Why Aussie airline faces uphill battle

The new entrant on the Melbourne-Sydney travel route faces an uphill battle against its competitors’ fierce loyalty programs.

Regional Express faces an uphill battle to steal customers from Qantas and Virgin after missing a key target and potentially underestimating the power of frequent flyer programs.

The country carrier has delayed one of its major goals following its $150m capital injection to move into major metro travel routes.

According to its prospectus, Rex should have expanded its major metro travel plan to incorporate Brisbane by Easter, meaning the airline would service the “Golden Triangle” routes between the Queensland capital, Sydney and Melbourne.

That milestone has not been met and NCA NewsWire understands the airline has been operating flights on the Melbourne-Sydney corridor at less than half capacity.

Rex last Monday launched $39 flights in a bid to boost passenger numbers; however, the move sparked a price war with Virgin Australia and Jetstar, which matched the sale fares.

However, aviation commentator Geoffrey Thomas believes Rex’s lack of capacity would only be a concern if the airline was still operating with low passengers numbers a year on from the launch of the new routes.

He said the biggest challenge to the regional carrier was the competitive frequent flyer programs offered by both Qantas and Virgin.

“The Qantas frequent flyer program, the Virgin frequent flyer program are massively powerful tools that the airlines use to ensure loyalty,” he said.

“Even if the price is lower people are still very reluctant to move away because they want to keep the points.”

Mr Thomas noted COVID-19 restrictions were still denting confidence among travellers and another factor fuelling the excess supply of seats on major city routes.

Rex deputy chairman John Sharp said the airline’s expansion to Brisbane had been halted by the airport wanting a “one-size-fits-all arrangement” rather than it being a reflection of passenger demand.    

“We want something that is tailored to our needs, and they just want us to take a one-size-fits-all arrangement,” he said.

“Our aim is to get to Brisbane … but we can only go there once Brisbane (Airport) put a proposal which meets our needs.” 

Mr Sharp said bookings had been in the thousands since the airline launched its sale fares earlier in the week.

Rex’s $150m expansion has been funded by Singaporean investment firm PAG, which in return takes a chunk of ownership in the company.

An independent review found the transaction was “not fair”, as it would dilute shareholders’ ownership; however, the deal was inevitably passed and PAG could own up to 46.7 per cent of the company if the $150m funding is drawn down in full.

In its prospectus, Rex flagged the deal was to expand the network following the collapse of Virgin and an opportunity to gain market share on some of the top-10 domestic routes.

“The aviation market, in its current distressed state, presents a unique opportunity to capitalise on cheap aircraft leases, historically low jet fuel prices and reduced competition for the ‘Golden Triangle’ route of Melbourne, Sydney and Brisbane as a result of the recent collapse of a major airline,” the company said in its prospectus.

However, Virgin was saved by private investors and is expected to rebound to 80 per cent of its pre-pandemic capacity by the end of the next month.

Mr Sharp said Rex’s opportunity to expand still existed despite Virgin’s resurrection.

Aviation expert Peter Harbison said part of Rex’s problem was a marketing issue and the airline was “excessively optimistic” customers would rush to purchase tickets.

He noted it was likely a large number of customers were not aware Rex was flying on the Melbourne-Sydney travel corridor.

Rex began flying major city routes at the start of March. Its tickets include baggage and refreshments on-board.

The airline has also started flying to Adelaide and the Gold Coast from Melbourne and Sydney on Boeing 737s.

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