Four years ago, Regional Express (Rex) stunned almost everyone by announcing they would acquire Boeing 737 jets and start flying between Australia’s major capital cities.
Traditionally a regional airline operating a fleet of ageing Saab 340 propeller planes, Rex’s motto is “Our heart is in the country”. Regional routes have always been its bread and butter, and many analysts feared that competing head-on with Qantas on capital city routes would be a recipe for disaster.
Sadly for the airline’s employees and customers, those critics have now been vindicated. Rex’s Boeing 737 experiment ended this week with the company in voluntary administration. So, why did it fail?
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A lack of profitability
Rex’s Boeing 737 flights were in fact profitable during the last four months of 2022. The airline proudly announced “slight” profitability in September 2022, which was followed up by several more months of more profitable operations. But that was at a time when demand was high and other Australian airlines were struggling to meet that demand with reliable operations.
Unfortunately, that period of profitability came after large losses in 2021, followed by the grounding of the Rex 737 network due to COVID. In 2023, Rex’s 737 operations appear to have fallen back into unprofitability – and only got worse in recent months.
Now in voluntary administration, Rex appears to be returning to its roots – which Rex’s own website says are “firmly in the bush and in regional Australia”. The Saab 340s continue to fly, but the domestic jet services are unlikely to ever return.
Why weren’t Rex 737 flights profitable?
Some aviation analysts have pointed to anticompetitive behaviour by other airlines or issues with securing Sydney Airport slots as reasons for Rex’s failure. While they may not have helped, I personally don’t think those were the main issues.
At the end of the day, there are three components to an airline’s profitability: load factors, yields and costs. The load factor (percentage of seats filled) and yield (ticket price) combine to form the airline’s revenue. If total revenue is higher than costs, the operation is profitable.
When Rex first began flying 737s, its operating costs were relatively low as the airline had been able to secure cut-price aircraft leases during COVID. The fuel price was also down. But as the market recovered, those lease costs (and fuel prices) went up significantly.
If Rex was able to fill its planes – and at high enough airfares – that wouldn’t have been a problem. But Rex could not do that. In this article, I want to explore the reasons why.
Poor revenue, half-empty planes
A Saab 340 only has around 34 seats. Rex’s Boeing 737-800s had between 170 and 176 seats, depending on the configuration. That’s a lot more seats, meaning the airline needs to sell a lot more tickets to break even.
Over the last three years, Rex consistently struggled to fill all those seats. In the first few months of operations, it wasn’t uncommon for flights to have as few as 20 or 30 passengers. In fact, at least one Sydney-Melbourne flight in those early days had no passengers at all – yet wasn’t cancelled.
Rex likely also struggled to maximise cargo revenue, with Qantas holding many long-term freight contracts.
Things did eventually improve, particularly after Rex started selling tickets through online travel agents. In fact, some Rex 737 routes were actually reasonably successful. Unfortunately, this wasn’t the case for enough flights. And flights that were popular during peak travel days would often go out half-empty during the middle of the week.
Rex often still had discounted tickets available for sale on the day of departure. This was great for customers who needed to book at the last minute – or just wanted to get home after being disrupted by one of the major airlines. But it’s also another symptom of Rex’s poor loads.
Airlines generally stop selling discounted tickets when a flight is close to selling out. But so many of Rex’s flights weren’t selling out. And with so many flights being sold at cheap airfares, the average revenue per passenger was just too low.
It also didn’t help that Rex gave away the majority of its Business Class seats as free or cheap upgrades. Business Class ticket sales are generally the most profitable for airlines – but Rex wasn’t able to fully take advantage of that.
Rex’s Boeing 737 load factors
Australian Frequent Flyer can exclusively reveal that Rex filled less than half of its available seats on its last day of domestic 737 operations. This wasn’t just because it was the last day; nobody knew at the time that it would be. It was a typical Tuesday.
