CAPA LIVE – In Australia’s changed COVID environment, Rex has taken an opportunist position ‘flying between the cities instead of just to the cities’

12 November, 2020

Australia's aviation market has been deeply affected by the coronavirus pandemic, but there is some strong hope that there will be a resumption of air movements around the Australian domestic market before Christmas. As CAPA - Centre for Aviation managing director Derek Sadubin highlighted during the latest edition of CAPA Live a second wave In Melbourne has been brought under control after a 15 week lockdown and has "paved the way for a resumption of aviation activity, at least domestically".

The November edition of CAPA Live - a new monthly virtual summit, offering insights, information, data and live interviews with airline CEOs and industry executives across a next-gen virtual event platform - provided some optimism on the local market as select interstate services have resumed. Aviation Week senior air transport editor Adrian Schofield highlighted "another big development" will occur when New South Wales opens its border to Victoria from 23-Nov-2020.

This, Mr Schofield stated, "will spur the recovery of the Sydney-Melbourne route, which is one of the top domestic flows in the world". The opening "is a particularly major step for Qantas" said the analysts as it "plans to operate more than a hundred weekly return flights between these states from 23-Nov-2020, versus just 10 at the moment".

Lim Kim Hai, chairman of local Australian operator Regional Express (Rex) said the regional government rules have meant the impact of border closures is "quite unequal" across the Australian states, with some states like Western Australia, Queensland and South Australia experiencing "almost no impact". He noted Queensland is returning to nearly 90% of pre-COVID-19 passenger levels. However, southern states like NSW and Victoria are experiencing a "huge impact" from the border closures. Victoria and NSW constitute approximately 65% of Rex's total services, making the closures "quite painful," he said.

Many people outside of Australia may not of heard of Rex, but 18 years after its birth it has certainly come of age during the current crisis and seen the door open to expand its activities. Set up by former Ansett Australia employees who acquired Hazelton Airlines and Kendell Airlines and merged the two companies, it operates a small fleet of turboprops to provide essential regional connectivity.

But now it is expanding and soon to welcome jet equipment. The airline's chairman Lim Kim Hai explained the carrier is "very advanced" in adding Boeing 737NG aircraft. It has s/igned leases for six 737s and taken delivery of the first, for which it is conducting the necessary training up until 02-Dec-2020, when it will conduct its proving flight with CASA.

The carrier intends to launch initial operations with the first three 737NGs on Sydney-Melbourne service from Mar-2021, after which it will "wait a couple of months, and if we see that things are tracking well, we will start increasing the fleet gradually and constantly," said Mr Kim Hai with plans to have five aircraft by the end of Mar-2021, and will be "constantly adding aircraft in a rhythm of one every month, or one every six weeks" from Jul-2021 onwards.

Mr Kim Hai confirmed the aircraft will be configured with a business class section. The class will be priced "round about the Jetstar" region, in order to cater to the "price sensitive discretionary traveller", and will "probably be superior" to Virgin Australia but not "as ritzy" as Qantas, he explained. "All the basic elements will be there", he stated, adding it will be "Jetstar prices, with twice the value of Jetstar". The carrier also intends maintain the lounges it has in three Australian capital cities, and "may even improve on them".

Although Rex will look very different in 2021, the carrier is simply expanding its domestic offer rather than growing into a new airline type operation. "We are essentially having the same airline, but having different services with different aircraft types - so that's a little bit different from starting afresh," said Kim Hai. He noted the carrier has practically about 80% of the core infrastructure available, provided by the main regional services.

Rex's deputy chairman John Sharp said Rex would change to "flying between the cities instead of just to the cities" and will grow "to be a sizeable domestic operator with a fleet of 30, 40 or even more. That's our ambition".

Mr Sharp highlighted that "it's a bit of a buyer's market at the moment… We have very good, competitive rates. There's nobody out there competing for aircraft". He added: "I've never seen interest rates this low. This is the best time ever to start an airline operation in Australia… 12 months ago this was a mission impossible, post COVID-19 it's a possible mission".

There is also a fairly strong sentiment for travel and Mr Sharp highlighted passengers "are actually surprisingly resilient". He added that generally speaking people are "quite resilient and not frightened," but acknowledged there are those who "are going to take a long time to get them back on a plane".

This positivity for the return of domestic travel is not mirrored in the international market. Board of Airline Representatives of Australia executive director Barry Abrams revealed several carriers are calling each passenger a day before travel to make sure they will make it to the flight due to the flights and passenger caps. "It's enough to make you cry over load factor… we need to find some ways to get the volume moving", he said, but done in a way that has a "multi layer approach to managing COVID-19".

Aviation Week senior air transport editor Adrian Schofield acknowledged the next steps for international travel "are likely to be so-called travel bubbles with certain Asian or Pacific Island markets". He said national carrier Qantas will be "watching these potential developments with great interest", with the bubbles to be based "on which markets are making the best progress on controlling the pandemic rather than those with the highest demand".

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