REX push into the big league faces challenges

If history is any guide the push by regional airline REX to enter the big league faces massive challenges. In the 100 years since Qantas was formed more than 400 airlines have collapsed in Australia with an average lifespan of just over four years. Just in the past 30 years, we have seen airlines such as Compass 1 and 11, Impulse, Ansett, OZ jet and Air Australia fail and Virgin Australia is in administration. REX which operates to 60 mainly regional destinations with 57 turbo-prop aircraft plans to lease 10 180-seat Boeing 737 or Airbus A320 aircraft and operate them between all capital cities. Certainly, REX is a well-run efficient airline providing vital links to regional Australia and has been the least impacted by COVID 19 thanks to government support for its critical services. And lease costs on aircraft are rock-bottom right now due to the devastating impact of COVID19 on air travel. However, for that very reason, the REX move is fraught with danger. It is hard enough to take on a Qantas in good times but the appetite for travel ex COVID19 is an unknown quality and will require significant far cuts to get people in the air. Qantas has already flagged prices 30 per cent below its best sale fares to stimulate demand and support the tourism industry. Even if Virgin Australia does not fly out of administration, REX faces a goliath – and this goliath is armed with a potent frequent flyer program. The Qantas Group frequent flyer program has 12.9 million members and is almost a $500 million business. It offers 500 partners in 65 industries and is linked to all major banks. Over and over, around the globe, it has been shown that passengers will put up with higher fares and even lousy service if they are heavily engaged in an airline’s frequent flyer program. In the case of Qantas and Jetstar, you have two of the world’s best airlines in their class and their fares and service are amongst the best. REX has chosen to take on an awesome tag team.