Australia’s Rex considering 737s/320s for thick routes; clever move or risking everything?

Australia’s Rex considering 737s320s for thick routes; clever move or risking everything

Australia’s Regional Express – Rex – is considering acquiring up to 10 B737s or A320s for thick domestic routes for operating from March 2021. 

This comes less than a month after Virgin Australia, the world’s 50th-largest carrier, announced that it was entering voluntary administration. It is now seeking new owners, with today, 15 May, the deadline for submitting bids.

Rex’s timing cannot be coincidental.   Indeed, its board believes its idea makes a “particularly compelling proposition.”  A decision is expected to be made within the next two months.

Yet, its idea is far removed from its current clear market position.  It operates regional – and often very thin – services, both government-funded and not, using an operational fleet of 57 Saab 340s. Last year, Rex had 48% of global Saab 340 seats, up from 20% in 2010.

Its role – and comfort zone – is managing seat factors and yields on what are primarily monopoly routes.  About 76% of its network has no direct competition.

Narrowbodies on thick routes is obviously the antithesis of this.

Australia’s Rex considering 737s320s for thick routes; clever move or risking everything

Rex grows slowly with strong network of 60 airports 

Rex doesn’t grow quickly, which isn’t surprising given its current size and operation.

Since 2010, its seats have grown at a CAGR of 2.5%, ending 2019 with 3.1 million.  This is across both non-stop and one+ stops.

Australia’s Rex considering 737s320s for thick routes; clever move or risking everything

Source: OAG Schedules Analyser.

Multi-stop services are a core part of its network, especially within Queensland. With seven stops en route and an elapsed time of 9h 15m, its Brisbane – Mount Isa service is its longest.  It covers 2,032 kilometres in all.

Queensland has a comprehensive, and often multi-stop, Rex network, but it accounts for only 19% of its total seats, three times smaller than New South Wales.

Australia’s Rex considering 737s320s for thick routes; clever move or risking everything

Rex’s May 2020 route network. Source: its website.

Last year, Rex’s network comprised 60 airports and 112 routes (non-stop and one+ stops). 

Sydney was by far its largest airport (almost 1.2 million seats) across 17 routes.  Longreach, almost 1,000 kilometres from Brisbane in the heart of outback Queensland, had the fewest seats (14,000) and two routes.

The dominance of Sydney, and broader New South Wales, is reflected in Rex’s top-10 routes last year. Its top route, Adelaide – Port Lincoln, links the South Australia state capital with the country’s ‘shark diving capital’.

Rex’s top-10 routes in 2019 Total seats
Adelaide – Port Lincoln 171,428
Sydney – Griffith 124,644
Sydney – Dubbo 100,504
Sydney – Wagga Wagga 98,464
Sydney – Orange 95,676
Melbourne – Burnie 93,228
Adelaide – Whyalla 89,420
Perth – Albany 79,696
Sydney – Albury 78,676
Sydney – Merimbula 67,320
Source: OAG Schedules Analyser.

Australia’s top-10 routes had almost half of domestic seats

Australia’s entire domestic market had 81.7 million seats last year, flat YOY. 

The country’s top-10 domestic routes had 46% of these, showing how enormously the country revolves around its thickest routes.  51% of Virgin Australia’s domestic capacity came from the top-10.

Australia’s top-10 domestic routes in 2019 Total seats Average daily departures*
Melbourne – Sydney 9,958,500 74
Brisbane – Sydney 5,887,384 46
Brisbane – Melbourne 4,399,504 34
Sydney – Gold Coast 3,178,060 25
Adelaide – Melbourne 3,097,052 24
Melbourne – Perth 2,497,683 16
Adelaide – Sydney 2,259,244 18
Gold Coast – Melbourne 2,223,087 16
Hobart – Melbourne 2,069,362 16
Perth – Sydney 1,008,122 12
* Rounded. The average one-way daily frequency across all operating airlines. Source: OAG Schedules Analyser.

anna.aero’s opinion

Rex’s diversification from its obvious core to something high-risk is puzzling. 

On the one hand, it may make sense given Virgin Australia’s predicament and it would be an important way for Rex to meaningfully grow, if growth is now a key desire.

If Rex’s Singapore owner wants it to expand strongly, it cannot keep focusing on thin regional routes.

But when Virgin Australia’s new owner(s) come, the carrier’s core market – thick domestic routes – will inevitably be front-and-centre of its redevelopment. This is despite talk today of acquiring B787s for long-haul and from the East Coast to Perth, a sensible move to consolidate around one widebody type.

Rex cannot expect a meaningful reduction in capacity as a reason for entry. 

As such, it is unclear what ‘problem’ Rex would be solving by entering, given the spectrum of demand in these major routes is already served by Qantas, Jetstar, Virgin Australia, and Tigerair.

And with such high existing frequency, convenience, and usability, together with lower fares by low-cost subsidiaries Jetstar and Tigerair, it is very unclear who Rex would be targeting.

But perhaps that’s the point.  It is strange that Rex is so openly discussing its plans nearly a year in advance, perhaps meaning it is just making noise or, at least, trying to hide its real plans. It’s possible it really expects underserved domestic routes, that need narrowbody capacity, rather than the thickest routes. 

It is odd, then, that it says anything at all.

Are Rex’s owners drawn to the ‘bright lights’ of jet aircraft, or is there a real, genuine reason for their interest? 

What is clear is that this is a big-stakes game, which could potentially undermine Rex’s entire operation.  It will need very deep pockets, and probably significantly more than the $200 million being discussed.

Australia’s Rex considering 737s320s for thick routes; clever move or risking everything (2)


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Comments

  1. Henry Kater says:

    As a shareholder and fan of REX for a long time it is clear to me (in fact the reason I am invested) that their future is jet aircraft. Airlines love small propeller aircraft because of the economics but customers hate them. Anyone who has flown in a small prop airliner would know what I am talking about – bumpy and very noisy. These aircraft are limiting their growth as an airline. Because an airline lives or dies on customer expectations, this fact necessitates a move in that direction. I feel that the virgin collapse (I personally think that Virgin is a goner never to return) is a coincidence and REX have had this ambition for decades. Virgins failure was a change in business model from low cost to something else like Qantas. REX’s moves have always been, until today, correct and well founded. Thanks for the interesting article.

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