Rex to launch frequent flyer program

Regional Express will challenge Qantas and Virgin in a loyalty dogfight after it launches capital city flights.

By David Flynn, September 24 2020
Rex to launch frequent flyer program

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."

David

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.

17 Jun 2020

Total posts 122

Wish them good luck. They already have lounges in some cities which should help in launching such a program. Hope they can partner with some airlines that don't have a relationship with QF or VA also to make the program more meaningful once the communist travel ban is lifted. 

Virgin Australia - Platinum

26 Jun 2011

Total posts 79

Great news for many regional flyers.  IIRC some years ago they had a FF type program that offered the 11th flight free (?) after 10 flights per year.  Not sure when or why this disappeared.

XWu
XWu

09 May 2020

Total posts 192

I think they stop it after 2-3 years of that but I though it was the free 10th flight. 

I also think I still had my REx card somewhere (it looked great for its time in 2006 or 7) 

XWu
XWu

09 May 2020

Total posts 192

Just checked my email

The last statement I had from REx Flyer was in 2012

Virgin Australia - Platinum

26 Jun 2011

Total posts 79

Still got the REX card.  Don't remember ever getting a statement from them.

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 319

Unless they have a scheme that truely differentiates itself from QFF & VAV, it's going to be an all uphill steep climb.

in this new world, think frequent flyer programs are overvalued.

For next few years there will be deals on everything, esp travel related & airlines will be dumping seats in low season.

So the secret to saving money is to fly off peak.

Maybe we'll start flying on triangle middle of the day & instead of doing day trip, overnight, which might work out much cheaper than the typical $1000 same day return flights BNE/SYD/BNE.

If can get BNE/SYD/BNE with night in SYD under the above airfare, might even take the wife.

Think we're going to try & plan our interstate travel longer ahead than previous to take advantage of specials & will use frequent flyer points as soon as we can.

Qantas - Qantas Frequent Flyer

04 Mar 2014

Total posts 155

I would have thought their website would be a better priority

XWu
XWu

09 May 2020

Total posts 192

@ jrfsp

Agreed 

I hadn’t need to fly with them for 4 years but I am surprised to find last month that the website still looks exactly like 2005 or 2006 when I first used them. Most airlines are desperate to get the customers looking at prices ready to book, but the way REx website goes it needs 2 clicks to get the actual flight selection and pricing. Even in 2006, the website design wouldn’t have been considered “sophisticated” much less corporate look.

Maybe some casual clients are flexible with their flight plans based on the lowest cost of flight within the week but I am sure the bulk of the travellers choose flights because of actual need more than costs.

have you noticed the new virgin website lately ?

It's really clunky with many clicks just to find the flight you want.

Maybe it's transitional only ?

XWu
XWu

09 May 2020

Total posts 192

@ regular flyer 

Might be because of the lack of flights every day for most routes hence getting that "available" listing by the days

Whereas any Year 8 work experience kid can improve REx's 13-year-old website customer interaction and commerce setup 

26 May 2016

Total posts 16

I wonder if REX have plans to revitalise their fleet of turboprops 

XWu
XWu

09 May 2020

Total posts 192

I hazard a guess here that their Saab fleet would have been cheap to buy but getting to be expensive to maintain, most would be mid twenties. 

But although they did announce phasing out the current Saab 340 (in 2008 according to Wiki) there is no real sign what is their next move. I suspect they are worried about the cost of retooling their maintenance capacity

think Rex have 340 spares galore, especially now with reduced schedule. Am sure they are looking around for deals.

Alliance must have got the deal from hell on their E90s. Surely there's some airline somewhere on a brink with suitable replacement aircraft for Saab 340s. If there's not today, might be "tomorrow".

Virgin Australia - Platinum

26 Jun 2011

Total posts 79

DIdn't REX recently sign a MOU with ATR to look at replacing/modernising it's regional fleet?

