Rex to fly between Australian capital cities

[MEL_Traveller]

Well, I’m no businessman, but I have to wonder at the logic. The domestic market is unlikely to be any larger than about 50% of it’s size in 2019. So, between Virgin, Jetstar, and QF, they’ll have enough capacity for over double the actual market. So, it wouldn’t be much different to engaging in a capacity war. It probably made some sense if Virgin actually went under, but if it survives, all I see is Rex folding.

I dunno. Maybe there are other people like me that are looking for an alternative that's friendly to their travel needs? All I hear about with the majors is 'status'. Priority check in, lounges, the best seats, the best access to awards. None of which I get. So a friendly alternative would suit me!

Status isn't an issue with many other airlines. BA has ultra cheap Club Europe fares, or economy fares that come with a nice open bar. Same with US domestic. In Australia I'm always left feeling second best. I'd fully support Rex.

 

[dajop]

It probably made some sense if Virgin actually went under,

I do wonder if they are betting on this.

 

[jakeseven7]

I do wonder if they are betting on this.

Wouldn't Bain just pick up the scraps and start 'Velocity Air' then? They have first right to pick off the VA1 assets in that case....

 

[elemist]

My bet is they're gambling on a few things going their way

1) Reduced competition from VA. Both the administrator and Bain have both indicated any future VA would be a significantly smaller operation.
2) The general public is now wary of VA. Even with the take over by Bain, lot's of people are still expecting them to go under.
3) Rex run quite a tight ship in general. If they can bring the same model across to this new service there's a good chance they'll be competitive price wise, whilst still offering a solid no frills service.
4) Considerably lower entry price to the market - cheaper planes, cheaper staff, cheaper everything really. This means their overheads will be quite low, so if the market continues to rebound over the next 2 - 3 years, suddenly they will find themselves in a pretty solid position.

Pretty much everyone i speak to who knows anything about Rex equates them to like a flying bus service. Nothing fancy, but reliable and reasonably priced for the regional market. I've never had them cancel a flight, or even be delayed. The service is consistent in regards to what you get, and often its the same staff member serving you each flight.

 

[dajop]

Pretty much everyone i speak to who knows anything about Rex equates them to like a flying bus service. Nothing fancy, but reliable and reasonably priced for the regional market.

To me, the Rex brand seems very "down to earth" which contrasts to the "trendiness" of the QF brand (and wannabee trendiness of the VA brand). That down to earth-ness could over well in some parts of the market.

Whilst Rex might serve a meat pie with tomato sauce QF would serve a " Neil Perry inspired gippsland free range beef, ground and slow baked in a rich jus encrusted in crispy mallee wheat bake, accompanied by Goulburn Valley tomato coulis".

 

[elemist]

To me, the Rex brand seems very "down to earth" which contrasts to the "trendiness" of the QF brand (and wannabee trendiness of the VA brand). That down to earth-ness could over well in some parts of the market.

Your right - they're very much a what you see is what you get. They're not overly fancy, but they don't portray themselves that way either. They'll get you from A - B safely, on time, with minimal fuss.

 

[MEL_Traveller]

I fear the 'on time' may suffer if they start flying between major trunks?

 

[jakeseven7]

My bet is they're gambling on a few things going their way

1) Reduced competition from VA. Both the administrator and Bain have both indicated any future VA would be a significantly smaller operation.
2) The general public is now wary of VA. Even with the take over by Bain, lot's of people are still expecting them to go under.
3) Rex run quite a tight ship in general. If they can bring the same model across to this new service there's a good chance they'll be competitive price wise, whilst still offering a solid no frills service.
4) Considerably lower entry price to the market - cheaper planes, cheaper staff, cheaper everything really. This means their overheads will be quite low, so if the market continues to rebound over the next 2 - 3 years, suddenly they will find themselves in a pretty solid position.

Pretty much everyone i speak to who knows anything about Rex equates them to like a flying bus service. Nothing fancy, but reliable and reasonably priced for the regional market. I've never had them cancel a flight, or even be delayed. The service is consistent in regards to what you get, and often its the same staff member serving you each flight.

Your point (2) is going to be a big issue for VA2 when it gets relaunched I agree... I suspect lots will keep away for a while.

I'd add point (5) Businesses that used to use VA will now have to consider QF and/or Rex to plug the holes in the network gap that VA2 will have when Bain cuts their flying destinations. Which means QF and Rex will have the chance to poach customers for other flights too. People prefer 1 airline on an itinerary.

Post automatically merged: Jul 3, 2020

To me, the Rex brand seems very "down to earth" which contrasts to the "trendiness" of the QF brand (and wannabee trendiness of the VA brand). That down to earth-ness could over well in some parts of the market.

Whilst Rex might serve a meat pie with tomato sauce QF would serve a " Neil Perry inspired gippsland free range beef, ground and slow baked in a rich jus encrusted in crispy mallee wheat bake, accompanied by Goulburn Valley tomato coulis".

I'd rather no pies on either knowing what goes in them but your description did make me hungry nonetheless!!

 

[dajop]

Another possibility, with Rex about to start looking at the ATR's ... to quote from their announcement about the MOU with ATR " .... for a range of potential commercial co-operation that would complement Rex’s domestic operations". (interesting use of the word "complement"). Maybe the strategy is jockey to operate services on behalf or in partnership with VA2 and the golden triangle is a backup plan/negotiating tactic.

If VA2 stick with the single type (737) they'll probably need a contract operator or partner on certain routes, where frequency is important, to remain competitive (thinking SYD-CBR), so you fly on VA branded ATR42 or ATR72 "operated by Rex". (Like American Eagle , for example, which is operated by various independent subsidiaries).

