Rex set to challenge Qantas, Virgin for capital city flights

Regional airline Rex is pressing ahead with plans to launch Boeing 737 flights between Sydney, Melbourne and Brisbane in direct competition with Qantas, Virgin Australia and Jetstar on the country’s most popular domestic routes.

Sources inside Rex tell Executive Traveller that the airline intends to begin a recruitment drive in September to crew the new jets.

As previously reported, the aircraft themselves will come from Virgin Australia’s leased fleet and are being sourced through a former Virgin lessor which now finds itself on the long list of creditors owned almost $7 billion by the collapsed airline.

Many of Virgin’s Boeing 737 pilots, flight attendants and engineers who face redundancy in the downsized airline are believed to be on Rex’s call sheet, including those previously attached to Virgin’s now-closed New Zealand base.

Rex is set to pick up some of Virgin's people as well as its planes.

Virgin's pre-pandemic Boeing 737 fleet numbered 85 (including the jets assigned to its now-axed budget arm Tigerair), but it's understood that only around 40 of those are owned by the airline, leaving as many again of the workhorse single-aisle jets under lease – and they won't all be needed for the downsized Virgin Australia 2.0.

"How many we are taking through and how many we will need in the future is still a work in progress," Virgin Australia CEO Paul Scurrah has said.

"At the end of this pandemic, once we get back to pre-Covid FY19 levels, we see a market that could sustain us having 60-80 Boeing 737s in our fleet," Scurrah added, implying that the short-term 'reboot' fleet will be substantially lower.

Read more: Virgin Australia 2.0 to cut fleet, routes and some lounges

Brendan Sobie, analyst at Sobie Aviation, says the timelines show Rex is well on track to hit its March 1, 2021 launch date.

“While March 2021 seems like a long time from now it takes about six months to set up a new operation like this, including hiring initial pilots, engineers and securing all the required approvals,” he tells Executive Traveller, adding that “there’s certainly no shortage of available 737s, 737 pilots and 737 engineers in Australia.”

'Proving flights' in December

Suitably staffed up and with the keys to its first Boeing 737s in hand, Rex will run a series of ‘proving flights’ will be run across December 2020, ahead of tickets for the Sydney-Melbourne-Brisbane flights going on sale in January 2021, ahead of the flights taking off from March 1. 

That sale will be eagerly watched by not only travellers but Qantas and Virgin Australia, both for low lead-in prices and the general fare structure.

The airline has previously promised its capital city flights "will be priced at affordable levels but will also include baggage allowance, meals on board and pre-assigned seating.”

It’s not yet known if Rex will retain Virgin’s eight-seat business class cabin on the Boeing 737s and sell this as business class or a rebadged ‘premium’ cabin.

Will Rex keep Virgin's Boeing 737 business class cabin – and if so, how will it be positioned and priced?

In announcing the airline’s plans earlier this year, Rex deputy chairman John Sharp indicated its capital city flights would adopt a 'hybrid' model blending the Qantas and Jetstar offerings but with a lower cost base, saying "this will be halfway between a full-service airline and a low-cost airline.”

Sobie suggests Rex’ Boeing 737 experience “could look fairly similar to Virgin” and without a  significant retrofit of the jets. 

“There’s an opportunity to target corporates, particularly SMEs, and upmarket leisure traffic with a value-focused premium product.”

“Leisure passengers and business passengers will benefit from the competition, but do not expect Rex to come up with a fancy premium product that has all the bells and whistles.”

"This will be a lean operation with very low costs, enabling attractive value-based fares in both the economy cabin and whatever premium seat they decide to offer.”

Three Boeing 737s at launch

Executive Traveller understands that Rex intends to start small, with as few as three Boeing 737s plying the 90-minute Sydney-Melbourne and Sydney-Brisbane corridors. 

“There could be some connecting traffic from regional routes, but I expect Rex will mainly be targeting point-to-point passengers between the major cities, leveraging a unit that will be below Virgin Australia 2.0, Qantas and potentially even Jetstar," Sobie predicts.

"Of course competitors will respond aggressively and domestic Australia could become a vicious battleground, impacting the return to profitability even after the pandemic ends."

Rex's plans indicate its Boeing 737 fleet would steadily expand to up to ten of the workhorse jets "within 12 months”, with growth geared to match demand.

Sobie says he “wouldn't be surprised if they reach ten aircraft earlier than 12 months. Rex should be able to secure significant flexibility from leasing companies, enabling the 737 operation to expand faster or slower once launched depending on market conditions.”

Executive Traveller approached Rex for comment but had not received a reply by the time of publication.

Room for Rex, or is four airlines too many?

Rex’ bold push into the east coast capital city market will effectively make it Australia’s ‘fourth airline’, although it will be fighting for a slice of a now-smaller pie against heavyweight incumbent Qantas, a leaner ‘value-oriented’ Virgin Australia and Jetstar’s laser focus on having the cheapest seats in the market. 

Rex’ Sharp has previously said that with the airline's “expansive regional network of 60 destinations, existing infrastructure in all these capital city airports, superior efficiencies and unbeatable reliability, it will simply be an incremental extension for Rex to embark on domestic operations especially since one out of every ten flights in Australia was already a Rex flight during the pre-COVID days.”

“While there will inevitably be questions about how many airlines domestic trunk routes can support, 2021 could be a fantastic time to launch a new operation," analyst Sobie suggests. “Anyone starting from a completely clean sheet of paper will enjoy some inherent advantages."

David Flynn

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.