Rex gets serious about challenging Qantas and Virgin on Australia’s ‘Golden Triangle’

After recently revealing its intention to expand its services to include capital cities, Regional Express (Rex) is getting ready to enter the big league.

In a statement to shareholders yesterday, Rex said its board has now formed the view that the regional airline could successfully embark on domestic operations that would see it servicing the lucrative ‘Golden Triangle’ (aka Sydney, Melbourne and Brisbane).

Better still, Rex reckons it won’t require $200 million in order to achieve this, as originally estimated. Instead, “all that is needed” is $30 million, which it aims to raise through one or a combination of the following: a sale-and-leaseback arrangement, and equity injection and convertible notes.

The airline said discussions with interested parties including lessors and private equity funds have not been finalised, and the board will reconvene within three weeks to decide on the structure of the fund raising and the maximum amount that will be raised.

“Due to the strong interest shown by various external parties to participate in the fund raising, including lessors willing to provide $30 million for 15 of Rex’s fleet of 60 unencumbered Saab 340 aircraft, the board has now formed the view that funding will be forthcoming for the minimum target sought,” it said in a statement.

“Consequently, the board has authorised management to commence preparations in earnest for the operation of an initial fleet of five to 10 narrow-body jet aircraft to be based out of Sydney and/or Melbourne to service the ‘Golden Triangle’ (Sydney-Melbourne-Brisbane).

Rex is set to commence operating capital city flights on 1 March 2021, subject to fund availability and regulatory approval.

The airline also confirmed a non-binding memorandum of understanding with aircraft manufacturer Avions De Transport Regional for potential commercial co-operation to help get its domestic operations off the ground.

“Rex has the biggest regional network in Australia and we are the only carrier in Australia that has been able to successfully navigate the turmoil and shocks over the last two decades with uninterrupted operational profits since 2003,” deputy chairman John Sharp said.

“With Rex’s expansive regional network of 60 destinations, existing infrastructure in all these capital city airports, superior efficiencies and unbeatable reliability, it will simply be an incremental extension for Rex to embark on domestic operations especially since one out of every 10 flights in Australia was already a Rex flight during the pre-COVID days.

“Leveraging on Rex’s existing infrastructure and overheads, our cost base for the domestic operation is estimated to be at least 35 per cent below Virgin Australia’s (pre-COVID), with 50 per cent lower additional headcount needed proportionately.

Sharp said Rex’s domestic operations will be priced at affordable levels, but will also include baggage allowance, meals on board and pre-assigned seating.

“Booking channels will include both Rex direct and Global Distribution Systems,” he said.

“Lounge membership will be available for subscription.

“It will be a hybrid model that Rex has so successfully pioneered over the last two decades for its regional operations.”

The move by Rex hasn’t come without controversy, though, with Australia’s corporate watchdog investigating whether the airline breached its continuous disclosure obligations last month by revealing its capital city expansion plans before they were announced on the Australian Securities Exchange.

Featured image: iStock/Ryan Fletcher