Rex axes 737 flights, goes into administration
The regional airline’s desire to create a national intercity jet network proved to be its undoing...
By David Flynn, July 31 2024
Regional Express’ bold push to take on Qantas and Virgin Australia with its own 737 jet network ended overnight as the troubled airline moved into voluntary administration.
While country routes flown by Saab turboprop aircraft remain in operation, Rex has grounded its entire fleet of nine Boeing 737s, with Virgin Australia already swooping in to claim three of the leased jets.
Rex has grounded its 737 fleet, and with them the intercity jet network.
A statement issued by administrators Ernst & Young Australia confirms “flights between major airports have been cancelled, with the Rex Group’s domestic fleet of Boeing 737 aircraft all grounded.”
And those 737s won’t be coming back, with a spokesman for Ernst & Young confirming the Boeing 737s would be returned to leasing companies, adding that this arm of Rex was considered “unsalvageable.”
Rex stopped selling its Boeing 737 flights a day after after suspending trading on the ASX, with Ernst & Young saying travellers holding forward bookings on Rex 737 flights will be contacted directly by the airline.
Rex has pulled the plug on bookings for its 737 jet routes.
Rex ‘rescue flights’
Qantas, Jetstar and Virgin Australia will provide free flights to Rex customers holding a ticket for any “overlapping” routes, based on the availability of seats.
The overlapping routes for Qantas and Jetstar are:
- Sydney to Adelaide, Brisbane, Gold Coast and Melbourne
- Melbourne to Adelaide, Brisbane, Canberra, Hobart, Gold Coast and Perth
- Adelaide to Brisbane, Perth and Cairns
- Brisbane to Cairns
Rex passengers with an impacted booking can contact Jetstar on Live Chat or 13 15 38 and Qantas on 13 13 13 to make a booking, and have until 31 August 2024 to take up the offer.
The overlapping routes for Virgin Australia are:
- Sydney to Brisbane, Melbourne, Gold Coast and Adelaide
- Melbourne to Brisbane, Hobart, Perth, Canberra, Gold Coast and Adelaide
- Adelaide to Brisbane, Perth
- Brisbane to Cairns
Rex customers with plans to travel in the next 48 hours should call the Virgin Australia Guest Contact Centre on 13 67 89, while “those travelling outside 48 hours should visit the Virgin Australia website to complete a rebooking form”; travellers have until 13 August 2024 to take up this offer.
Virgin also confirmed plans to take over the lease of three Boeing 737s which “Rex will no longer operate,” to offset “expected delays in Virgin Australia's order deliveries for new 737 MAX-8s.”
What’s next for Rex?
After administrators Ernst & Young have combed through the books and squared away outstanding debts – which are said to be substantial, given claims Rex was losing almost one million dollars per week, due largely to the poorly-patronised 737 flights – Rex will at best be pared back to its origins as a regional airline.
Although Ernst & Young has secured loan funding to keep those regional services flying while they seek a buyer for Rex, almost half of its ageing Saab 340 fleet remains grounded owing to a shortage of pilots, engineers and parts.
Rex entered the intercity jet market in March 2021, beginning with Sydney-Melbourne 737 flights and quickly adding other east coast capitals.
Its debut on these fiercely competitive markets was welcomed not only its core of regional passengers but frequent flyers darting between the two cities, but proved to be the undoing of a regional airline whose slogan was ‘our heart is in the country’.
With visions of a national 737 jet network, did Rex's reach exceed its grasp?
Revealed: Project Mother
It’s instructive to look back at the foundation of Rex’s ambitious plans, first detailed in a May 2020 ‘pitch deck’ to be shared with investors from whom Rex sought $200m in equity funding to underwrite the expansion.
Cryptically dubbed ‘Project Mother’ (because “Mother is the opposite of Virgin”, according to insiders) and revealed for the first time by Executive Traveller, the scheme saw Rex set a target of “capturing up to 37% share of the domestic network and establishing itself as Australia’s second domestic carrier.”