XWu
XWu

09 May 2020

Total posts 192

Not familiar with airline industry spare parts rule but considering REx has the biggest fleet of Saab 340 airplanes made by a company that no longer produces them for 22 years and had undergone several corporate changes, I do really wonder about the parts. When I was using them quite regularly for a couple of years (only because of their very early morning flights to regional NSW) something like 1 in 6 flights had delays due to “servicing issues” which I took to mean repairs and that was at least 10 years ago.

Not that I necessarily have problems with age of the planes per se, I see them like the Saab equivalents of Toyotas as long as you service them right, but I was worried about the Beechcraft 1900c they were using (inherited via Pel Air acquisition) which definitely have seen better days even 10 years ago. 

I see that the REx ATR happened in June 2020 which is probably about the time they were also going for the golden triangle capital market. Which is interesting since REx had been pulling out of several regional routes last few years complaining the airport arrangements with several regional councils made some routes not worthwhile, so a move to a larger turboprop plane meant more of their current regional destinations may also under review. 

Now that they are thinking of moving to ATR, I wonder how it’s going to be with their AAPA program since the ATR are definitely a different class of turboprop and there is going to be a transient supply of ex VA ATR frames and pilots (although it’s likely the latter were at a significantly different payscale at VA). And considering that the current Saab capacity makes REx flight exempt from security screen in regional airports (even under the new rules announced last year), a move to ATR definitely means REx ATR flights will need security screen which cost at least $27 per pax, something regional councils are unwilling to bear historically

xwu

don't think an ATR42 would require security.

XWu
XWu

09 May 2020

Total posts 192

@ regular flyer 

Looking up the specs ATR 42-600 is either 50 seats or 30 seats+cargo container ploked in the front of the air cabin (Yes I know! :0) whereas there is some speculation that ATR 42-600S for STOL if used by QF for Lord Howe route will be 38 seats in exchange for added equipment.

So if REx uses ATR 42, they literally have to rip out at least 11 seats to come under the 40 seat threshold for security checks in regional airport

xwu

Rex can put any number of seats they want in an atr up to 50. 40 if they want.

The old rule for security was 20t & over.

Has the new rule come in yet ? & is it 40 or 50 seats ?

Virgin Australia - Platinum

26 Jun 2011

Total posts 79

QF fly PLO-ADL with Dash 8-300's which seat 50 pax.  I believe PLO no longer runs security.

XWu
XWu

09 May 2020

Total posts 192

@ mickeyg

That’s interesting to know considering that the local council and MP website had only just put out info in feb and may this year saying the new requirement is not due to kick in until the “end of this year” expecting federal grant to cover equipment and installation costs and the recent regional air services package to cover operating costs for 12 months so I wasn’t sure what security scanning measures were previously or currently in place for QF flights 

XWu
XWu

09 May 2020

Total posts 192

@ regular flyer

Originally it was 30 tonnes or more, then 20 tonnes or more (hence all QF dash affected) since 2012 I think and now 40 seats or more.

Being the weekend armchair warrior that I am, I checked and yesterday this rule of Dutton’s newly enhanced security empire was consolidated in Dec 2019, although I suspected there is some grace period somewhere (it’s not as if 64 airports affected by this new rule can find the money or the equipment to install this overnight)

So REx’s current Saab 340 seating configuration is still exempted with a good margin from both the wt and seats rule but not the usual ATR-42 600 seating configuration (unless they rip off some seats) while the ATR42-600 MTOW is only just under the 20 tonnes limit by 10%

xwu

think it's quite simple really

1) rex tells govt it must replace old Saab 340s & ATR 42 are the only real aircraft that can do it

2) rex says to govt atr 42s will only work for them, if they can have 50 seats or close to it

3) govt gives them an exemption & also only require 1 flight attendant

WIN-WIN (wantus will complain, but who cares about wantus - regional needs some flights)

For security, it's not the cost of the equipment, it's the labour cost.

Say small town X only has 1 return flight a day, am out & pm back.

Airport has to hire 6 people for 1 flights for min 4 hours @ $80/hour. That's $1920 in the am & $1920 in the pm.

