Competition in Australia’s aviation sector appears to be under threat with the (distant) number three player Regional Express Airlines (Rex) halting trading on the Australian Securities Exchange amid boardroom turmoil, less than a month after airline start-up Bonza was officially sent into liquidation.
Rex made a $3.2 million loss in the first half of the 2023-24 financial year amid its claims of serial price undercutting from Qantas and Virgin that is still receiving a free pass from the Australian Competition and Consumer Commission. News reports have suggested that the company is set to appoint Ernst & Young as administrators this week.
A vicious bidding war between Qantas and Rex erupted in 2021 after the lower-cost carrier moved into the lucrative Sydney-Melbourne market. Rex accused Qantas of “capacity dumping”, slot hoarding and moving in on Rex’s regional routes to squeeze out competition during 2020 and 2021.
Rex has a domestic aviation market share of just 4.8% compared with Qantas’ 60.8% and Virgin’s 33.2%, according to the latest report on the sector by the competition regulator.
Rex is also in the midst of a bitter boardroom stoush. Its biggest shareholder and former long-time executive chairman Singaporean Lim Kim Hai is banding together with other shareholders in an attempt to remove current chairman John Sharp and four directors from the board.
The ructions began in June when chief operating officer Neville Howell was suddenly appointed as chief executive for two years, replacing Lim after Sharp was elevated from deputy chairman to chairman. Lim owns 17% of Rex and the company has been asked questions about party transactions by the ASX involving Lim’s brother in law, although this had not yet been publicly resolved. Lim has called for a shareholder meeting.
In its statement yesterday, the company referenced a story in The Weekend Australian that said it had engaged the same turnaround specialists from Deloitte that had previously been engaged at Virgin when that airline was tipped into administration in 2020.
“[Rex] requests the securities of the company to be placed in an immediate trading halt pending a material announcement in relation to a news article published on Saturday, 27 July, 2024,” the statement said.
“The halt will last until the commencement of trade on Wednesday, July 31 or until the announcement mentioned above has been made.”
Rex subsidiary National Jet Express (NJE), which recently came under fire for a disastrous charter flight from Launceston to Perth on which water ran out and toilets failed, was quick to try and reassure its staff about the situation at Rex.
“I assure all staff that NJE is an independent profitable business with no debt,” NJE interim COO Robin Furber wrote.
“Rex is simply a shareholder of NJE, therefore any changes that may or may not occur at Rex will not have any impact on NJE’s business or operations.”
The current environment for all Australian airlines other than Qantas remains shaky, with Virgin Australia’s owner Bain Capital in discussions about selling a stake to Qatar Airways after it so far failed to re-list the airline on the ASX.
The problems at Rex impact 2,000 aviation employees, according to the Transport Workers Union. An estimated 25,000 aviation workers left the industry during the pandemic, and last month 323 Bonza staff lost their jobs following the carrier’s collapse.
“Like Bonza, Rex was another airline attempting to do right by the Australian public, keeping regional communities connected and driving down fares on popular routes. Following complaints against Qantas of capacity dumping, slot hoarding and a bidding war in regional Australia, Rex has now become another victim of an unregulated aviation market,” TWU secretary Michael Kaine said, reiterating union calls for a “Safe and Secure Skies” commission.
As well as relentless competition from its larger and better funded rivals, a key reason for Rex’s problems appears to be the growing Australian pilot shortage that has already affected Qantas’ regional airlines including Network Aviation and National Jet Systems. The crisis is also hitting Jetstar; insiders said the budget airline is looking to recruit 260 pilots over the next 12 months but is struggling to find enough candidates, something the airline rejects, albeit not officially.
Meanwhile, pilots have told Crikey that Qantas Group’s aircraft woes continue with three planes stuck in London last week due to sick pilots. Then there’s the even bigger problem is its B787 engine supply crisis. Qantas and Jetstar have 26 B787s but pilots say that the group has only one spare in Australia. Crikey understands Jetstar has had one of its B787s stuck in Cairns for 10 days and is waiting for the engine to be trucked from Melbourne — but it only has 40 hours of flying left until it needs maintenance, throwing the airline’s schedules into chaos. Jetstar has been contacted for comment.
“As with all things in the Qantas Group, cost cutting from the Joyce era has left us with a low stock of spares, from engines to wheels to seat covers. The spare 787 engine is kept in Melbourne. Qantas used it earlier this year when a 787 cooked an engine leaving Johannesburg,” one engineer told Crikey.
The turmoil in the sector comes weeks before the Albanese government releases its aviation white paper. Prime Minister Anthony Albanese this week described Rex as “important” because it services regional routes that others do not.
But a Guardian Australia report this week revealed that the government ignored Bonza’s plea for help, casting doubt over whether it would be prepared to help rescue Rex if needed, despite over $2 billion in subsidies handed to Qantas during the pandemic.
“Like all Australians, the government wants an aviation sector that supports our nation’s way of life and this means services need to be reliable, competitive and affordable,” Transport Minister Catherine King said.
So far, the government has been loath to take on Qantas, so we shall see.
Are you concerned about the lack of competition Qantas faces? What have your experiences been with Rex? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