That goal has to be seen through the lens of the time: Virgin Australia had collapsed barely four weeks before, and while Rex contemplated “finding a partner to buy VA out of administration”, it decided instead to take a ‘clean sheet’ approach to building its intercity 737 operation.
Rex also displayed incredibly optimism, given that May 2020 was the earlier days of the global pandemic which was to decimate the travel industry – and coupled with that optimism was opportunism to take advantage of the downturn.
A slide from Rex's 'Project Mother' proposal to establish an intercity 737 jet network.
Rex’s pitch deck explained there would be an “abundance of airport slots, infrastructure, aircraft, pilots, engineers coupled with ultra-cheap fuel.”
“Usually the biggest obstacle to a new start-up airline is the absence of choice infrastructure - slot times, check-in counters and gates – which will not be the case here.”
“Furthermore skilled staff like pilots and engineers will also be queuing at the door,” Rex reasoned, adding that “this crisis presents the opportunity to pick up aircraft leases at fire sale values as airlines worldwide lay up a significant part of their fleet’ while “airport leases will also be hammered down as airports become desperate” to generate revenue.
Rex considered buying Virgin Australia
At one stage, Rex even considered acquiring Virgin Australia to fast-track its 737 network.
Under the heading Collapse of Virgin Australia, the investor deck suggested Virgin was at the time “Unlikely to exit administration due to deep rooted issues.”
“Even if VA revives (sic), it will be too high cost and will not be able to cope with very low pax nos”, while former Virgin “assets & staff” would be available “at distressed levels.”
“Rex originally contemplated finding a partner to buy VA out of administration, hoping that the administrator would use his powers to clear the deck of the deep rooted chronic issues that have resulted in over $2B of losses in the last 10 years,” investors were told.
“However, the path the Deloitte administrator is taking seems to indicate that it has no interest in tackling the chronic problems and is rather targeting a quick sale with no redundancies.”
A slide from Rex's 'Project Mother' proposal to establish an intercity 737 jet network.
Rex added that on top of “the chronic issues, VA also has a myriad of other serious problems like bloated management, bad cost culture and inefficient operations.”
“An experienced buyer could eventually resolve the serious issues within 3 years but it will be an impossible task for any management to accomplish all three objectives at the same time – unwind the chronic issues, restructure to be more efficient and overcome the lack of business over the next 18 months – after forking out over $1B for the purchase which seems to be the targeted sale price.”
(Bain Capital later bought Virgin Australia for $3.5 billion including liabilities, and has recently aimed to relist the airline on the ASX, although speculation continues to swirl that Qatar Airways could take a stake in Virgin).
Optimism and opportunism
Rex cast hungry eyes over Virgin’s fleet of Boeing 737s, saying its own intercity network would “commence with a fleet of 10 737-800 aircraft, of which 78 are currently grounded by Virgin Australia while lessor disputes are resolved.”
“Aircraft lessors will be desperate to place out their aircraft in the light of the global glut of aircraft and the slump in the industry,” Rex added, saying it would “demand” favourable terms such as “6-month rent-free from 1 Aug 2020” followed by heavily-discounted leasing rates and the ability “to hold another 50 aircraft in Australia ready for their staged deployment at no charge over 18 months from 1 Oct 2020.”
Those jets, airport infrastructure and staff would be used to create what Rex called a “Mid-Tier / LCC++” airline neatly positioned between Qantas and Jetstar – arguably the same ‘hybrid’ position which a resurgent Virgin Australia was to adopt under the ownership of Bain Capital.
A slide from Rex's 'Project Mother' proposal to establish an intercity 737 jet network.
According to the Project Mother presentation,“initial routes” launched from March 2021 would be based in Sydney and encompass “the biggest routes in Australia ex Sydney: Melbourne, Brisbane, Perth, Canberra, Adelaide.”
