Australia airline Rex cuts jobs, cancels flights after calling in administrators

By Lewis Jackson and Lisa Barrington

SYDNEY (Reuters) -Australian airline Regional Express Holdings will cut hundreds of job after it entered voluntary administration, the second small airline to do so this year, in a move that will further concentrate the country's aviation market.

Traditionally focused on servicing Australia's vast regional areas with small planes, Rex in 2021 began larger jet flights in the lucrative "golden triangle" between Sydney, Brisbane and Melbourne, which is dominated by Qantas Airways and Virgin Australia.

However the airline failed to meaningfully dent their control of the overall market, which was over 90% in March, according to the competition regulator. On Tuesday, Rex called in administrators Ernst & Young.

The administrators will shutter the subsidiary which operates Rex's Boeing 737 flights between major cities and make 360 workers redundant, according to the Transport Workers Union (TWU). A further 250 jobs will be cut elsewhere, it said.

Regional flights on its fleet of Saab 340 aircraft will continue.

Rex investor and private equity group PAG Asia Capital has provided bridging finance to help keep regional flights running, according to a source not authorised to speak with media.

PAG, which has one board seat, helped bankroll Rex's expansion into major cities in 2021 with a A$150 million convertible bond.

PAG declined to comment.

Transport Minister Catherine King said the government had provided Rex some support to keep its regional flights in the air but stopped short of guaranteeing a rescue package.

"I think it is fair to say that we would be reluctant to just throw money at the problem," she said. "What we would want to do is ensure that there is a long term solution to the security of regional aviation."

AVIATION REFORM

The collapse, which comes only three months after budget airline Bonza closed down, is likely to put a spotlight on the barriers smaller airlines face breaking into the vast, sparsely populated market dominated by Qantas and Virgin.

In March 62% of domestic passengers were carried by Qantas and subsidiary Jetstar, 31% by Virgin Australia, 5% by Rex and 2% by Bonza, according to the Australian Competition and Consumer Commission (ACCC).

The regulator has previously said Bonza and Rex presented opportunities for a more competitive domestic industry.

Adrian Schofield, an analyst at CAPA Centre for Aviation, said both Bonza and Rex's jet operations were too small to be really competitive.

"They weren't able to grow their fleets quickly enough to generate efficiencies of scale required to produce the kind of revenues and profit needed for their parent companies to continue to support them," Schofield said.

The ACCC has called on the government to reform how airlines are allocated flight slots, especially on busy state capital journeys, where critics have argued that Qantas and Virgin's control of profitable routes keeps out new entrants.

The company which administers flight slots is majority owned by the two airlines, which reject the accusation.

The regulator said in May that Rex needed a larger fleet and more slots at Sydney airport to grow to the point where it could meaningfully compete with Qantas and Virgin.

In February the government announced reforms to slot management at Sydney airport, including greater reporting requirements. A government review into the aviation sector is due later this year.

AVIATION DEMAND

While slot availability at Sydney airport was an issue, Rex's failure also comes down to a general slowdown in aviation as leisure travellers cut back, according to Morningstar analyst Angus Hewitt.

Aviation saw high demand and fares as aviation bounced back from the pandemic, but airlines globally are seeing a weaker-than-expected quarter due to costs and falling revenue per passenger because of pressure on ticket prices.

Virgin, which had flight slots at Sydney, had not reported an underlying profit since 2012 when it filed for bankruptcy in 2020, Hewitt added.

(Reporting Lewis Jackson and Renju Jose in Sydney; Additional reporting by Rishav Chatterjee in Bengaluru and Lisa Barrington in Seoul; Editing by Sonali Paul and Christopher Cushing)