Australian aviation: Rex looks to drop jet operation; part one – fleet build-up falls short
The decision by Regional Express Holdings - otherwise known as Rex - to enter voluntary administration once again underlines how difficult it is for a small-scale jet operation to compete against the established players in the Australian domestic market.
Rex is primarily a turboprop operator, but made a foray into narrowbody jet services in the wake of the COVID-19 pandemic. It appears that this jet operation will become a casualty of the restructuring during administration, although the more well-established regional operation will likely remain in place.
If this is what transpires, it would represent the second relatively new jet operation to fail in the Australian domestic market this year, after Bonza folded its service in Apr-2024.
While there are some differences between the Rex and Bonza examples, there are also notable similarities.
From a network perspective, the demise of Rex will not cause much difference in overall capacity or route coverage, although it will reduce price competition on the routes it served.
The first part of this analysis focuses on Rex's entry into voluntary administration, and examines how the airline's jet fleet build-up compared to its initial aspirations.
The second part will look at the network and market implications of Rex's exit from domestic trunk routes.
- Rex suspended domestic jet routes when it entered administration, but turboprops are still flying.
- More than 600 jobs will be cut during restructuring, and the fate of Rex has entered the political arena.
- Rex started with six Boeing 737-800s, but only had nine by the time it ceased jet services.
- The airline had been targeting 14 aircraft by the end of 2022, and an optimal fleet of more than 30.
- Supply chain issues and crew shortages were also causing problems for Rex turboprop operation.
Administrators will oversee Rex restructuring, and the grounded jet operation will likely not return
When it entered voluntary administration on 30-Jul-2024, Rex was operating nine leased Boeing 737-800s and about 40 Saab 340 turboprops, with another 18 Saab 340s inactive.
The airline appointed administrators from Ernst & Young, and the Australian Stock Exchange suspended its shares from trading.
Rex grounded the domestic jets and suspended their routes with immediate effect. This highlights that it was the segment of the business causing most headaches for the company.
The airline stressed that the regional turboprop services will continue to fly as normal during the administration period.
Virgin Australia and Qantas have offered to accommodate passengers with bookings on Rex jet flights.
Rex is also holding discussions with Virgin Australia about the possibility of Virgin Australia codesharing or interlining with Rex on the regional services, and allowing Rex customers to link to Virgin Australia's loyalty programme.
Some of Rex's subsidiaries are not included in the voluntary administration, such as the Pel-Air air ambulance service, and the Australian Airline Pilot Academy.
Rex's predicament has unsurprisingly become a political football in Australia, with opposition parties and unions using it to criticise government aviation policy. The fact that Rex's turboprop operation serves many remote communities will keep its fate firmly in the spotlight in Canberra.
The Transport Workers Union confirmed that Rex intends to cut more than 600 jobs - 360 from the jet operation, which will be closed, and 250 from the regional operation. The union is calling for the federal government to take a stake in Rex to ensure that it stays in business.
Narrowbody fleet grew slowly, and was still a long way short of the size Rex was aiming for
After launching the jet service in Feb-2021, Rex grew its 737 fleet relatively quickly to six aircraft by Apr-2021, CAPA - Centre for Aviation fleet data shows.
The jet fleet then remained fairly stable at 6-7 aircraft until mid-2023. Growth ramped up again when it added three more aircraft in the second half of 2023, before declining slightly to nine.
All of the 737s were used leased aircraft. Most had formerly been operated by Virgin Australia, and some by Singapore Airlines.
When it launched the jet operation, Rex leaders had talked about eventually building a fleet size of at least 30 aircraft, which would give it the network scope and frequency it envisaged to make it competitive in the long term.
It had discussed its intention to have about 14 aircraft in 2022. But its growth rate was much slower than that.
Initially, Rex was able to take advantage of low aircraft lease rates due to the surplus of parked aircraft in the immediate aftermath of the COVID-19 pandemic.
Rex believed a combination of low interest rates, cheap aircraft, workforce availability, unused airport capacity, and the weakened condition of the incumbents all created a unique opportunity for expansion into domestic trunk routes
Now, however, market conditions have changed, with higher aircraft lease rates and scarcer availability. Not to mention the rebound of the major players - particularly Virgin Australia.
The core turboprop fleet was also causing problems for Rex due to supply chain bottlenecks
Something else the CAPA - Centre for Aviation fleet data shows is the drop in the number of Saab turboprops in service in late 2022 and 2023.
The airline currently has 39 in service and 18 inactive, but the number in service dipped as low as 34 in Mar-2024.
This reflects the fact that Rex had to make cutbacks to its regional services due to pilot shortages, which the airline blamed on poaching by the larger airlines.
It also faced supply chain challenges that have affected the airline industry since the pandemic, resulting in parts shortages and aircraft availability headaches.
In Feb-2024 Rex said the temporary route cuts would continue until late Oct-2024, due to the aircraft parts problem.
Competing at sub-optimal scale proved to be a major handicap for Rex and Bonza
Rex had a very different strategy from Bonza's, which aimed to avoid the major players by targeting unserved and underserved markets.
Bonza started service in Jan-2023, using Boeing 737 MAXs leased from its parent 777 Partners.
By the time Bonza ceased operation at the end of Apr-2024, it was only operating five 737 MAXs. Its backers lost patience with the airline, and effectively withdrew the aircraft.
While Bonza was coy about what its break-even fleet size would be, the airline certainly had growth aspirations beyond its size when it was shut down.
Although there were questions about its business strategy, the airline never truly had the opportunity to test its model.
So something Bonza and Rex's jet operation had in common was that they did not survive long enough to achieve the scale they would have needed to compete effectively in the Australian domestic market.
Many questions are being raised now about whether policy settings in areas such as airport access and slot availability would have made a difference to the viability of Bonza and Rex.
And while it is true that such measures would have helped, the bottom line is that the two airlines did not grow enough to put themselves in a position to challenge the larger incumbents.
That is the chicken-and-egg conundrum for many start-up airlines.
They need to achieve critical mass to be profitable, but to reach that size they need to achieve enough financial success to convince their backers to stay the course.
To succeed, start-ups need backers with deep enough pockets and sufficient patience to sustain the lean years before reaching an optimum fleet size.