Regional Express Holdings Ltd (ASX: REX) shares rocketed out of a trading halt this morning to be up as much as 45% on speculation the airline will start flying between capital cities. This would see Regional Express compete with Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH).
3 airlines for Australia?
Media reports say Regional Express, which emerged from the ashes of Ansett, is planning to fly between capital cities and not just to them. The plans would involve flights between Australia's biggest capitals, Sydney, Melbourne, Adelaide, Brisbane, and Perth. This would give Australia a 3 airline market, with Regional Express operating something between a budget and full-service airline.
Regional Express today said it is considering the feasibility of commencing domestic airline operations. The airline disclosed it had been approached by several parties interested in providing the equity needed for it to start regional operations in Australia. With airlines globally struggling due to the travel downturn, Regional Express may be able to access additional aircraft at distressed prices.
What does Regional Express do?
Regional Express is Australia's largest independent regional airline. It operates a fleet of 60 aircraft which, prior to coronavirus, were making some 1,500 weekly flights to 59 destinations across Australia. The airline received funding from the Australian Government to continue to operate during the coronavirus pandemic.
While the value of government funding has not been disclosed, it was enough to allow the carrier to offer 1-2 return flights per week to most destinations in its network. Additional funding has since been secured, enabling the airline to operate 88 weekly services across Australia.
Expansion plans
Regional Express estimates it would require $200 million to expand its operations. The board is exploring the feasibility of the endeavour and has begun talks with potential equity partners to expand to include domestic operations in addition to regional services.
According to the Australian Financial Review (AFR), the business plan would involve leasing 10 narrow-bodied jets. "The most significant aspect of this is we will be the only capital city operator that is debt-free," Regional Express' deputy chairman John Sharp told the AFR.
With a sufficient capital injection, the Regional Express board believes, "there is a confluence of circumstances which render the start of domestic operations by Rex to be a particularly compelling proposition."
The Board expects to make a decision on proceeding in the next 8 weeks. If they decide to proceed, domestic operations are expected to commence on 1 March 2021.
