Just hours into the start of a new work week, it was all hands on deck inside Rex’s unassuming head office in the heart of Sydney.
On Monday, the publicly listed regional carrier had entered a trading halt of the Australian Securities Exchange (ASX), pledging to deliver an update about the company by Wednesday.
Less than 24 hour later, in the absence of any information from the airline, speculation was rife that it was a matter of when — not if — the company would be entering voluntary administration.
Behind the scenes, emergency talks between consulting firm EY and executives from Rex were underway, as both sides tried to find a solution to stop the embattled carrier from financially bleeding out.
The source of the problem was clear: its capital city airline operation was costing $1 million a week to remain in the air. Now it was just a matter of cauterising the wound.
Outside of Mascot, Rex’s 2,000-strong workforce endured a vastly different Tuesday.
Throughout the day, some employees were being turned away from hotels, while others were unable to book rides with the company’s Uber account.
But there was no communication from the company at all, minus a quiet directive to suspend all flight bookings for inter-city routes on board Boeing 737s online.
It was only through media reports that many of these workers would later learn their fate.
Long meetings attended by all of Rex’s top brass extended well into the evening, and by 9:30pm on Tuesday the inevitable decision was made.
The company was placed into voluntary administration, and journalists received late night phone calls, text messages and emails minutes later alerting them to a statement quietly shared on its website.
As the news was splashed across front pages, the first communication Rex staff received from their employer arrived in the form of a text message sent just before 11:30pm.
By that time, they already knew their company had gone under. If they hadn’t read the media reports, a Facebook post from Virgin Australia did the trick.
With an all-in staff meeting scheduled for 8am on Wednesday, it was an anxious night for workers who didn’t know if they still had a job to go to at all.
How did Rex become Australia’s latest aviation casualty?
Only three months ago, Australia’s highly concentrated airline industry claimed another victim, with regional carrier Bonza collapsing in spectacular fashion — just 15 months after it launched.
It’s too early to say whether the early warning signs presented by the collapse of that airline were missed, but it appears as if the seeds of Rex’s downfall were sown long before its competitor ran into trouble.
The first public inkling of Rex’s troubles emerged last week in a piece published in The Australian’s Margin Call column suggesting the airline had called in a turnaround team from consultants Deloitte.
But privately, the airline had been experiencing internal strife for months, which culminated in a boardroom drama in June.
The executive chair and the company’s biggest shareholder Lim Kim Hai was suddenly replaced by former Howard government minister and deputy chair, John Sharp.
After retiring from the House of Representatives in 1998, Mr Sharp spent decades working in the aviation space, including through his own consulting company before joining the Rex board.
In response to the internal shake-up, Mr Lim requested the removal of four directors — including Mr Sharp — from the board, as well as the addition of two new positions.
As that drama was playing out, a slight tweak was made to Rex chief executive Neville Howell’s employment contract.
Just a week before Rex announced a trading halt, it issued a statement to the ASX with a new set of conditions entitling Mr Howell to 12 months’ notice for his termination period.
Perhaps more importantly, the new provisions allowed that in the event there was a “significant change to his duties or responsibilities, or a change which substantially diminishes his position, the company will immediately terminate his employment and make payment in lieu of 12 months notice”.
As more information comes to light now the company has called in administrators, it appears a financial gamble during the pandemic to expand into capital city flights would ultimately send the business into a nosedive.
Losing $1 million a week
Rex, also known as Regional Express, was formed shortly after the collapse of Ansett in 2002.
Two passenger airlines, Hazelton and Kendell, which had been operating as separate businesses under the failed airline merged to eventually become Australia’s biggest regional carrier.
At the core of the carrier’s business was the desire to connect regional towns with capital cities, using 34-seater Saab 340 turboprop aircraft to get passengers from A to B.
At its peak, Rex was the only carrier providing crucial flights to fly in, fly out workers in remote locations.
The company’s mission was reinforced in its tagline “our heart is in the country” and for nearly two decades it tried to do just that.
But, just as it did with airlines around the world, the pandemic changed everything.
With many flights grounded and tourism effectively over, the industry was decimated.
Rex did not escape unscathed, with the federal government (and a few state governments) throwing a funding lifeline to the carrier in April 2020 to continue to operate 1-2 return services a week to most of its network destinations.
Even after airlines were allowed to return to the skies properly again, the regional carrier said it was left “badly affected” while its competitor Qantas rebounded strongly.
But with the backing of private equity firm PAG, Rex had an ambitious plan to expand its operations into the lucrative so-called “golden triangle” routes.
