Regional airline Rex intends to take on Qantas and Virgin Australia for the hearts and wallets of frequent flyers with the launch of its own loyalty program.
The scheme will underpin the airline’s ambitious attempt to become the third national carrier by starting flights between Australia’s capital cities from March 2021 using a fleet of Boeing 737 jets formerly leased to Virgin Australia and based in Sydney.
Regional Express will initially target the profitable east coast ‘triangle’ of Sydney, Melbourne and Brisbane – representing a combined market of 17.6 million passengers per year, as of June 2019 – with Canberra, Adelaide and potentially Perth to follow.
The frequent flyer program is listed as a ‘strategic milestone’ in a presentation prepared by Rex for investors and sighted by Executive Traveller.
The airline this week confirmed it was in “advanced exclusive negotiations” with Asian private equity firm PAG to inject $150 million to fund its network expansion.
A billion-dollar platform
According to the document, Regional Express earmarks the eventual value of its frequent flyer program at between $1 billion and $1.6 billion “in 3-4 years” after capital city flights commence, at which point the airline predicts it will reach a total market capitalisation of $5 billion.
By comparison, Virgin Australia values its Velocity program at around $2 billion, based on the airline spending $700 million in late 2019 to buy back a 35% stake in Velocity held by Affinity Equity Partners.
However, the frequent flyer scheme wouldn’t debut until at least a year after the capital city flights take off, in what Rex calls ‘Phase Four’ of its expansion beginning in March 2022.
Approached by Executive Traveller, a spokesperson for Regional Express declined to comment on its proposed frequent flyer program.
Challenges and opportunities
Rex’s frequent flyer program will have to muscle its way into a loyalty landscape dominated by two well-established players.
The behemoth Qantas Frequent Flyer scheme has 13 million members, many of them considered to be rusted-on followers of the Flying Kangaroo.
Virgin Australia’s competing Velocity Frequent Flyer lists 10 million members on its books, although there’s considered to be a high degree of duplication between Qantas and Virgin due to travellers holding membership and status in both programs.
The typical perks of a frequent flyer program range from priority services such as check-in, boarding and luggage handling and a more generous luggage allowance to preferential seat selection and airport lounge access.
At the same time, building a new program from scratch will give Regional Express “a unique opportunity to be different to the cookie-cutter frequent flyer model and bring real competition to the domestic market,” says loyalty specialist Mark Ross-Smith, CEO of Loyalty Data Co.
“When Virgin Australia revamped its Velocity frequent flyer program in 2011, it shook up the market and drew spend away from Qantas.”
Room for three?
A crucial part of the Regional Express loyalty proposition will be the ability to earn frequent flyer points on the ground, Ross-Smith says, through a network of carefully-chosen retail partners – with banks at the forefront.
“Both Qantas and Velocity generate significant, high-margin revenue by selling frequent flyer points to banks and third parties,” he explains.
“The big banks are likely to welcome Rex into the loyalty program and eventually the credit card space, as having a third domestic player will place downward pressure on the price banks pay airlines for each point.”
But is there room for three home-grown frequent flyer programs?
"The big winner will be the Australian people, with more choice," Ross-Smith reflects. "Ultimately the market will decide."