As Australian regional airlines drop like flies, Rex sees an unfaltering boost to its operations and financial position

The global airline industry is ripe for consolidation. Despite mass industry restructuring since the Global Financial Crisis (GFC), many airlines continue to operate unprofitably in an increasingly competitive landscape, where cost efficiency, revenue generation, technology adoption and scale of operations all matter.

All these factors will continue to result in downward pressure due to the potential for jet fuel prices to spiral upwards, an intensifying global trade war, and a skilled personnel shortage (particularly for regional aviation).

So far as Australia has been affected, 20 regional carriers have fallen since the GFC, according to Regional Express (Rex) executive chairman Lim Kim Hai. These include JETGO Australia, which filed for voluntary administration in Jun-2018, however continues to operate on a limited charter basis.

Mr Hai, while noting the harsh industry climate, highlights that the resurgent Australian economy was supportive in Rex actually turning a 41% rise in profits for the financial year ended 30-Jun-2018 (FY2018), bringing its profit before tax to AUD25 million – a result not seen since 2012.

“Rex joins the rarefied club of probably not more than five listed carriers worldwide that have not made a statutory loss (excluding write-downs) in the last 15 years”, Mr Hai emphasises, adding: “In fact, since the GFC… the Rex Group has still managed to generate an average Gross Return on revenue of 6.2% compared to 0.8% for the Qantas Group, while the Virgin Group is hopelessly entrenched in negative territory having close to AUD1.5 billion of accumulated statutory losses before tax”.

Operationally, Rex also improved on its on-time performance in FY2018 and still maintains the lowest cancellation rate (a result tied with Jetstar).

Source: Regional Express (Rex)

While the outlook remains positive, Rex does not want to be caught flat-footed

Rex currently operates almost 60 aircraft and today has a much larger network than in FY2011/2012, when it reported a record profit before tax. Mr Hai also cites “operational efficiencies” as improving, and the airline has diversified its revenue streams by training pilots for other airlines.

Mr Hai said: “This plus the fact that the Australian economy continues to show strong signs of growth with a marked pick up in the resource sector give us the assurance that the best is yet to be. I am confident that Rex will continue to improve on its profitability in the new FY, albeit not at the giddy pace experienced in the last two years”.

While celebrating its successes, the airline is ever mindful of “headwinds”, both internationally and domestically. As mentioned previously, the international pressures including potential for jet fuel prices to spiral upwards, an intensifying global trade war and a skilled personnel shortage, and these are also joined by a devastating drought in regional Australia. On the skilled personnel shortage, Mr Hai referred to the lack of pilots specifically as “crippling”, and caused by the “major domestic carriers’ rapacious poaching of pilots”.

In FY2018 there were 12 additional Rex cadets inducted as first officers, taking the number of former cadets flying in the group to 108, of which 32 have already reached the rank of captain. However, due to “high attrition rates”, Rex was compelled to recruit pilots externally outside its pilot training academy, with 45 externals inducted in FY2018.

According to Boeing, the Asia Pacific region will be the largest region globally for demand of skilled aviation personnel, with 253,000 new pilots needed by 2036. With much of this demand coming from China and growing Southeast Asian nations, Rex’s pilot personnel are likely to continue to be enticed by other airlines.

Still, Rex’s operational and financial resiliency is undoubtedly proven, with the airline in a healthy cash surplus and no major capital investments in sight.