Rex to fly between Australian capital cities

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Mattg

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So what does it cost to operate the 6 737's? (i.e. how long will the PE money last). I assume the overheads for Rex jet won't be that great, due to the already established corporate structure. I note that VA domestic used to cost $3.8b or so to operate in 2018-2019 with a fleet of 125 or so? That's $3.5m/week for a fleet of 6 aircraft. Defrayed by revenue of up to $0.1-0.2m/week (assuming 20 pax per flight paying $100/head). Also how much of this expansion is being financed by PE vs financed by the Australian taxpayer? ;)


Using the formula from that article, we could estimate that it would cost Rex around AU$366,000 per day to operate their full schedule of 737 flights on the SYD-MEL, MEL-ADL, SYD-OOL, MEL-OOL, MEL-CBR, MEL-BNE and SYD-BNE routes. Perhaps Rex's operating costs are a bit lower than average, which would reduce this amount but we could use that as a guide.

If they sold 100% of available Economy and Business Class seats on every flight, at the current airfares for Economy & Business on each route, they would make around $431,000 in revenue per day of operations. In other words, at the current airfares Rex is charging, they would need to sell 85% of seats across all classes of travel (including selling the J seats at full price) to break even. But clearly Rex is not getting average load factors of even close to 85%.

If Rex sold all Economy seats on every flight, but none of the Business seats, it would make revenue of around $356,000. Which is $10,000 less than the operating costs, give or take.

But even this would be a far better outcome than what is currently happening, with just 20-30 pax on many SYD-MEL flights.

If some fares are sold at higher prices, customers are purchasing ancillaries, Rex is carrying cargo or the airline is getting government subsidies, the revenue situation improves. But most people seem to be paying only the lowest fare and anecdotally, very few J seats are being filled by paying customers.

In a nutshell, Rex is likely losing a lot of money from its 737 operations.

How long can this continue? Well, that depends just how much money Rex is losing from its 737 operations. But if we assumed that the average load factor per flight was currently 50% in Y and 25% in J (I have no idea if this is accurate), that would potentially mean Rex is losing around $169,000 per day. At that rate, it would take around 20 months to burn through the $100 million investment.

Of course, there are lots of assumptions being made here. This is just a "back of the envelope" estimate and could be totally wrong. If you change your modelling assumptions you get a different answer.

For anyone interested, here's my working:

Screen Shot 2021-12-08 at 6.48.50 pm.png
 

Melburnian1

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Using the formula from that article, we could estimate that it would cost Rex around AU$366,000 per day to operate their full schedule of 737 flights on the SYD-MEL, MEL-ADL, SYD-OOL, MEL-OOL, MEL-CBR, MEL-BNE and SYD-BNE routes. Perhaps Rex's operating costs are a bit lower than average, which would reduce this amount but we could use that as a guide.

If they sold 100% of available Economy and Business Class seats on every flight, at the current airfares for Economy & Business on each route, they would make around $431,000 in revenue per day of operations. In other words, at the current airfares Rex is charging, they would need to sell 85% of seats across all classes of travel (including selling the J seats at full price) to break even. But clearly Rex is not getting average load factors of even close to 85%.

If Rex sold all Economy seats on every flight, but none of the Business seats, it would make revenue of around $356,000. Which is $10,000 less than the operating costs, give or take.

But even this would be a far better outcome than what is currently happening, with just 20-30 pax on many SYD-MEL flights.

If some fares are sold at higher prices, customers are purchasing ancillaries, Rex is carrying cargo or the airline is getting government subsidies, the revenue situation improves. But most people seem to be paying only the lowest fare and anecdotally, very few J seats are being filled by paying customers.

In a nutshell, Rex is likely losing a lot of money from its 737 operations.

How long can this continue? Well, that depends just how much money Rex is losing from its 737 operations. But if we assumed that the average load factor per flight was currently 50% in Y and 25% in J (I have no idea if this is accurate), that would potentially mean Rex is losing around $169,000 per day. At that rate, it would take around 20 months to burn through the $100 million investment.

Of course, there are lots of assumptions being made here. This is just a "back of the envelope" estimate and could be totally wrong. If you change your modelling assumptions you get a different answer.

For anyone interested, here's my working:

View attachment 266650

Can't argue with your figures - you may well be correct, though ZL B738 median load factors may be even lower than you suggest, going by the sample of EF loaidngs I've accessed - but for the record as a side note, QFi/QFd combined is losing a lot of money at present, and it's a matter of public record it had $2.8 million in (new?) debt a couple of months ago (more today) while VAd may (must) be also losing money hand over fist.

So bleak times all round.
 

henrus

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I'm surprised they haven't switched any 737 flights for the Saab's yet. If they only have a light load of bookings then one would think it'd make sense to downgrade the aircraft.
 

jakeseven7

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So QFLink get another 6 x A320s, turn on more Embraers via Alliance, JQ puts 787 on domestic duties and now Rexy wants more jets!