So, if Sab 340 (34 seats) flight both ways 100% full, that's $113/seat just in security labour costs alone. If 50% load factor, that's $226/person.

XWu
XWu

09 May 2020

Total posts 192

@ regular flyer

Thanks I am quite aware the main issue for both airports and airlines about the rules is the ongoing operating costs rather than equipment and installation costs which can be offset by federal grants.

It is interesting that REx had maintained its stance about not starting new routes into destinations where they will get charged a flat security levy where its has been clear over the last 15 years the threshold changes to regional airport security did not affect their Saab 340 pax; SYD-DBO routes must have been profitable for REx enough to keep going but if the airport levy is removed it will probably make REx pricing significantly more competitive compared to QF.

Also of note both the costs of running the airport security, $17 per pax as quoted in recent documents involving the REx-DBO dispute, or between $45-55 per pax quoted by other regional councils, is way under $100 pp.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 252

Unless if REX's Singaporean owner are able to sort a deal with their rivals' owner (Temasek), Star Alliance is probably least likely for REX.  

Saying that SQ are willing to interline or codeshare with anyone that's not QF in Australia without the financial burden of a 'stake' (e.g SQ's had their 3rd failure through the VA stake), so never say never with 'REX' joining *A.

Saying that, *A has been looking for a Australian member without the 'baggage' that VA had (e.g enemies with UA and NZ in addition to their financial issues) before they filed administration.  

Apart from Temasek/SQ being a factor, REX has no other 'enemies' in *A

31 Mar 2014

Total posts 339

Wow calm down with the alliance talk. I highly doubt that is even on the mind of any alliance or Rex right now. Let them actually launch and survive first. 

grannular

Rex will survive. They already have customers.

The only question is whether they take market share off Qantas &/or Virgin or Jetstar. They can probably compete with jetstar if they had to, as costs are lower.

Doubt if ex Virgin pilots/crew will be paid anything like they were at old virgin.

Don't think they have to be in any alliance, just work in with other airlines.

mickeyg

probably before corona, but now they could probably pick up good used atrs for cents in the dollar, so why buy or lease new ?

28 Sep 2020

Total posts 2

Rex has the largest supply of spare parts of any Saab 340 operator. If any of the rotatable parts need replacement, there will be one from the parts inventory or OEM. The parts can also be sourced or made by third parties. The airframes are only at half its cycles and flight hours and have another 20-30 years of life. The fatigue life can be further extended if Rex and Saab decide to run another fatigue programme. There is absolutely no other aircraft in the current market that can replace the Saab. Either too small or too large which burns too much fuel. As long as demand / regional population doesn't grow dramatically in the near future, there is no need to up-gauge or get a newish aircraft if there was one.  When the fatigue life of the airframe runs out, the airframe can be rebuilt which could be much cheaper than getting a new airframe / aircraft, just like the turboprop DC3s in Canada. At the moment, the market for a Saab 340 size aircraft is very small. Maybe in the not too distant future, when countries from lower income levels grow to a sufficient size and make frequent regional aviation viable in parts of Africa and Asia, perhaps manufacturers will see then see potential growth and begin to invest in this segment again. There are a few routes in the Rex network that will benefit from a slightly larger aircraft and ATR42s will be sufficient in current circumstances. These routes have high pax numbers which makes meeting operational requirements and frequency challenging. Smaller routes would only adopt the ATR42 if the aircraft can be bought / leased and fuel hedged for dirt cheap. Otherwise it would not make business sense.

guniang

EXACTLY !!!

I can see Rex having a duel fleet of Saab 340s & maybe some ATRs in future. As Saab 340s retired, more ATRs leased/bought.

Wonder if they might pick up a few ATRs right now(in next few years), with them being so cheap ?

Presume crews can fly both ATR42s & ATR72s.

01 Oct 2020

Total posts 1

I think that REX has an excellent opportunity if they can create a FF program that can also onboard SMEs rather than just big brands. I would have loved to offer FF points to customers in my previous business (Retail IT) if they bought a computer or something like that. 


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