In this news, we discuss the ‘Poking the bear’: Regional airline Rex using downturn to challenge Qantas, Virgin.
SYDNEY (Reuters) – As Virgin Australia shrinks to survive the pandemic, tiny Regional Express Holdings Ltd (Rex) REX.AX is grabbing some of its biggest rival’s planes and personnel at low prices – and attracting investors who see profits at the top. plan of the issues.
A Boeing Co BA.N 737 lease agreement announced on Wednesday is the final step in Rex’s bet to take on Qantas Airways Ltd QAN.AX and Virgin starting with Sydney-Melbourne, the fifth busiest domestic route in the world before the pandemic.
The move of Rex, until now an aging 30- to 36-seat turboprop operator, is a rare example of an airline expanding into new markets as the pandemic cripples air travel.
Shares of Rex and charter operator Alliance Aviation Services Ltd AQZ.AX have risen this year as investors seek stories of countercyclical growth. Rex shares hit a one-year high on Thursday.
Chart – Regional carriers Regional Express and Alliance Aviation outperform larger competitors when undertaking countercyclical expansion plans:
Rex entered the pandemic with a license, little debt, a paid fleet, and no planes on order. Last week, he signed a contract with Asian investment firm PAG Asia Capital for up to A $ 150 million ($ 106.23 million) in convertible notes to pay for the service to major cities, told Reuters Rex’s vice chairman John Sharp of his government. -subsidized regional operations.
But even with these perks and the ability to sign deals at reduced rates, analysts say Rex faces a formidable chance of competing with bigger players. These well-established brands have strong loyalty programs, more frequent flights, and fancy airport lounges, and will scramble to regain share as demand recovers.
“They’re really stinging here,” Rico Merkert, professor of transportation at the University of Sydney Business School, said of Rex. “Qantas will do everything it can to defend its market and with good reason. It’s a question of survival. “
Before the pandemic hit, Qantas’ Sydney-Melbourne route was the world’s second-largest revenue generator for an airline, with $ 861 million in 2018, according to data firm OAG, ranking behind the only route. British Airways London-New York.
Under new owner Bain Capital, Virgin is reducing its regional routes to focus on major ones, including Sydney-Melbourne.
“While Qantas-branded flights are unlikely to be much cheaper, Jetstar and Virgin will be cutting fares in an attempt to kill Rex’s jet in the cradle,” said Judson Rollins, managing partner at consulting firm Propel Aviation Solutions based. in Auckland. “But Rex will have a significant cost advantage over Jetstar itself.
Australia is the worst performing among the world’s major domestic markets, according to the International Air Transport Association, in large part due to state border closures meant to limit COVID-19.
Passenger numbers were down 91.5% in August from a year ago, and capacity is only operating at 20% of normal, although the federal government expects more borders. states open by Christmas.
Qantas and Virgin have halted all international flights and are eager to bring more planes to the domestic market to cover financing costs and pass government benefits to staff.
Rex’s Sharp said that despite its size, its airline would have a cost advantage because it did not have surplus planes or personnel.
“We will grow as the market grows,” he said. “We think our customers will be leisure travelers and we think we will attract small business and we will attract government travelers at the best price of the day.”
Rex on Wednesday announced agreements to lease six 737s formerly flown by Virgin and began advertising for experienced crew members, with the goal of keeping employee costs about 10% lower than Jetstar.
Brendan Sobie, a Singapore-based independent aviation analyst, said the way forward for Rex was not easy, but he had a chance to overcome challenges.
“I think there are a lot of things to do – their timing, their cost structure and the fact that they are coming as a newcomer to the main roads with a different approach,” he said.
Reporting by Jamie Freed. Editing by Gerry Doyle
Original © Thomson Reuters
Originally posted 2020-10-01 05:16:12.