“Should passenger numbers justify it, additional aircraft will be added to augment these services and to start another hub in Melbourne or to open up new routes to the other bigger cities – Darwin, Hobart, Cairns, Townsville, Launceston. 1-2 aircraft could be added every month if demand justifies.”
From October 2022 onwards, a “strategic milestones” would include “aggressively” expanding the rex 737 fleet at a rate of three aircraft per month “to reach a market share of 37%… in 3-4 years after commencement of operations. At 37% market share the airline will cease to expand.”
A slide from Rex's 'Project Mother' proposal to establish an intercity 737 jet network.
In addition to launching its Rex Flyer frequent flyer program, Rex would also explore “limited international operations” such as New Zealand, Bali and Jakarta.
Looking back from the vantage of mid-2024, 2020 was four years and a world away. Rex’s Boeing 737 fleet stalled at ten jets, although only nine were in service, when Rex collapsed.
Virgin Australia - Velocity Rewards
06 Aug 2017
Total posts 84
Very interesting article. All of Rex’s expansion plans seem perfectly reasonable and achievable … as long as Virgin isn’t in the picture. When VA returned (unexpectedly, from Rex’s perspective) it looks like Rex didn’t have the flexibility or humility to cut their losses and proceeded with a plan which had suddenly become unviable.
There are lots of lessons to be learned from this!
Qantas - Qantas Frequent Flyer
28 Oct 2011
Total posts 467
It sounds like REX's whole plan was based on the assumption that VA would collpase and it could cherry-pick the VA assets. But when that didn't go according to (VA's) plan ........
QF
11 Jul 2014
Total posts 1010
As was Virgin’s plan just before Ansett went under, Virgin went from having no gates access at high prices to as many gates as required at discount prices. REX took a bet and lost!!!
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 767
Nailed it !!
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 348
Very dismal Business Plan if it was largely based on VA filing liquidation, never to return. Considering there was interest for VA when they filed voluntary administration, there was a very high chance that "business plan" was going to fail without a backup.
QF
11 Jul 2014
Total posts 1010
Either a takeover or a default on loans either will cause a price increase to consumers, not even worth a phone call to the eyes looking over the books. We know the outcome already with the board in disarray.
Qantas - Qantas Frequent Flyer
09 Feb 2015
Total posts 388
Let’s hope they survive as regional Australia and competition will be the loser if they don’t.
QF
11 Jul 2014
Total posts 1010
Regional Milk Runs are the only way to go using the Ryan Air model, land at locations that pay the Airline to land.
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 767
If (big 'IF') Rex can survive this, they'd be smart to use the Boeing aircraft on rural flights abandoned by Bonza. Most rural cities don't need 2 airlines flying in/out twice each day, better they limit to 3/days/week (Friday, Monday and Wednesday), they'll have full loads (over 90% full), leave the inter-capital routes to Qantas and Virgin.
26 Sep 2023
Total posts 32
It's really not that simple. A good chunk Rex airports are limited to flights of <50 passengers as they don't have (nor do they want, in most cases) security screening. They're not going to run a 737 if they can only sell less than half of it.
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 767
I flew Bonza about 8 sectors. The plane was easily well over 80% full, on 3 occasions it was 100% full. And those airports had screening (not an issue).
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 767
Clif3012, which regional airports serviced by Rex do NOT have pre-flight security screening?
QF
11 Jul 2014
Total posts 1010
I flew Longreach to Brisbane on Qantas Link, no airport security in Longreach, once we arrived in Brisbane we were off loaded on the other side of the terminal and we had to go through security to get our Sydney flight from Brisbane. I thought that was very smart to cut cost.
26 Sep 2023
Total posts 32
Off the top of my head- Griffith (Qantas undersells its DH4), Moruya, Narrendera, Broken Hill, Parkes- plus all of their Qld government funded milk runs.
04 Nov 2020
Total posts 21
Some times, stick to what you are good at, and disregard the temptation to expand and “play with the big boys”!
Another perfect example was Cimber in Denmark, when they took over the collapsed charter operator Sterling.
