Aussie airline operator Regional Express, or Rex (ASX: REX) has been re-awarded three regulated routes in Western Australia through a competitive tender process. The three regulated routes include Perth-Albany, Perth-Esperance and Perth-Carnarvon-Monkey Mia. The new contracts kick in on October 2, 2023 and last until July 2, 2028.
This award by the WA State Government is the fifth time that Rex has been awarded the right to operate state regulated routes, having won every tender that Rex bid for in Australia since 2010.
Knowing that its growth in passenger numbers would result in the existing seat capacity being inadequate to meet the demand, Rex has put forth plans for supplementary services. This would mean 38% more seats for the Perth-Carnarvon/Monkey Mia route, 22% more seats for the Perth-Esperance route, and 4% more seats for the Perth-Albany route compared to now.
Besides that, in July, Rex signed leases for an additional two Boeing 737-800NGs, thus taking its 737 fleet from seven to nine, bolstering its domestic network and expansion plans. The Company will also begin daily flights between Melbourne and Hobart on 17 August, seven weeks after it began flying between Sydney and Adelaide.
Despite its recent successes, Rex has been caught in a financial tornado for some time now.
Rex Group Executive Chairman, Lim Kim Hai said, “The global supply chain shocks and skilled labour shortages, including pilots and engineers, have severely impacted all airlines and therefore I am acutely aware that Rex’s service levels have not matched the very high standards that Rex delivered in WA since February 2016 until the re-opening after COVID.”
What’s more, Rex recently landed in hot water with the ASX after it updated its interim guidance—going from a forecasted profit to a loss, subsequently driving its share price down from $1.205 to less than $1.00. For FY23, Rex anticipates a Group Operational loss of $35 million. In H1 FY23, its loss had improved by about 60% to $14 million, but it climbed back up in May-June.
Rex pointed to the global skilled labour shortage and supply chain shocks, as mentioned by Hai, which forced the Company to make significant reductions to its flight schedules to match the need for aircraft, pilot and engineers to what is available.
Hai added, “We will repay the trust of the WA State Government by putting maximum priority on the services in the State. I will lead a delegation of Rex’s Board members and senior management this weekend to develop plans with the local team to achieve much better service delivery, including a strategy to leverage on the considerable local resources of National Jet Express, a Rex Group member since October 2022.”
Last year, the Company had to exit routes from Melbourne to Albury, Sydney to Bathurst, Cooma, Grafton/Lismore, Ballina and Adelaide to Kangaroo Island. It blamed the exits on the “predatory conduct of Qantas, which entered these and other uneconomical regional routes to try to weaken Rex and make it abandon its domestic plans”. But now, it claims to be on a comeback trajectory.
Winning the three contracts in Western Australia can hopefully put Rex back on track after a turbulent journey throughout FY22 and, from the looks of it, FY23. The Company is optimistic about the upcoming year, so long as competitors stay in their lane and travel picks up.
Alinda is a Business Reporter for The Sentiment
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