Regional Express intends to take advantage of the disruption caused by COVID-19 to launch capital city flights by tightening the screws on everything from jet leasing agreements and airport fees to salaries in the name of achieving a low cost base.
Under the ambitious plan – cryptically dubbed ‘Project Mother’ – Rex will challenge Qantas and Virgin Australia for a profitable slice of Australia’s most lucrative routes beginning March 1, 2021.
Fares will be priced at "competitive rates with Jetstar and 5-10% cheaper than Qantas” according to a proposal which Rex shopped around to investors seeking to bankroll the plan. Asian private equity firm PAG is now set to plough $150 million into the duopoly-busting play.
Project Mother’s stated aim is to “launch a domestic-only LCC++ hybrid airline to serve major trunk connections across Australia,” occupying a “mid-tier” position below Qantas and Virgin Australia but above Jetstar.
Starting small, scaled for growth
The first stage would encompass the “five busiest routes ex-Sydney to ensure quick profitability,” says the document, which has been sighted by Executive Traveller. These are listed as Melbourne, Brisbane, Perth, Canberra and 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.”
The proposal said the first phase of Rex’s inter-city network would require 8-10 Boeing 737s and “1-2 aircraft could be added every month if demand justifies,” although Executive Traveller understands the initial launch fleet could be less than five jets and will focus on the core ‘golden triangle’ of Sydney, Melbourne and Brisbane.
Rex is said to have already reserved its Boeing 737-800 registrations with Australia’s Civil Aviation Safety Authority, ahead of the first aircraft sourced from former Virgin Australia lessors rolling into Rex’s hangars at Wagga Wagga next month.
All-economy or a premium cabin?
Although the presentation alludes to an economy-class layout for the Boeing 737s, it also notes that “a range of configurations based upon immediate aircraft availability could be considered.”
“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,” the presentation adds.
Regional Express deputy chairman John Sharp has previously said fares would include on-board meals, a baggage allowance and pre-assigned seating, while "lounge membership would be available for subscription.”
“It will be a hybrid model that Rex has so successfully pioneered over the last two decades for its regional operations.”
As previously reported, Rex intends to follow up the expansion of its inter-city network with the launch of a frequent flyer plan
Lowering the cost base
While airlines around the world are slashing their fleets and laying off staff in an effort to conserve cash and weather out the pandemic storm, Rex is perhaps alone in embracing an expansionary mindset, let alone entering a toughly-contested market.
Rex’s investor presentation argues that the current climate is a favourable one due to “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” states the presentation.
The impact of COVID-19, especially with Virgin Australia emerging from administration in a significantly smaller form, “has displaced a large number of skilled aviation workers that are seeking opportunities now,” the presentation says, adding that “pilots and engineers will also be queuing at the door.”
“Salary expectations will also be very constrained and a fresh EBA (enterprise bargaining agreement) will get rid of the decades of accumulated entitlements.”
Those EBAs would be “pegged at 10% lower than Jetstar”, the presentation says.
“Airport leases will also be hammered down as airports become desperate to generate enough revenue with the greatly reduced revenue.”
Also in Rex’s corner: lower oil prices following the pandemic outbreak make for a “significant reduction in single largest operating expense.”
Even in the face of what it describes as “moribund demand expected over the next 18 months,” Rex’s plan is that its new capital city arm “will have minimal overheads and will have capacity that matches the existing demand, and which is able to scale easily as demand returns.”