Although we don’t have access to full data for the last three years, the average load factor across all Rex jet routes over the last three days of services (Sunday 28 to Tuesday 30 July) was around 57%. At the fares Rex was charging on its 737 routes, that just wouldn’t be enough to break even in the long run.
Rex’s best performing capital city routes
Over those last three days, Rex’s best performing jet routes were Melbourne-Hobart, Melbourne-Adelaide and Melbourne-Brisbane – each getting average load factors of 62%.
Some individual flights did have strong patronage. For example, Rex’s flights from Brisbane and Gold Coast to Sydney did well on Sunday and Monday, and Sydney-Melbourne had strong loads on Sunday evening.
Rex’s Gold Coast-Melbourne flight last Sunday had just two spare seats, and Adelaide-Melbourne was 96% full on Sunday evening.
Rex’s worst performing capital city routes
Unfortunately, most flights weren’t nearly as full. On average, over the period we looked at, Rex only filled 51% of seats between Melbourne and Sydney. One flight from Sydney to Melbourne last Sunday morning had just one passenger on board in Business Class and 29 in Economy. The plane had 170 seats.
Last Tuesday, Rex’s Canberra-Melbourne flight had only 36 passengers and Sydney-Gold Coast had 44 on board. The 7.10am Sydney-Brisbane flight had 35 passengers, while the 5.15pm service from Melbourne to Sydney – at a peak time for most airlines – had 39 people on board.
When Rex can only manage to get 39 passengers on a peak-hour flight from Melbourne to Sydney, access to slots doesn’t seem to be the main issue.
Overall, Melbourne-Perth appears to have been the worst-performing route for Rex. Last Sunday night’s Perth-Melbourne service had 62 passengers, giving a load factor of 36%. On Monday night, there were only 51 passengers.
Around a month ago, Rex discounted tickets on the Melbourne-Perth route to a loss-leading $99 one-way – a price that Virgin Australia then beat.
Why didn’t Rex sell more seats?
This brings us to the real crux of the problem. There are many reasons why people just didn’t book Rex in large numbers, and many are self-inflicted.
Poor marketing
An obvious reason for the Rex 737 failure is poor marketing. When Rex started flying jets, it spent almost no money on advertising – relying instead on trying to get free publicity in the media. It eventually did take out some radio advertisements and full-page newspaper ads, but the latter were mainly aimed at discrediting Qantas rather than telling people about Rex’s product.
Even three years into the 737 operation, many people still did not know that Rex existed – or thought they were still only flying propeller planes to country towns.
It does seem ironic that a company which deleted most negative comments on its own social media pages would go to so much effort to highlight negative comments that people had written on Qantas’ social media accounts. Perhaps Rex should have been more focused on what it was doing.
(In recent months, the board was also rather distracted fighting amongst themselves.)
Rex also didn’t have an App, and its website isn’t great. The website did the job well enough, but I don’t particularly enjoy having to click on all the chimneys or fire hydrants every time I search for a flight… nor paying a 1% online booking fee (on top of the credit card surcharge) that isn’t disclosed in the up-front price.
Going after business travellers without the product to back it up
Rex put its Boeing 737s onto routes with lots of business travellers and seemed convinced it would be able to steal market share from Qantas. But the reality is that, despite the Deputy Chairman’s claims, it failed to offer many of the things that business travellers value.
Ultimately, Qantas and Virgin do an excellent job of keeping their customers loyal through the “golden handcuffs” of status. Rex just didn’t do enough to convince those travellers to give up all the benefits they already get from Qantas or Virgin.
Rex did not even have a frequent flyer program until late last year. When it did finally launch, it had no partners and seemed half-baked at best.
Although Rex Diamond members could use Rex Lounges, they’re only available at three airports (even though Rex was also paying the lease on a fourth lounge space in Brisbane). Those lounges are a lot more basic and simply can’t compete with what Qantas and Virgin offer.