Going to be a very interesting year….

——-

CAPACITY WARS RETURN AS REX AIMS TO GROW 737 FLEET FROM 6 TO 14​


Australian aviation’s new capacity wars appear to be back on after Rex said it would aim to significantly expand its 737 fleet from six to 14 to support its growing domestic operations.


 

jakeseven7

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I don’t think that has actually been confirmed yet?

They temporarily gave some Tiger slots over from what I read between October to March

The 737 fleet will be 100+ in a year or two. Much bigger than VA 1.0

Rumours are Rex have permantly secured at least some of them, was heavily hinted at with their latest expansion announcement….

What does it matter I guess, VA2 aren’t using them so 🤷
 

HS-TQE

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Will be interesting to see where REX gets the extra 6 aircraft (after the 2x ex-VA makes it REX's 7th and 8th aircraft).
 

Saab34

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Would it be better to perhaps switch the 737 with the Saab on Melbourne to Canberra? Virgin pretty much solely used the Ejet into Canberra.

737 seems too big, they only seem to be pulling 20-30 people per Canberra/Melbourne flight. At least with the Saab they could perhaps do multiple flights a day.
 

eastwest101

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But if the price is right then people will do it.
1hr 05 mins on a jet service vs 1hr 30mins on a noisy Saab being bounced around in turbulence? The only people who would take that option are people who are extremely price sensitive and hence low yield. I would expect that the SYD-CBR and MEL-CBR market would be one of the highest yielding routes in Australia, obviously the short distance of CBR-SYD makes it somewhat unique and difficult to make use of larger jet aircraft and more suited to larger turboprops like the Dash 8 and ATR family but the MEL-CBR distances and the presence of the Great Dividing Range makes CBR-MEL a different proposition.
 

dajop

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1hr 05 mins on a jet service vs 1hr 30mins on a noisy Saab being bounced around in turbulence? The only people who would take that option are people who are extremely price sensitive and hence low yield.

I think the only market for a Saab or Dash 8 between Melbourne and Sydney would be MBW-SYD. But from memory, it's even too small for a Saab.
 

Saab34

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Perhaps Melbourne to Canberra needs Jetstar, or Bonza 😂. Tiger was twice daily and I don’t recall daily loads of 20 odd people.
 

kookaburra75

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Perhaps Melbourne to Canberra needs Jetstar, or Bonza 😂. Tiger was twice daily and I don’t recall daily loads of 20 odd people.
We certainly need the variety, to avoid paying the 'Canberra Tax' on flights - not all of us work in the public service. I've done the run MEL-CBR many a time in a Dash 8, and that's just ok, plus the 6pm departure time worked better than the later 737 flight at 7.40pm. But I don't see Qantas canabalising their high paying business travellers by introducing Jetstar. While they are supposed to use the Best Fare of the Day, the 'business travellers' will work out a way around it, to always use Qantas.
 

Mattg

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Would it be better to perhaps switch the 737 with the Saab on Melbourne to Canberra? Virgin pretty much solely used the Ejet into Canberra.

737 seems too big, they only seem to be pulling 20-30 people per Canberra/Melbourne flight. At least with the Saab they could perhaps do multiple flights a day.

There were around 55 in Y on yesterday's CBR-MEL departure and today's was actually quite full.

Interestingly, J was full yesterday but I believe they were all free upgrades.

1hr 05 mins on a jet service vs 1hr 30mins on a noisy Saab being bounced around in turbulence? The only people who would take that option are people who are extremely price sensitive and hence low yield.

This is the only market Rex is currently getting by running 737s anyway.
 

henrus

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This is why I can't take Rex seriously. I need to travel from Brisbane to Sydney on boxing day... Normally I'd book Virgin but just decided to check Rex. If the one 11:30am $69 flight doesn't work then I guess the 3 flight ~18hr $622.55 option would? Needless to say I've just booked with VA.

Screen Shot 2021-12-16 at 7.54.26 pm.png
 

AIRwin

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BNE has celebrated Rex's inaugural flight to MEL:
 

HS-TQE

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Had noticed the absence of "airline has thanked BAC, Queensland Government, etc" for their support and assistance in starting up (x) route(s) in this presser, as opposed to other past releases such as the recent JQ BNE-PER route.

BAC must've really PLAYED hard to deny REX the concessions they were allegedly asking for and get them to pay whatever the BAC dictated to them.
 

henrus

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BAC must've really PLAYED hard to deny REX the concessions they were allegedly asking for and get them to pay whatever the BAC dictated to them.
Don't blame them... Brisbane domestic has been really busy recently and it's a bit crazy out there now the flights to NSW/VIC have started again. It would have been a totally different story if Rex were trying to launch flights last year or when the borders were shut but instead Rex has come in a a time of high demand and expected low season mates rates.
 
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