REX AIRLINES: Gets AU$80 million lifeline from Australian Government

The Australian Government has agreed to hand AU$80 million to the company Administrator, EY, to assist REX’s regional operations through until June 2025. That also means REX will continue to operate its regional routes beyond the Federal Election that must be held by May 2025.

It is a way of making sure vital routes continue to run and eliminates a potential whip regional voters could use to flay the Australian Labour Party, currently in power.

With the demise of Bonza earlier this year, and the precarious nature of REX as it sits in administration has reduced competition in the Australian airline industry. November 2024 monitoring of airfares by the ACCC (Australina Competition and Consumer Commission) found that removal of REX from routes resulted in an increase in fares of 13%.

Background

With its vast distances and scattered rural and remote communities, Australia depends on regional flying. For some small communities, flying is the only viable way of ensuring supplies and preventing community isolation.

REX Airlines, or Regional Express, whose core business is servicing the Australian bush, went into administration in July of this year. It failed in its attempt to be a capital city airline. It wanted to compete with the big boys (Qantas/Jetstar and Virgin Australia) on the ‘Golden Triangle’ of capital cities: Brisbane-Sydney-Melbourne.

Although that venture failed, REX’s regional services are vital to the communities they serve and the voters who reside there. The Australian Government can’t afford to see another domestic airline go under.

Bonza Airlines, although a tourist airline, liquidated in April. Bonza’s operations favoured region-to-region routes. Its demise left many regional customers without a cheap alternative for their holiday destinations. The Labour party can’t afford to have another debacle like that on its watch before an election.

What’s next for REX

REX’s issue is primarily a shortage of cash to recapitalise the company. It currently has an ageing set of 34-seat Saab aircraft bought in the 1980s. It needs to replace these with something like the ATR 42, although delivery of those would be hampered by long delivery times caused by the pandemic and high demand.

The Administrator has already applied for an extension on their term. That indicates a sale of the airline to a new owner is going to be a challenge. The AU$80 million will keep it operating, but doesn’t help with its future.

2PAXfly Takeout

Some critics of the AU$80 million handout are critical of the level of transparency and lack of detail for how it is to be used. Some minor regional players would have like to use REX’s misfortune as an opportunity to expand their services. But, in the main, it is agreed that some financial handout for REX was necessary to keep those services to rural and remote communities.

What Australia really needs is a viable third (or fourth – depending on how you count Qantas/Jetstar) player. I mean one that is well capitalised to make a real play at competition with the other players, and thence keeping down airfares.

“It may be some time before a new airline emerges as a serious third competitor, which is likely to result in higher airfares and reduced choice for consumers.“

Domestic airline competition in Australia, November 2024, ACCC