Rex Airlines, the largest regional airline in Australia, entered voluntary administration on Tuesday 30 July 2024. Following the announcement, the airline group moved to immediately ground its Boeing 737 fleet and suspend flight operations on major domestic routes.
Rex Airlines’ decision to expand into the competitive world of major Australian domestic routes was a bold gamble that arguably heralded its downfall. With the airline now in dire financial straits, the question of how to upgrade an ageing fleet of regional turboprops now looms on the horizon.
Rex rolled the dice and took a gamble on grabbing a slice of the domestic pie from the two Aussie big boys. Like many before, they came away from the table burned. So, what comes next for the regional carrier?
The Australian Domestic Duopoly
The Australian domestic airline market is a duopoly, dominated by Qantas and Virgin Australia. These giants have deep pockets, extensive route networks, and loyal customer bases. For a smaller player like Rex, competing head-to-head was always going to be an uphill battle.
The airline industry is notoriously cyclical, influenced by factors such as fuel prices, economic conditions, and geopolitical events. In recent years, the sector has faced unprecedented challenges.
The COVID-19 pandemic brought air travel to a near standstill, forcing airlines to cut costs and reduce capacity. As the industry began to recover, rising fuel prices and supply chain disruptions added to the financial pressure. Rex, like many other airlines, struggled to navigate this turbulent environment.
To compete with Qantas and Virgin, Rex needed to invest heavily in aircraft, personnel, and infrastructure. It capitalized on the industry downturn to pick up bargain leases on 737-800 aircraft in 2021.
Despite getting the leases on a good deal, this rapid expansion put a significant strain on the airline’s finances. The question of whether Rex could generate sufficient revenue to cover these costs was always a gamble.
What is often overlooked is the fact that the Australian domestic market is relatively small compared to other countries. It is a big country with a relatively small population. The great Aussie domestic pie simply isn’t large enough to be shared by multiple diners. With Qantas and Virgin already holding dominant positions, there was limited room for growth for Rex.
In hindsight, it’s clear that Rex’s decision to expand into major domestic routes was a risky strategy. While the airline may have hoped to capture a share of the lucrative market, the reality was that it was competing against formidable opponents with significantly greater resources.
The Question of Ageing Aircraft
Rex Airlines’ reliance on the Saab 340 turboprop aircraft also presents something of a looming challenge to the airline’s long-term viability. As one of the world’s largest operators of this aircraft type, Rex has enjoyed economies of scale in maintenance and operations.
However, the Saab 340 is a ageing aircraft. With increasing age comes rising maintenance costs and reliability problems. With Rex’s fleet now showing an average airframe age of around 30 years, this is becoming a major consideration. And there is another dimension to be considered – customer expectations.
The operational considerations, combined with the rising expectations of passengers accustomed to newer, more comfortable aircraft operated by larger carriers, puts further pressure on Rex to modernize its remaining turboprop fleet.
Ultimately, the cost of upgrading or replacing the entire Saab 340 fleet represents a substantial ongoing financial commitment, a challenge exacerbated by the normal competitive pressures within the Australian aviation industry.
This dynamic is now also coloured by Rex’s recent financial crisis and move to voluntary liquidation. The question here is – will ageing fleet issues become the next operational, and financial, thorn in the regional carrier’s side?
The collapse of Rex is a stark reminder of the challenges facing smaller airlines in the highly competitive Australian aviation industry. To survive and thrive, airlines must carefully consider their market position, financial resources, and the overall economic climate.
While Rex’s recent failure is undoubtedly a setback for the national aviation industry, it is the vast Australian regional sector which is now potentially coming under a cloud.
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