A good solid family run business, operating turbo props, wanted to join the jet club, which was the beginning of the end unfortunately.
Qantas - Qantas Frequent Flyer
30 May 2013
Total posts 381
The writing has literally been on the wall - or at least the side of their 737's - "Out Heart is in the Country." Stick to your knitting, REX, and try and maintain a strong and vital regional network.
Qantas - Qantas Frequent Flyer
26 May 2014
Total posts 464
Perhaps VA will reverse the game plan and pick over the bones of REX, getting the regional network.
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 767
That would be smart. These regional cities don't need daily flights, most folk there can plan around a 3/flights/week service, or use Qantas if the flight it particularly urgent.
Qantas - Qantas Frequent Flyer
21 Jan 2014
Total posts 319
Qantas doesn’t fly to most of the regional places Rex does, they are mainly routes underwritten by various levels of govt to cover everyday items, general passengers and patients undertaking medical appointments in the city. Basically what has happened here is Rex have squandered all of the subsidy they receive to cover regional routes and wasted it on some ignorant plan to compete on the main city routes, just disgraceful.
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 348
IIRC Private Equity's Bain would consider REX a distraction. Can't see them getting involved unless if there's a liquidation sale with any "assets of interest", and REX doesn't have much unencumbered assets (except the remaining SAABs) that are of value to begin with.
All the 737s are lessed, so I'd suspect some would be flown out of the country and maybe a few (especially the ex-SQ 738s) may only need to towed over to the VA hangars.
Virgin Australia - Velocity Rewards
15 Nov 2021
Total posts 4
It would be nice to think that it was viable for VA to do this. They used to have a great partnership pre-Covid with Rex where you could have your baggage transferred on routes that didn't have Virgin flying it.
A huge problem Rex has is that even going back to the old crates only, there isn't a lot of love amongst pilots for the Saab340's with a third sitting on the ground atm due to it's pilots jumping to other airlines that fly jets after their contracts end with Rex. Virgin on the other hand doesn't have a direct feeder system for it's pilots.
Rex has painted itself into a corner with it's regional network, relying on clunkers that are are becoming harder and harder to maintain and keep going (despite being well built). By having a single model out of production, it doesn't allow for upgrading to larger models in the same family to meet increasing demand. They've spent millions on glass cockpits which shows an investment of 10 to 15 years, but no future planning once the aircraft really have come to end of life. Qantas on the other hand use the Dash-8 family, meaning it's cheaper to grow the fleet and capacity with less overheads. To this point Rex has been essentially covering it's day to day operations with no capacity to meet the future.
From an operational standpoint having only two main aircraft types in the VA fleet wouldn't pose a problem and the flight schools would create a better and cheaper flow of pilots to VA in the medium to long term. They could fill the gaps in their network where they currently have other third party operators flying prop. routes for them. It would also allow them to better augment the network as a whole with VA able to swap in the 737's onto more profitable routes that start losing profitability from trying to flying more flights to fill seat capacity. VA1.0 used to fly daily to Mildura with the 737, as it was cheaper keeping it in the air during the middle of the day instead of sitting airside at Melbourne or Sydney.
26 Sep 2023
Total posts 32
Yep- "What to do about the Saabs" is the constant elephant in the room for Rex. The only new <50 turboprop (which they need unless a whole lot of airports start installing screening) is the ATR42-600 which is a whole new type rating. Or they get Dash 8-400s and, as Qantas does on some routes, cap sales at 50. But it is still a new type rating.
The Saabs are very well maintained but are starting to run into reliability issues that come with age.
I do a lot of regional, and although they are a bit slower and noisier than the Dash 8s, the Rex service has been great but on-time reliability is a real throw of the dice for the Saab services.
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 767
Forget turboprop aircraft, they're a carriage of last resort as far as I'm concerned. Admittedly, my own aircraft purchasing experience has been limited to Gulfstream, and that was nearly 25 years ago, but I'm sure a bulk order of Embraer ERJ145s and a couple of E170s would get extremely generous vendor finance terms (including the supply of spare parts and mid-life engine refurbishments). Oh, and pilot flight training was included.
