chance of succeeding.