 

[elemist]

I'd add point (5) Businesses that used to use VA will now have to consider QF and/or Rex to plug the holes in the network gap that VA2 will have when Bain cuts their flying destinations. Which means QF and Rex will have the chance to poach customers for other flights too. People prefer 1 airline on an itinerary.

I guess it will depend on what routes get cut really, i think most businesses already work across multiple carriers as no one ever covers all destinations. I imagine VA2.0 will still fly to most major cities, possibly with reduced capacity to some though.

I guess being able to have a single itinerary from the golden triangle onto a regional route could be a good edge for Rex though.

 

[jakeseven7]

If VA2 stick with the single type (737) they'll probably need a contract operator or partner on certain routes, where frequency is important, to remain competitive (thinking SYD-CBR), so you fly on VA branded ATR42 or ATR72 "operated by Rex".

Judging by PS barely being able to say the word 'Rex' without spitting in anger, I'd suggest that is unlikely

But you never know, QF and NZ are in a frenemy codeshare! And they are arch rivals.

 

[elemist]

If VA2 stick with the single type (737) they'll probably need a contract operator or partner on certain routes, where frequency is important, to remain competitive (thinking SYD-CBR), so you fly on VA branded ATR42 or ATR72 "operated by Rex". (Like American Eagle , for example, which is operated by various independent subsidiaries).

Do you think they'll bother with these types of routes, or just ditch them completely? Would it be competitive with QF to outsource it to another carrier like Rex and still have enough profit in it for both companies?

 

[Chicken]

Do you think they'll bother with these types of routes, or just ditch them completely? Would it be competitive with QF to outsource it to another carrier like Rex and still have enough profit in it for both companies?

Can you imagine a tube of metal is packaged and marketed by many companies?

Oh right, it's called the NBN.

 

[p--and--t]

Your right - they're very much a what you see is what you get. They're not overly fancy, but they don't portray themselves that way either. They'll get you from A - B safely, on time, with minimal fuss.

Could not have expressed my thoughts any better.

If they can successfully time their regional flights to link smoothly to an inter-capital service, many people will opt for that rather than collecting baggage, changing terminals, changing airlines and taking the risk of a missed flight on a second itinerary.

 

[jakeseven7]

Could not have expressed my thoughts any better.

If they can successfully time their regional flights to link smoothly to an inter-capital service, many people will opt for that rather than collecting baggage, changing terminals, changing airlines and taking the risk of a missed flight on a second itinerary.

Agree, most people prefer 1 airline on an itinerary, and this will chip away at VA2 (as QF has a very strong regional network of their own). I'm not sure the volumes would be significant enough to worry VA2 that much though?

 

[elemist]

Can you imagine a tube of metal is packaged and marketed by many companies?

Oh right, it's called the NBN.

That's a little different as everyone is on a pretty level playing field with the underlying network and costs.

In this case you would have both VA and Rex trying to make a profit, each with their own overheads, going against QF with their single overhead.

 

[dajop]

Do you think they'll bother with these types of routes, or just ditch them completely? Would it be competitive with QF to outsource it to another carrier like Rex and still have enough profit in it for both companies?

Who knows. I suspect CBR-SYD/MEL present the biggest problems, as 737 seems to big to offer decent frequency on these routes.

The US carriers seem to make it work. I imagine the simplicity associated with operating just one category or type may lead to cost savings that reduce the impact of the overheads, and given both companies exist already, they both already have corporate overheads, and this would give more business to spread the overheads across.

 

[jb747]

This entire discussion seems to have forgotten about Jetstar....

 

[Mattg]

This entire discussion seems to have forgotten about Jetstar....

You're right, although Jetstar is part of the Qantas Group and is controlled by Qantas. So it's not really an independent competitor in the domestic market.

 

[Scarlett]

I think you're missing the point though Matt, JQ is probably the greatest hurdle for Rex. Just because they're part of the QF group makes no difference to the market forces Rex faces.
JQ owns the cheapest segment of the market and if Rex are going to compete on price, then they have to compete with JQ. We don't know their cost base yet, but the announcements thus far don't indicate that Rex are aiming for the most price sensitive part of the market. They also don't sound like they're going to go head to head with QF. So they must be aiming for the 'middle' of the market, whatever that is. Also interesting to see how big that segment might be: my hypothesis is the price dominant segment is probably greater than 50% of the market, but I can't back that up with anything.

So, I think that JQ is the biggest factor for Rex, because, if the majority of the market will go to a site and sort by price, they may not win much of that market if they can't get their cost base and hence price, below what JQ offer.

Then there's also the return of VA apparently concentrating on the middle of the market too.

I know I've said it before, but cooperation between VA and ZL would seem to be the most sensible solution in the Australian aviation market, but clearly Rex have others reasons for doing what they are.

If I had to guess why this is happening, I'd suggest that at some strategic meeting in the recent past, Rex senior execs were looking at a 10 year plan and working out how they were going to move on from the Saab 340 fleet. They probably realised that they were going to be driven to utilise larger aircraft and that one way to fill those, say extra 10, 20 or 30 seats on every aircraft, was to have their own on-carriage from the major trunk routes. Maybe they can grow some of their regional markets by having pax directly connect with them from the larger routes and hence fill those larger regional aircraft.

Anyway, I still come back to the fact that if they're going to fly 150+ seat aircraft on the capital city routes, they're going to need to fill those seats and that means price is key, certainly for the first few years. And that means JQ is a key competitor!