Rex set to challenge Qantas, Virgin for capital city flights

The regional airline will launch flights between Sydney, Melbourne and Brisbane with a handful of Boeing 737s.

By David Flynn , August 28 2020
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.
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?
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

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.

05 Mar 2015

Total posts 108

Bring it on! As long as we don't end up in a 'race to the bottom' price war and an insane capacity war, competition and differentiation of product is great for the market. I think Rex will keep the VA business class cabin and make it a 'premium' cabin with comfort and lounge access the main factor. You really don't need meals on these short flights unless you're a super busy business traveller flying at peak times and those people are more than likely to be on Qantas or even Virgin.

28 Aug 2020

Total posts 2

I would have thought the E190 would be a better choice for Rex than the B737. With the E190, they could have the option of doing the trunk Golden Triangle routes as well as supplementing their regional network.

The E190 would probably have been a very good fit for both regional and city-to-city routes, and using the same crew. But I'm sure Rex has done its homework and has its reasons, maybe the ex-Virgin B737s are available at very attractive rates, the same as ex-Virgin crew who are already trained up on them.

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 447

Big move to try to break the curse of the third airline, but maybe it can work when all players are in survival mode.  I am sure if they succeed they will look to expand to the other cities.  A night service to Perth and back can be added without extra aircraft and they have a small network running out of Perth.

20 Oct 2015

Total posts 71

The last night service to Perth and back I'd want to take would be on a Boeing 737, if you're talking about overnights and red-eyes that is.

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 447

Gold4life, I live in Perth and will only take the red eye in J and only if it is to connect to NZ or to the US, but plenty of of people are on it every night.  It will only be Qantas offering the red eye on a wide body.

20 Oct 2015

Total posts 71

So how's this going to shake out on the triangle then? Qantas as the most expensive, with a full-service approach and the long time favourite of rusted-on business travellers and corporates. Virgin coming in at a much lower price and being more about 'value' and aiming for small businesses and the self-employed as well as leisure travellers who want and can justify that front-cabin experience. Rex being, well, like a regional version of Virgin because it'll have the same planes and the same low cost base and the same hybrid value aim but maybe. even cheaper. And Jetstar getting pressured from Virgin and Rex to go further down market in prices. Sounds like a good time to be a traveller who's not rusted onto or locked in Qantas but doesn't fancy the Jetstar LCC approach.

Qantas

19 Apr 2012

Total posts 968

Sobie’s suggestion that regional connections of ‘some connecting traffic’ is a bit of an understatement. Rex will depend on it for some time.

Qantas - Qantas Frequent Flyer

31 Jan 2016

Total posts 79

All the best to Rex in their new venture.  At least there are no 'props' to fall of engines on 737's...

08 Jul 2020

Total posts 6

Even if REX had 2 regional flights that connected and you had half of each flight continuing onto the 737, you would be looking at 1/3 of the seats being taken. 

In the short term until they up there fleet numbers, it makes sense to focus on the point to point. Once they have more flights available, then they can look at streamlining more one or two of their services. I am sure they have done their research and know which of their routes attract the most passengers who travel on to another major city.

Qantas

19 Apr 2012

Total posts 968

Ausuk I think they would plan on more than 2. Say Wagga, orange, Dubbo, Moree, etc. five or six coming in at 7-8.00am connecting to Melbourne/Brisbane fights May half fill them.

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1227

Good luck to Rex.

Joe
Joe

03 May 2013

Total posts 518

This is all so ill-timed its not funny. 

Qantas - Qantas Frequent Flyer

20 Aug 2014

Total posts 113

Not ill timed. Great time to enter as long as we are in recovery mode by then. There's been a huge market disruption, leases on planes are cheap, and there's plenty of crew around looking for work. I also disagree that Virgin 2.0 price point will be "much lower" than Qantas. I'd say $5 - $10 per sector only. 

Joe
Joe

03 May 2013

Total posts 518

All fine but, there are no bums on seats to be had and the largest strongest airline is laying of staff and cutting like a chainsaw. How do these wannabe airlines expect to do it?

29 Jan 2020

Total posts 20

In terms of taking advantage of the current downturn, Alliance were smarter, buying a nice fleet of E Jets at bargain prices!

No ongoing lease costs, cheap as they may well be currently.

11 Jul 2020

Total posts 35

I think Rex is taking on more they can chew and will eventually go the way of impulse airlines with this capital cities venture they are planning on flying into. Qantas has deep pockets and so does Bain if they are successful with the Virgin Australia sale and both will market aggressively against Rex on these Routes. 

Virgin Australia - Velocity Rewards

24 Aug 2011

Total posts 763

Rex didn't do this on a whim, they're a very canny finanicial operator. Those ex-VA 737s would have been an outstanding lease deal, probably with some sweetheart rates for the first 12 months or so. It would literally be a buyers' market. You can hire staff at lower costs, keep them casual or contract. And if there's whiff of a union poking about, just shut it down. If AJ could do it years ago - Rex could do it without blinking. Singaporean mindset, much different.

11 Jul 2020

Total posts 35

Rex are predominantly a regional airline carrier. Like I said , Qantas and Bain have deep pockets and will undercut Rex to retain these routes for however long it takes. Rex should just stick to what they have done best IMO.

11 Jul 2020

Total posts 35

They both have access to money Qantas and Bain. Time will tell. I'm not really concerned as I dont live in these cities or travel on these routes. I have my favourite airline carrier and prefer to patronize them. 

All People are free to fly with whatever airlines they choose too, I dont care at all, their choice, nothing to do with me.

 I march to the beat of my own and take offence when other people tell me what to do.

If a new player started flying on Rex's regional routes, one would expect Rex to defend their routes and profit vigorously, its sound sound business sense. 

I personally think there will be a price war which will benefit the travellers short term and all will face losses,  Rex will be the casualty when the dust settles on the key city routes. Short term pain for long term gain by the winner.

So survival of the one with the deepest pockets who are prepared to protect their money making routes will see a clear winner in the future.

Time will tell. I'm done with this topic.

09 Oct 2018

Total posts 11

Yes. It's about time Rex started upgrading their fleet. 

Here in Tassie, we're still served by their antiquated SAAB 340's. You know, the ones where the props fall off, and the on the others the main drive shaft shears? I, personally had to tell one of Rex's pilots about a badly torn de-icing boot on the leading edge of his port wing. These planes are just too old to keep in service, I think. The maintenance costs must be astronomical. Plus, there's no price incentive to travel on their tired, war-weary SAAB's; for some reason REX think it's ok to charge the same as Qantas do for much cleaner, brighter, modern, equipment. 

Maybe I'll go back to Rex, when their new fleet comes to Tassie. But I won't hold my breath waiting for that to happen. 


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