Rex dogfight with Qantas bolstered by first $50m investor payment

Regional Express has collected its first $50 million in funds from new investment partner PAG Asia Capital to help underpin the launch of jet services between Sydney and Melbourne, which start in about two weeks.

The cash injection comes as Rex slashed its already unusually cheap launch fares for flights between Sydney and Melbourne to just $49 one-way for economy and $199 for business class.

The discount attack against Qantas and Virgin Australia's control on the corridor will only apply during March and seats need to be booked by February 28.

Discount one-way fares offered by Qantas and Virgin are in the $90 to $110 range.

PAG will provide $150m in total in return for secured convertible notes in the country carrier, a deal overwhelmingly approved by shareholders at Rex's annual general meeting in late January.

Chairman Lim Kim Hai recently told the media while Rex could have funded the new jet operation internally, it opted to bring a partner on board to support the regional airline's launch of its 737-800 jet flights on March 1.

That financial support would help it resist stiff competition on the route and moves by disgruntled national carrier Qantas to raid Rex's market share in the bush.

Qantas launched its own pre-Christmas assault on several of Rex's routes in what has been widely seen as retaliation aimed at weakening the country airline's earnings to restrict its growth ambitions on interstate capital routes as domestic travel rebuilds after the coronavirus pandemic.

Mr Lim said while starting Rex's new services would be relatively easy, the company knew it must be able to withstand losses, and "to go the distance", which was where the PAG support would be handy.

Deputy chairman John Sharp described the Rex discount deal, which includes on-board refreshments, as cheaper than most city taxi fares to the airport.

The airline has previously offered 100,000 fares on its recently leased former Virgin Australia 737 aircraft, at just $79 a seat.

Mr Sharp told the recent AGM that shareholders' consent for PAG funding deal was the final major step in Rex's preparation for taking its services to all major cities.

"It's an historic moment for Rex and Australian aviation, providing Australians, for the first time, with a premium reliable service at affordable fares," he said.

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The move into jet services follows Rex last year expanding its pilot training operations having bought Victoria's ST Aerospace Academy in Ballarat in late 2019.

The Ballarat campus is now part of the Australian Airline Pilot Academy, headquartered in Wagga Wagga.

Mr Sharp said Rex Group had grown into one of Australia's largest pilot training providers, with accreditation by airline regulation authorities locally and in Singapore, China, Vietnam and the United Arab Emirates.

Last year Rex subsidiary Pel-Air Aviation also expanded, winning a 10-year NSW Ambulance fixed wing patient transport contract worth $370m, which complements a similar air ambulance service it operates in Victoria.

However, Rex's passenger sales crashed more than 90 per cent after COVID-19 travel restrictions were imposed in March last year, causing a full year fall in revenue of 23.4pc.

The group reported a statutory loss after tax of $19.4m after writing down $62m in impairments, based on the deteriorated trading conditions expected for several years as the airline industry rebuilds post-pandemic passenger numbers.

Mr Sharp noted the federal government had responded "boldly and swiftly" to Rex concerns about the collapse in regional passenger numbers and the danger it would have to shut down its connections to regional routes to conserve cash.

"With the Commonwealth assistance packages and Queensland, Western Australian and South Australian government aid packages which followed, Rex has been able to maintain skeleton services representing 20pc of its pre-COVID levels," he said.

"On behalf of Rex and all the regional communities we serve, we put on record our sincere gratitude to those governments for their decisive interventions.

"They saved about 60 regional routes in Rex's network and the remote communities that receive these essential airline services."

He said everybody involved in the Rex Group had made an exceptional effort in 2020 to ensure the company's survival, while also juggling the personal impact of the pandemic and making preparations for the new domestic operations.

"Together we will survive the economic impact of the pandemic and get back to flying at full capacity," he said.

"I believe 2021 will be an exciting year for us all."

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