REX to lease jets to target low fare market

593
June 29, 2020
REX

A massive fare war is on the radar in Australia after Regional Express (REX) announced it is going to the market to raise A$30 million to lease a limited number of jets to compete with Qantas, Jetstar, and Virgin Australia.

The airline will target Australia’s so-called golden triangle of Brisbane-Sydney-Melbourne.

In a release, the Board of REX said it approved an initiative to raise a minimum of A$30 Million, which the Board now believes will be all that is needed for the launch of limited domestic operations, through one or more of the following avenues: sale-and-leaseback arrangement, equity injection and convertible notes.

READ: Bain wins Virgin Australia in high drama

“Discussions with interested parties including lessors and private equity funds have not been finalized and the Board will reconvene within three weeks to decide on the structure of the fundraising and the maximum amount that will be raised. Where necessary, the Board will seek shareholder approval for the fundraising,” the statement said.

It added that “the Board has authorized management to commence preparations in earnest for the operation of an initial fleet of five to ten narrowbody jet aircraft to be based out of Sydney and/or Melbourne to service the golden triangle (Sydney-Melbourne-Brisbane).

It said that the Board has confirmed 1 March 2021 as the targeted start date for domestic operations, subject to fund availability and regulatory approval.

Rex’s Deputy Chairman, John Sharp, said, “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.”

“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 ten 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% below Virgin’s Australia’s (pre-COVID) with 50% lower additional headcount needed proportionately.”

“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 (GDS). 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,” said Mr. Sharp.

Regional Express (Rex) is Australia’s largest independent regional airline operating a fleet of 60 Saab 340 aircraft (pre-COVID) on some 1,500 weekly flights to 60 destinations throughout all states in Australia.

3 COMMENTS

  1. Its going to be interesting to see who is willing to buy and leaseback 25-30 year old Saab 340s. They are all high hour, high cycle (1.1-1.3 per hour) aircraft which are not worth much on the market, even less to a leasing company.
  2. I'm pretty sure Rex owns most of its Saab 340s outright because it bought them cheap (being out-of-production planes) and that the sale and leaseback the board is talking about would be of a A320/B737 type to run the new mainline operation in the golden triangle (ME-SYD-BNE). With the airline industry having been collapsed by government decree, it's now or never for Rex to enter the trunk routes. It's unbuyable advantage is that it doesn't have to fight the market resistance that would be faced by an unknown entity.' The question is whether it uses the REX brand, which I think would be a mistake. The smart thing about the idea is that Rex can use its pre-existing infrastructure to lower its overall operating costs. The question is whether those costs would be 35% lower than VA's -- though the reason VA went broke is that, under John Borghetti, it tried to become Qantas and its costs compared with Virgin Blue were sky high. The five to 10 new narrowbodies the Rex board says it needs won't be enough. An absolute minimum of 10 aircraft (WITHOUT operational spares, which Rex uses for its regional operation) will be required for the necessary daily aircraft starts from ADL, MEL, SYD and BNE or the new airline will have to depend on other carriers to move some of its passengers which, apart from anything else, would severely limit the attraction of its frequent flier program. Note: Rex has also announced it will replace its old Saab 340s with new ATR42s and ATR72s.
  3. Since REX only owns the Saabs, that;s all it can sell and lease back. Of course, it can lease 737s or A320s, there are loads available with various hours and cycles and at cheap prices. There may be some available right on REX's doorstep soon. I don't see anything wrong with the REX brand, re branding and gaining brand awareness is just another start up hurdle.