Rex goes into administration: what is the market impact?
Regional Express Holding, the parent company of Rex Airlines went into voluntary administration on 30 July 2024 following a tumultuous few months of boardroom battles. The picture looked bleak with media reports over the weekend of turnaround specialists being brought in, share trading suspended on Monday, suspension of sales on some routes by Tuesday morning, and entering into administration on Tuesday evening. This is the second airline entering administration this year after Bonza’s collapse in April. However, Rex’s collapse is far more consequential due to its history, size and relative importance to regional and rural Australia. So what are the implications?
Rex is larger and more diverse business than immediately apparent and it’s administration has vastly different implications depending on what parts of the business survive. There are several key parts:
Rex’s jet airline that operates 9x B737-800s on RPT (regular passenger transport) flights on trunk routes, often called “capital city routes”.
Rex’s regional airline that operates 57x Saab turboprops on RPT flights to and from regional cities and towns.
Pel-Air which operates approximately 20 small jet and turboprop aircraft on charter flights including several air ambulance services on behalf of state governments.
National Jet Express (formerly Cobham Aviation) that operates approximately 20 jet aircraft, offering wet leased cargo and FIFO (fly in fly out) charter services. This is 50% owned by Rex.
And various flight training and maintenance businesses.
So far, there has been a clear indication from all parties that the regional airline and other flying subsidiaries will continue operating under administration but that the B737-800 jet service will temporarily cease operating. It is increasingly likely that this will become permanent, whether through a winding down or sale of that business. So let’s consider the impact of this.
Rex’s capital city network
Rex took delivery of it’s first B737-800 in December 2020 and taking delivery of another five aircraft in 2021. It only began substantive operations towards the end of 2021 and early 2022 as Australia began to emerge from COVID-19 pandemic travel disruptions. By 2024, the fleet had grown to ten aircraft although it recently returned one aircraft to lessors and was awaiting delivery of two aircraft. Shortly before entering administration, these aircraft operated 11 city pairs with a focus on Melbourne (MEL) and Sydney (SYD), and to a lesser extent Brisbane (BNE) and Adelaide (ADL).
The route network looks thorough. Melbourne provides the most point-to-point connections with 7 city pairs. Sydney has 4 city pairs, Brisbane and Adelaide 3 each, Gold Coast has 2, while Canberra, Hobart and Perth just 1. However, this is somewhat misleading as some city pairs operate at a single daily frequency (e.g. MEL-HBA/CBR/OOL, SYD-ADL/OOL and BNE-ADL, MEL-PER less than daily). Low frequency routes offer limited capacity but also limits the ability to generate network effects through connections to their regional network or through interline/codeshare partnerships with other airlines. Furthermore, low frequency operations are a significant impediment to attracting business traffic and generate higher yields.
Other routes operated at higher frequencies. At the time of entering administration, SYD-MEL was the highest frequency route with 7 daily return flights, followed by SYD-BNE with 5 daily return flights. MEL-BNE and MEL-ADL both operated as twice daily return flights.
Rex’s capital city network capacity
Unlike international routes where BITRE data allows us to segment capacity by airline and route, domestic data only allows segmentation by route. This is of little value to answering the question at hand. However, we are able to proxy capacity by measuring the number of sectors flown by each airline on each route each month. It’s a creative use of data that otherwise measures on-time performance and relies on most domestic flights on trunk routes operated by similar aircraft (of similar capacity).
All Rex’s flights on these routes are operated by the same aircraft type with the same seating configuration (176 seats). Competitors on these routes operate similar aircraft and consignations, albeit with some variation. For example, Virgin’s fleet is dominated by the B737-800 and B737-8 (almost all with 176 seats), with a small number of B737-700s (134 seats). Meanwhile, Qantas operate B737-800s on most of these sectors (174 seats), occasionally operating larger A330s or smaller B717s/A220s. Jetstar operate 180 seat A320s and very occasionally the larger 230 seat A321. While there is some variation, we can assume that the majority of these sectors are flown by very similarly sized aircraft and average out.
Limiting the analysis to the period from January 2022 to June 2024 (last month we have data), Rex grew their capacity significantly, increasing from 346 sectors in January 2022, reaching a peak of 1328 sectors in May 2024. A sector is defined as a one-way nonstop flight.
In the most recent month, 30% of total sectors were operated on SYD-MEL (including return sectors, i.e. SYD-MEL is combined with MEL-SYD), having peaked at 34% in February 2024. SYD-BNE is not far behind, accounting for 24% of all sectors. The third and fourth largest routes were MEL-ADL and MEL-BNE, accounting for 10% and 9% each, respectively. While the network is somewhat diverse, the majority of capacity is concentrated on two routes. It’s not even the so-called golden triangle, with capacity even more concentrated on just two sides of the triangle.
Rex’s individual route capacity shows significant emphasis in growth of the SYD-MEL and SYD-BNE routes over time. Other early routes saw limited growth and some have even seen capacity decline slightly (e.g. MEL-OOL, SYD-OOL, and MEL-CBR). Growth has also been achieved with some new routes including SYD-ADL, BNE-ADL, MEL-HBA, and MEL-PER (began in July and not yet included in data).
Rex’s capacity varies significantly city-to-city and route-by-route. While the scale of capacity differs, this capacity should also be considered in the context of broader market capacity. While Rex offered 384 sectors on SYD-MEL in June 2024 and only 60 on BNE-ADL, this should be contextualised against the total market of 4166 on SYD-MEL, and 660 on BNE-ADL. Rex’s share of total sectors is similar on both routes, accounting for 9.2% and 9.1% on each, respectively. Thus, their influence on both is similar despite vastly different capacity.
Rex were most influential on SYD-BNE, accounting for 12.1% of total sectors in the most recent month. Other influential markets were SYD-MEL (9.2%), MEL-ADL (9.1%) and BNE-ADL (9.1%). These proportions are somewhat surprising and higher than some observers may have anticipated. The loss of capacity in these markets is substantial and may have a significant impact on availability and pricing in the short term. Other significant markets include MEL-CBR and MEL-HBA, however these markets are much smaller.
The loss of Rex’s capacity will have far less effect on other markets, with relatively small share of capacity, including MEL-BNE and MEL-OOL, SYD-ADL and SYD-ADL.
Implications and conclusions
The loss of Rex’s capacity will have a varied impact on capacity. The impact will be a function of both absolute and relative capacity. Rex’s capacity was concentrated on a small number of routes and will have a meaningful impact on these routes. Among larger routes, the loss will be felt most significantly between Sydney and Melbourne, and Sydney and Brisbane. Among smaller routes, the impact will be most significant between Melbourne and Adelaide, and Brisbane and Adelaide. The impact on other routes will be less pronounced.
Some of the loss may be mitigated by capacity increases by other carriers, however other carriers have limited scope to increase the number of flights in the short run. They simply do not have spare aircraft and flight deck crew lying around waiting to be utilised. Virgin are suffering an acute fleet shortage due to delays in deliveries of new B737-8 aircraft, resulting in the cancellation of several international routes including Adelaide-Bali and Cairns-Tokyo. It’s been reported that Virgin have moved quickly to take-over the leases of three of Rex’s B737-800s (five of Rex’s fleet are ex-Virgin aircraft that Virgin returned to lessors during their own administration in 2020).
This is a evolving situation and we’ll continue to analyse the impact on the market. Given the rapid evolution, follow us on Twitter to get our most up-to-date thoughts.