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REX: Those ex-Virgin Australia 737’s are mine!

REX: Those ex-Virgin Australia 737’s are mine!

The AFR is reporting that Regional Express is in final negotiation to take on up to 10 of Virgin’s old, used, surplus to requirements, Boeing 737’s – the workhorse of all Australian domestic airlines.

This has been predicted, so it’s no surprise that REX is about to pounce on the lessors of these planes to pursue its ambitions of becoming a capital city to capital city player in Australia’s domestic market.

Never a better time

This is an opportune time to acquire leases to these aircraft. With an oversupply of grounded aircraft, REX should be able to negotiate record low rental rates for these jets. On the other hand, it has probably never been a riskier time to plan airline expansion, with no one able to predict accurately when domestic flying will return to normal.

Kick a competitor while they are down

REX is presumably hoping to take advantage of Virgin being in recovery/relaunch phase post its period in administration, as well as the demise of Virgin Australia owned low cost carrier, Tiger Air when it launches its capital city services.

2PAXfly Takeout

The aviation industry has a difficult road ahead when it comes to sustainability. It’s going to require a relative revolution in technology, with ‘electric planes’ or hydrogen planes, or some form of jet engine that doesn’t require a carbon based fuel. And that is going to require the development of an alternative to jet engines probably.

It’s a big ask. It will take time to develop.

This move to home grown and manufactured SAF is a first step – maybe even a baby step in a very long road of innovation. In the long run, US$200 million won’t even touch the sides.

Whatever else happens, if REX launches capital city to capital city domestic flights, expect a bit of a price war. The usual capacity war is less likely, depending on the speed and nature of the pandemic recovery. Some predict that recovery of domestic flying will be slow, and take a long time to recover to its pre-pandemic numbers. Others – like Sydney Airport, say look over at Vietnam, where, when domestic flying resumed, demand was more than it was pre-pandemic.

Well if you think you know the answer, you can always invest in Qantas or REX , although probably not Virgin Australia, which if creditors approve will be wholly owned by Bain Capital, and taken off the Australian Stock Exchange – unless the bondholders get their way.,

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