Rex to add more 737s this year, upgrade FFP, lounges. Delta interline 'a whole new ball game'
The Australian airline Rex is preparing to take some important steps in its efforts to expand its services and compete more directly with its larger rivals in Australia's domestic market.
Rex has historically been a regional turboprop operator, but it began to diversify last year (2021) by introducing Boeing 737s on major domestic trunk routes. The airline currently operates six Boeing 737s and has plans to grow the jet fleet and network in 2022.
Rex also intends to: sign an interline deal with Delta Air Lines; upgrade or add more passenger lounges; and launch a new loyalty programme. These are intended to help overcome differences in services and customer offerings between Rex and full service domestic competitors such as Qantas and Virgin Australia.
Competition in the Australian domestic network is heating up, with Qantas the incumbent, Virgin Australia growing its fleet close to pre-pandemic levels, Rex also expanding, and newcomer Bonza planning to enter the fray. It will no doubt be a tough market - particularly on east coast trunk routes.
Summary:
- Interline arrangement with Delta Air Lines offers international connections for Rex.
- Delta Air Lines needs a new Australian partner after the demise of Virgin Australia deal.
- Rex plans to introduce new loyalty programme, and is upgrading its lounge network.
- Seventh 737 being added by Rex, with longer term plans to grow to approximately 30 jets.
- Rex's jet network is also expanding, and a new Queensland route could be next.
Delta partnership gives Rex the international access it has lacked
Forming links with Delta is a particularly noteworthy step.
Rex signed a letter of intent with Delta on 2-May-2022 to establish reciprocal baggage and ticketing interline services, which are expected to begin in the third quarter.
Rex and Delta will expand their partnership in stages and some steps will require regulatory approval, said Rex Deputy Chairman John Sharp. Rex expects eventually to develop full codesharing with Delta.
This will be Rex's first interline agreement with an overseas airline. It previously had an interline deal with Virgin Australia, although this ended during Virgin's restructuring process and when Rex planned to enter the jet market.
The Delta arrangement will allow Rex customers to book international connections via Delta's daily flights between Sydney and Los Angeles. This is something Qantas can obviously offer both with its own fleet and on its partners' flights. Virgin Australia has temporarily suspended bookings on its partners' international flights due to the COVID-19 pandemic, but this capability will return at some point.
As well as giving more options to its Australia-based customers, the interline deal will also feed Delta customers into the Rex network. Mr Sharp noted that a significant proportion of Delta passengers arrive in Sydney and want to connect to other Australian cities served by Rex.
"We'll be attracting new customers onto our system", said Mr Sharp. "The ramifications of [the Delta deal] are really quite significant - it's a whole new ball game for us."
Mr Sharp said Rex could potentially adjust its Sydney timetable to align better with the Delta international flights, taking international-to-domestic transfer times into account.
The interline deal is also a benefit to Delta.
The US airline previously partnered with Virgin Australia in the Australian market. However, in Dec-2021 Virgin announced that this arrangement would end and it would link with United Airlines instead, leaving Delta with no Australian domestic partner. Qantas meanwhile has a JV with oneworld partner American.
Expanding loyalty programme and lounge network will boost full service bona fides
Adding a comprehensive loyalty programme will be another key move, and Mr Sharp said that Rex would be rolling out such a product soon. This will be broader than the airline's current programme, Rex Business Flyer.
Fully developed mileage programmes are important for both customers and airlines.
The airline is also improving its domestic lounge network. It has lounges in Sydney, Melbourne and Adelaide airports and is building improved lounge facilities in Sydney and Melbourne. Rex also intends to replace the Adelaide lounge, and it plans to open a new lounge location in Brisbane.
Rex has short term and longer term narrowbody fleet growth plans
Despite the narrowbody additions, Rex's market share remains relatively low. The airline accounted for just 5.2% of Australia's domestic seat capacity in the week of 9-May-2022, according to data from CAPA and OAG.
This should increase if Rex meets its fleet growth targets.
Australian domestic capacity: week of 9-May-2022
Rex currently operates a fleet of 60+ Saab 340 turboprops on regional routes, in addition to the six leased 737-800s on trunk routes. The airline signed a deal on 9-May-2022 to lease a seventh 737, which is due to arrive after completing a major check.
The airline intends to expand its 737 fleet further over the next few years, said Mr Sharp: "We will do this as quickly as we can, because we have a desperate need to add more aircraft into the system."
Rex has been bringing in used 737s, most of which have been parked in Australia and were previously operated by Virgin Australia prior to its collapse.
The airline has been able to secure very attractive lease rates due to the surplus of parked aircraft during the coronavirus pandemic. Mr Sharp said this has helped Rex keep its costs as low as possible as it started its jet operation, and minimises the financial risk involved.
Rex fleet summary, as of early May-2022
The main limiting factor in its fleet growth is the time it takes to work through the logistics and regulatory processes to make the 737s operational again, Mr Sharp said. He declined to provide specific short term targets for fleet growth, although in 2021 the airline indicated that it was aiming to lease eight more 737s this year.
Rex Chairman Lim Kim Hai has previously said that eventually the airline wants to increase its jet fleet to at least 30 aircraft.
Having a 737 fleet of this size "is something the carrier aspires to", Mr Sharp said. "It would give us the ability to build the network that we want to have, and to offer the frequencies that we think passengers are looking for."
Additional narrowbody jets will support network growth strategy
The airline intends to add more destinations and frequencies as additional 737s arrive, said Mr Sharp. These will complement the airline's extensive regional network operated by the Saab turboprops.
Rex currently operates 737 flights on the so-called "Golden Triangle" routes between Sydney, Melbourne and Brisbane. It also offers jet flights on other major east coast routes such as Sydney and Melbourne to Gold Coast, and Melbourne to Canberra and Adelaide.
A route between Brisbane and Cairns is likely to be the next jet service introduced. The airline is launching a major push into Queensland, targeting regional centres and tourist destinations on the coast.
Regional network and Delta interlining are both advantages for Rex's domestic push
Rex's venture into jet services on domestic trunk routes makes it a new entrant in this market sector.
But of course it is far from a start-up airline, as it already has an extensive regional network and associated brand awareness. This gives it valuable support structures, experience and other sources of revenue to lean on. Regional feed into the trunk routes is also helpful.
However, it can still gain advantages from starting small on the jet operations and building up according to demand.
Growing to an optimal scale must continue to be the goal for the narrowbody services. Just as important is setting up the amenities that customers expect from a non-LCC airline, such as the lounges and frequent flyer programme.
Gaining a partnership with a global giant like Delta is a huge step for Rex - both in terms of providing more feed in and out of Sydney and making its loyalty programme more appealing as domestic market competition hots up.
This partnership opportunity arose at a fortuitous time for Rex, and its benefits for the airline will grow as Delta expands in the Australian market. Delta currently operates a daily Sydney-Los Angeles flight using A350-900 equipment.