It also lacked the service frequency that other airlines offer on the major business routes. And Rex flights did not appear on the booking engines used by many large corporate travel agencies, which tend to have long-term contracts with either Qantas or Virgin. The larger two airlines also have dedicated loyalty programs for businesses.
Rex actually did best on leisure routes, and at times people want to fly for leisure. This was its core market, yet it was trying to compete head-on with the “big guys” for business travellers.
Competing with Qantas, Virgin and Jetstar on every route
For all the failings of Bonza, one thing it didn’t do was compete head-on with the much larger incumbent domestic airlines on the same routes.
Many commentators have noted that one of Rex’s big mistakes was trying to compete head-on with Qantas, a much larger airline with a history of defending its turf when it feels under threat.
They certainly have a point, but to be honest, I don’t think Qantas took much notice of Rex on the capital city routes. Qantas didn’t lower its prices to compete with Rex, and still managed to attract the bulk of business travellers.
But on every single 737 route, Rex was also trying to compete with Jetstar and Virgin Australia. Jetstar typically had the lowest fares, attracting the most price-conscious travellers, while Virgin usually matched Rex’s prices.
Over the past few years, whenever I’ve considered flying Rex, Virgin had a similarly-timed flight at around the same price. Virgin constantly matched Rex’s fares, from the $39 Melbourne-Sydney tickets sold in 2021, to the $99 Adelaide-Perth flights in June this year, to the $249 Business Class fares from Melbourne to Canberra in 2022.
When choosing between Virgin or Rex, I almost always chose Virgin. For the same price, I’d also earn Velocity points and status credits, be able to use my Velocity status benefits and have more options of flights to “fly ahead” onto. Even after Rex launched a frequent flyer program, I still valued Velocity points and status more highly because Virgin has better lounges and a global network of partner airlines.
Virgin’s price-matching was specifically targeted at flights with similar timings to Rex services. This is an understandable competitive response from Virgin but surely must have hurt Rex.
Rex did some things very well
Despite the various shortcomings, flying Rex on the Boeing 737 routes was generally a good experience.
Rex had a good on-time performance, with fewer jet service cancellations than Qantas, Jetstar or Virgin in most of the months it operated.
I found the airport and on-board staff to be friendly. It was nice that Rex fares included a free checked bag, drink and snack. And there was Wi-Fi – albeit not on all planes.
The competitive pricing – especially at the last minute – was great for consumers. And Rex made it really easy to upgrade to Business Class at a reasonable cost.
Unfortunately for Rex, this wasn’t enough to attract enough customers and keep them loyal.
Hundreds of Rex staff now out of jobs
Luckily, Virgin Australia, Qantas and Jetstar have stepped up to offer free tickets to affected Rex customers.
But around 360 employees that were working on Rex’s 737 operations are now out of work. Another 250 employees from the regional division are also expected to lose their jobs – collateral damage from Rex’s failed 737 experiment. Some of those staff may not even be paid owed wages or entitlements for months – if at all.
Let’s hope that those workers can quickly find new employment with Virgin Australia, Qantas Group or other airlines.
The flying public benefited from the extra competition from Rex in the short term, through lower prices and more choice. But with Rex now in administration, those lower fares might not stick around for much longer.
Can Australia sustain a third major airline?
Sadly, Australia has a long history of airline failures. Many airlines have tried, and failed, to compete with the big players (today Qantas Group and Virgin Australia, but previously Qantas and Ansett).
Some have said that the Australian aviation market is doomed to be a duopoly as it can’t sustain more than two main airlines. I don’t necessarily agree with that.
Some reforms are needed to make Australian aviation more competitive and better protect consumers. For example, Sydney Airport is overdue for slot reform and we need a European-style compensation scheme to incentivise airlines to look after passengers better. The government will soon release an aviation white paper that will, hopefully, address these issues and more.
Yet, I think a lot of the reasons for Rex’s failure were self-inflicted. Under better management, in my opinion, another airline could still succeed in the future where Rex didn’t.