The airline’s entry into the market began in March 2021, with nine return services from Sydney to Melbourne running a day.
Rex’s promotional $49 fares prompted Virgin to price match, while Jetstar introduced a $29 discounted airfare, according to the ACCC.
“With three carriers on Australia’s busiest route, competition has been vigorous and consumers are the beneficiaries of this,” the competition watchdog’s then chair Rod Sims said.
“Each airline will need to work hard to win over consumers.”
Rex continued its expansion into other major routes, adding Brisbane and then Perth flights during the week.
It also accused competitor Qantas of “anti-competitive” behaviour, targeting regional routes in an effort to edge out Rex and “slot hoarding“.
“Slot hoarding means that there are less flights, which means higher prices to the consumer,” Mr Sharp said earlier this year.
Two years after its first foray into the ‘Golden Triangle’, the airline announced it would be cutting flights on nine regional routes across four states.
It described the changes to its network as minor and cited pilot, engineer and parts shortages as the factors behind its decision
The company pledged to reinstate flights when staff and parts shortages were resolved.
Before they could do so, the company found itself in some financial strife.
During an all-staff meeting with Rex Airline employees on Wednesday, administrators indicated the intercity division, which is serviced by its Boeing 737s and separate to its regional arm, is in a “very perilous financial position and has access to almost no funds”.
“The business, to be very frank, is simply not viable,” they said.
Separately, some of the airline’s staff told the ABC that they had attempted to raise operational costs with Rex’s management.
They said it was common practice for Rex to push ahead with flights between capital cities with as little as 10 passengers, instead of cancelling them and rebooking passengers on a flight scheduled to depart an hour or two later.
One staff member, who is unauthorised to speak publicly, told the ABC that Rex’s management was squarely focused on delivering the best on-time performance out of any airline in Australia, and prided itself on having the lowest cancellation rate.
The employee also spoke of a culture where management would refuse to discuss reports of the company’s financial difficulties and allay debt concerns, opting instead to paint a rosy picture that was divorced from the airline’s reality.
In the end, Rex’s failed capital city ambitions saw the company losing $1 million a week and unable to make its lease payments for its fleet of Boeing 737s, which are now in the process of being repossessed.
As for Rex’s staff, they have been told the company simply doesn’t have the money to pay their wages, let alone the looming redundancy packages the 610 employees who are set to lose their jobs are entitled to.
Could someone come to Rex’s rescue?
The discussion of bail outs and a potential buyer for Rex Airlines dominated meetings between administrators and staff on Wednesday.
Asked whether the administrators were seeking a buyer, Justin Walsh told staff that it was looking for an interested party to purchase the business, but it was “highly unlikely” one would be found.
“There is some interest in certain elements, but it’s more around individual aircraft rather than the business, as opposed to the regional part of the business where it’s a bit different,” he said.
“We are open to a buyer, but I think given the trading performance of the business, that’s going to be hard work.”
Speaking on RN Breakfast on Wednesday, federal transport minister Catherine King was asked about whether the government would be on hand to prevent Rex from failing.
While Ms King acknowledged Rex was “incredibly important”, she was quick to add the government can’t provide help “at any cost”.
“I think it is fair to say that we would be reluctant to just throw money at the problem,” she said.
“What we would want to do is ensure that there is a long-term solution to the security of regional aviation, and we will take time to work our way through that. “
The careful phrasing was indicative of the conundrum facing the Albanese government, as it seeks to keep the airline afloat without an expensive bailout.
Treasurer Jim Charmers suggested that all options remain on the table, saying “if there’s anything we can responsibly do, we’ll consider doing it”.
However, aviation analyst Peter Harbison said Rex should not require government assistance to remain viable as a regional carrier.
“In the short term, maybe to get through this current problem, it might need a bit of support,” he told The Business.
“But prior to taking the big leap into the major city routes, Rex was actually operating reasonably profitably, [then] it was hit by COVID, [and] it’s also suffering from the global shortage of pilots who were being sort of sucked up in a spiral into the bigger airlines.
“And it’s got a problem with supply chain issues, because it’s using very old aircraft.
“There are a lot of issues around the smaller airlines anyway, but that said, it should be able to operate commercially effectively.”
While discussions of support are being worked out in the background, it may be some weeks before employees — and administrators — get a full picture of just how dire the company is.
It could take even longer for a viable path forward to emerge, but if administrators don’t act quickly enough Rex could become just another airline consigned to aviation history.