With these faster jet aircraft on regional routes, and most airports (including regionals) having F&B concessions to rival shopping centres, inflight F&B service on flights under 60 minutes could (and should) be limited to bottled water - with a choice between carbonated and still.
30 Jul 2015
Total posts 8
Well something is up. Try making a booking and all flights on all days are showing "unavailable". You can't book flights it would appear on their website. At least their jet flights.
08 Feb 2018
Total posts 166
Rex is the best airline this country has, despite the propaganda in this article. Hope they continue to grow
20 Nov 2015
Total posts 478
"Propaganda"? LOL This article just presents Rex's own case for starting 737 flights. If you want to look at why it failed, start with the assumptions on those slides. It looks to me like Rex based its entire business case on Virgin disappearing. Once Virgin was rescued by Bain, Rex was always going to batting against the odds.
Jetstar Airways - Qantas Frequent Flyer
04 May 2018
Total posts 20
Agree that REX is the best domestic airline in Australia, although the propaganda part is off the mark. I acknowledge that REX has made mistakes and is not perfect, but I was hoping that more of those who took part in criticising the national carrier would put their money where their mouth is and actually support REX so that competition in the Australian domestic aviation sector would actually work for the benefit of all.
Qantas - Qantas Frequent Flyer
05 Oct 2016
Total posts 115
My prediction from the news in 2020/21 coming true... The only thing I'm surprised about is how long it took.
20 Nov 2015
Total posts 478
Rex needed to rely on more than super-low sale fares and John Sharp's bleating about Qantas to raise its profile. Rex needed advertising and marketing, a really good ad campaign, to make itself known to the travelling public and spell out what Rex stood for and why people should fly with Rex instead of anybody else.
26 Sep 2023
Total posts 32
Interestingly, despite their slogan, Rex is almost invisible from a promotional aspect in country NSW- I see far more advertising for Rex in Sydney than anywhere outside it. People fly them because they are usually either a) cheaper than Qantaslink or b) the only option. Compare with, example, Bendigo Bank in terms of embedding within a community. The rumour has always been that any kind of promotional or, god forbid, local sponsorship has to be signed off in Singapore and they don't see any value in it. Rex has an opportunity to real associate itself with the hearts and minds of regional communities- who will then fight for it- but doesn't engage in any meaningful way.
06 Feb 2014
Total posts 30
They won't invest in promotion or community support when, by and large, extracting subsidy from Government has always seen by Rex (rightly or wrongly) as the most effective way of making money out of regional routes.
It needs a comprehensive rethink of how it does business to do, as you say, something akin to the brilliant approach of Bendigo Bank.
Qantas - Qantas Frequent Flyer
18 Jul 2017
Total posts 32
A sad day for Regional areas who may lose those services. Their service out of Canberra was excellent. The board at Q will be pleased now they have forced a competitor out of the market. Good for V to assist some of those with flights booked. Couldn't see Q assisting in anyway. Reinforces my now loyalty to V with Q LTG good for the WPB.
Qantas - Qantas Frequent Flyer
30 May 2013
Total posts 381
Qantas hasn't forced Rex out of the market. Rex CHOSE to go after the big boys on capital city routes and it backfired on them.
09 Aug 2015
Total posts 108
Qantas didn't "force" Rex out of the market any more than Virgin did. Both Qantas and Virgin competed against Rex on these routes. Rex clearly made a poor business decision, mis-judged the market, thought VA would not recover and didn't change their plans when VA did come back. As to "Good for V to assist some of those with flights booked. Couldn't see Q assisting in anyway" well Qantas has come to assist with exactly the same deal as Virgin. Honestly so many people are obsessed with hating on Qantas that they think anything and everything is Qantas's fault! Big bad evil Qantas!
