CAPA Live – Rex Airlines spots opportunity in Australia's air market

Lim Kim Hai, chairman of the local Australian operator Regional Express (Rex), said that the regional government rules had meant that the impact of border closures was "quite unequal" across the Australian states, with some states like Western Australia, Queensland and South Australia experiencing "almost no impact".

He noted that Queensland was returning to nearly 90% of pre-COVID-19 passenger levels. However, southern states like NSW and Victoria were experiencing a "huge impact" from the border closures. Victoria and NSW constitute approximately 65% of Rex's total services, making the closures "quite painful," he said.

Many people outside Australia may not have heard of Rex, but 18 years after its birth it has certainly come of age during the current crisis, and seen the door open to expand its activities. Set up by former Ansett Australia employees who acquired Hazelton Airlines and Kendell Airlines and merged the two companies, Rex operates a small fleet of turboprops to provide essential regional connectivity.

But now it is expanding and soon to welcome jet equipment. The airline's chairman Lim Kim Hai explained that the airline was "very advanced" in adding Boeing 737NG aircraft.

It has signed leases for six 737s and taken delivery of the first, for which it is conducting the necessary training up until 02-Dec-2020, when it will conduct its proving flight with CASA.

The airline intends to launch operations with the first three 737NGs on Sydney-Melbourne service from Mar-2021, after which it will "wait a couple of months, and if we see that things are tracking well, we will start increasing the fleet gradually and constantly," said Mr Lim, with plans to have five aircraft by the end of Mar-2021, and that the airline will be "constantly adding aircraft in a rhythm of one every month, or one every six weeks" from Jul-2021 onwards.

Mr Lim confirmed that the aircraft would be configured with a business class section. The class will be priced "round about the Jetstar" region, in order to cater to the "price sensitive discretionary traveller" and will "probably be superior" to Virgin Australia, but not "as ritzy" as Qantas, he explained. "All the basic elements will be there", he stated, adding that it would be at "Jetstar prices, with twice the value of Jetstar". The airline also intends to maintain the lounges it has in three Australian capital cities, and "may even improve on them".

Although Rex will look very different in 2021, the airline is simply expanding its domestic offer rather than growing into a new airline type operation.

"We are essentially having the same airline but having different services with different aircraft types - so that's a little bit different from starting afresh," said Mr Lim. He noted that the airline had about 80% of the core infrastructure available, provided by the main regional services.

Insight from Lim Kim Hai at CAPA Live, 11-Nov-2020

Rex's deputy chairman John Sharp said Rex would change to "flying between the cities instead of just to the cities" and will grow "to be a sizeable domestic operator with a fleet of 30, 40 or even more. That's our ambition".

The best time ever to start an airline

Mr Sharp highlighted that "it's a bit of a buyer's market at the moment… We have very good, competitive rates. There's nobody out there competing for aircraft". He added: "I've never seen interest rates this low. This is the best time ever to start an airline operation in Australia… 12 months ago this was a mission impossible, post COVID-19 it's a possible mission".

There is also a fairly strong sentiment for travel, and Mr Sharp highlighted that passengers "are actually surprisingly resilient". He added that generally speaking people are "quite resilient and not frightened," but acknowledged that for some people, they "are going to take a long time to get them back on a plane".

This positivity for the return of domestic travel is not mirrored in the international market.

Board of Airline Representatives of Australia executive director Barry Abrams revealed that several airlines were calling each passenger a day before travel to make sure they would make it to the flight, due to the flights and passenger caps. "It's enough to make you cry over load factor… we need to find some ways to get the volume moving", he said, but done in a way that has a "multi-layer approach to managing COVID-19".

Aviation Week senior air transport editor Adrian Schofield has acknowledged that the next steps for international travel "are likely to be so-called travel bubbles with certain Asian or Pacific Island markets".

Mr Schofield said that the national airline Qantas would be "watching these potential developments with great interest", with the bubbles to be based "on which markets are making the best progress on controlling the pandemic rather than those with the highest demand".

Highlights from CAPA Live, 11-Nov-2020

CAPA Live delivers a monthly virtual "Summit", jam-packed with information, data and live interviews. CAPA experts, global airline CEOs and other cutting-edge industry leaders will be presenting live from a next-gen virtual event platform. Registrations for December are now open. Subscribe here.