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Why the Regional Express share price is soaring 28% this week

The Regional Express Holdings Ltd (ASX: REX) share price is pushing higher again on Tuesday and has now soared 27.66% in two days.

This rise comes on the back of an update from the airline on Monday regarding its plans to commence domestic operations.

Rex is Australia’s largest independent regional airline. It operates a fleet of 60 Saab 340 aircraft which, prior to COVID-19, were making some 1,500 weekly flights to 60 destinations throughout all states in Australia.

3 airlines for Australia?

Back in May, Rex confirmed reports that it was looking into the feasibility of commencing domestic airline operations.

The company revealed it had been approached by several parties interested in providing the equity needed for it to start domestic operations in Australia. At the time, the preliminary estimate of equity required was thought to be in the vicinity of $200 million.

Rex concluded this announcement by stating it intended to make a decision on whether or not to proceed with domestic operations within the next 8 weeks.

Preparing for take-off

That decision was delivered yesterday, with Rex revealing that its board had concluded the company could successfully embark on domestic operations.

As a result, the board has approved an initiative to raise a minimum of $30 million, which it believes is all that is needed for the launch of limited domestic operations. 

Rex noted that discussions with interested parties, which includes lessors and private equity funds, have not been finalised. The board will reconvene in 3 weeks to decide on the structure of the fund raising and the maximum amount that will be raised.

Nonetheless, due to the strong interest shown by various external parties to participate in the raising, Rex is confident in securing the minimum funding amount of $30 million.

Accordingly, management have commenced preparations for the operation of an initial fleet of 5 to 10 narrow-body aircraft to be based out of Sydney and/or Melbourne. This fleet will service ‘golden triangle’ routes between Sydney, Melbourne and Brisbane.

Subject to fund availability and regulatory approval, Rex is targeting 1 March 2021 as the starting date for these operations.

Management commentary

Commenting on the company’s expansion plans, deputy chair John Sharp said:

“With Rex’s expansive regional network of 60 destinations, existing infrastructure in all these capital city airports, superior efficiencies and unbeatable reliability, it will simply be an incremental extension for Rex to embark on domestic operations especially since one out of every ten flights in Australia was already a Rex flight during the pre-COVID days.”

“Leveraging on Rex’s existing infrastructure and overheads, our cost base for the domestic operation is estimated to be at least 35% below Virgin’s Australia’s (pre-COVID) with 50% lower additional headcount needed proportionately,” Mr Sharp added.

Additionally, Mr Sharp revealed that these domestic operations will be priced at “affordable” levels but will still include baggage allowance, on-board meals, and pre-assigned seating.

Rex shares have followed up yesterday’s 17.02% gain with another notable jump of 9.09% today (at the time of writing). With shares last changing hands at $1.20, the Rex share price is relatively flat year to date. 

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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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