Qantas - Qantas Frequent Flyer
02 Aug 2017
Total posts 15
A great shame. I flew about half a dozen or so Rex 737 services. They were always on time and great service. Same cannot be said about its two main rivals...
Qantas - Qantas Frequent Flyer
26 Oct 2017
Total posts 6
Another issue with the demise of Rex is for Etihad and Delta, again reducing competition, by not having interline partners in Australia
20 Nov 2015
Total posts 478
"Reducing competition"? Seriously, what fraction of a percentage of Etihad passengers would be jumping off EY flights into Sydney or Melbourne and connecting onto a regional Rex Saab flight to some country town? Same goes for Delta. It's barely an 'issue'.
Virgin Australia - Velocity Rewards
09 Aug 2016
Total posts 37
Honestly, how many airlines need to tank in this country before a government (of either political stripe) does something to actually help foster competition in the aviation sector?
Jetstar Airways - Qantas Frequent Flyer
04 May 2018
Total posts 20
With Federal Ministers and Shadow Ministers, State Premiers, and possibly a whole host of State Ministers and Shadow Ministers, (nearly) all members of the Chairmans Lounge and Virgins equivalent, the number would have so many zero's in it that it would need the latest generation super computer to keep track of them all.
27 Mar 2019
Total posts 54
How though? Low, sparse population, other than major cities, which are well serviced. Regional areas won't be profitable for a lot of carriers or just don't have the infrastructure/demand, some that do are already subsidised (Rex's own Qld milk runs for e.g.).
09 Aug 2015
Total posts 108
I caught a few Rex 737 flights, really liked them, good value and service, decent product. Sad to see them go, good they had a go at shaking things up. but in the end just a bad business decision.
20 Dec 2013
Total posts 5
Lack of a proper loyalty program was why I chose not to fly Rex.
Interested in who, like me 'thought' about flying Rex, but chose to stick with QF/VA because of status credits, lounges and points that I could use with partner airlines.
11 Sep 2015
Total posts 225
Not launching with a frequent flyer program was a BIG mistake for Rex. Speaking for myself as a leisure traveller as well as self-employed and also having clients, I could have done a LOT of flying with Rex on the SYD-MEL-BNE 'triangle' but Virgin always came out ahead in the decision-making because its fares were generally close or the same as Rex, I got the benefit of using the Virgin lounges which are way better than anything Rex has, I earned status credits to keep that lounge access, I earned points, I got free WiFi as a Velocity Platinum. Rex simply wasn't 'in the game' when it just sold on price alone and being the 'friendly country airline' serving scones etc!
27 Oct 2017
Total posts 3
I had bookings for Rex Adelaide to Sydney return leaving on 1st August. As soon as I saw Rex stopped trading on the ASX I thought I had better buy tickets with Jetstar using one of their refundable bundles. Just in case. Anyway , on Tuesday night I got a text telling me that if I want to , I can contact Virgin (by phone) and get new tickets issued for the Rex flights. It took a few tries as your call is sent to an overseas call centre. Each time the call would drop out at a crucial moment. It sort of seemed that I was ticketed, but then nothing happened and the call dropped out. So near and so far! Wednesday morning I tried again as the call centre closes from 11 pm until 5.30 am. First thing in the morning the call queue was at least 2 hours. I tried again at lunch time. This worked! I guess by now they had got decent connections for such a load of people calling. Anyway, the agent was able to find my unticketed new Virgin replacement booking and do it properly. That took about half an hour. The Virgin tickets are for the days I wanted and the times I wanted. Incidentally they show a price of $1500. I don't know who is paying for that. (Government? Rex?) I got my original Rex booking when it was on sale at $119 each way. As for Qantas and Jetstar helping out with tickets, there was nothing about that on the emails and text messages I received from Rex. Once it was all ticketed, I cancelled the Jetstar booking I had made a couple days before , for a complete refund as vouchers.
Hi Guest, join in the discussion on Rex axes 737 flights, goes into administration