Rex - Australia's Outback Airline - Ken Donohue

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Rex - Australia's Outback Airline - Ken Donohue
Rex – Australia’s
                                         Outback Airline
                              Australia is vast. The largest island on Earth, the world’s sixth
                               largest country. The major cities are on the coasts, leaving            PHOTO: PAUL MCCARTHY • SYD 1

                              much of the interior, known as the outback, sparsely inhabited
                                                    and gapingly empty.

                                             STORY Ken Donohue   PHOTOS As noted

   Whereas Australians once relied       REX EMERGED         from the shocking         to Melbourne (MEL), a route previously
                                         2001 collapse of Ansett Australia             operated by Ansett. In time, Kendell took
    on the railway to connect their
                                         (AN), the country’s second largest            over from Ansett more routes that were
towns and cities, today they depend      airline, after a 65-year history. But         uneconomical for the larger airline’s
   on air service. The largest of the    the beginnings of the airline occurred        bigger aircraft.
                                         unknowingly decades before. In the
    country’s independent regional
                                         1970s, aviation veterans Max Hazelton           In 1990, Don Kendell sold his remaining
airlines, serving 57 destinations, is    and Don Kendell established two               shares to Ansett, which put KD under
  Regional Express Airlines (ZL). Or,    separate passenger airlines that bore         the latter’s umbrella. By 2000, KD had
                                         their respective names. These small           grown into the largest regional airline
 as it is affectionately known, Rex.
                                         carriers provided critical links between      in the country, carrying more than one
                                         small-town Australia and the country’s        million passengers annually. Hazelton
                                         larger centers.                               Airlines (ZL), also acquired by Ansett,
                                                                                       was no slouch itself. When Ansett went
                                            Kendell Airlines’ (KD) first scheduled     out of business, Hazelton was carrying
                                         flight was from Wagga Wagga (WGA)             400,000 passengers a year.

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Rex - Australia's Outback Airline - Ken Donohue
Both Hazelton and Kendell,
still operating under their
respective      brands,     were
profitable companies but, as they
were part of the Ansett group,
they too were placed under
bankruptcy        administration.
Given their history of success
and the critical service they
provided,     a    Singaporean-
Australian    business     group
sought to revive the regional
operations of the two airlines
and purchased them. Hazelton
and Kendell were merged to
                                         2   PHOTO: REX
form Regional Express. The new

                                                                                                    airline’s executive chairman and
                                                                                                    largest shareholder. The next
                                                                                                    year, the airline made a profit of
                                                                                                    AUD$1 million.

                                                                                                    THE WORLD’S LARGEST
                                                                                                    SAAB 340 OPERATOR

                                                                                                      Rex began operations with
                                                                                                    seven Fairchild Metroliner-23s
                                                                                                    (which were phased out in 2006)
                                                                                                    and 21 Saab 340s. Today, Rex is
                                                                                                    the world’s largest operator of
                                                                                                    Saab 340s. It has 55 of the type: 52
                                                                                                    are owned and three have been
 3   PHOTO: GRAHAME HUTCHISON • SYD
                                                                                                    leased to fuel a recent service
                                                                                                    expansion in Western Australia.

                                        1 This Rex Saab
carrier’s first flight took place in                          drop in aircraft leasing costs,         Warrick Lodge, the airline’s
                                       340 is banking away
August 2002, from Wagga Wagga          from Runway 16R at     agreed to assume the employees’       General      Manager,    Network
to Sydney (SYD).                       Sydney’s Kingsford     salary liabilities, and negotiated    Strategy and Sales, told Airways
                                       Smith Airport.
                                                              with 36 local councils in relation    that Rex will keep operating the
   History cannot guarantee             2 Following the       to their airports. The airline        Saab 340s for the next 10 to 15
                                       collapse of Ansett
success, and getting Rex into the      Australia, Rex was
                                                              also had to win over a skeptical      years at least. “It’s an aircraft
air wasn’t as simple as merging        born from the          public that had been rocked by        that is still well supported, and
what had been two prospering           success of Hazleton    the collapse of Ansett.               the right one for the routes we
                                       and Kendell Airlines
airlines. At the time, the airline’s   seen here in their                                           serve,” he said. “There are really
first CEO, Michael Jones, said         respective liveries.      Things did not look promising in   limited options, because no one
that it had been the most               3 Rex inherited       the first year. Rex burned through    is producing 30-seat aircraft,
difficult undertaking of which he      seven Fairchild        its working capital and posted        but we don’t spend time right
                                       Metroliner-23s from
had been a part.                       Kendell Airlines.
                                                              a loss of AUD$30 million. Jones       now debating different aircraft.”
                                       These aircraft were    was replaced, and a restructuring
  Rex secured a AUD$47 million         phased out in 2006.    effort was led by Singapore             Although the Saab 340s are out
                                       Rex now operates 55
investment, negotiated a 50%           Saab 340s.             businessman Lim Kim Hai, the          of production, maintenance costs

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Rex - Australia's Outback Airline - Ken Donohue
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                                                                            have flat-lined and will not increase
                                                                            much as the fleet ages, Lodge noted.

                                                                              Rex has its heavy maintenance base
                                                                            in Kendall Airline’s old Wagga Wagga
                                                                            base, 450km (280 miles) southwest of
                                                                            Sydney. All the ‘C’ checks are performed
                                                                            here. The facility’s 50 engineers
                                                                            perform about 13 of these checks each
                                                                            year. “There are decades of engineering
                                                                            experience at the Wagga Wagga
                                                                            maintenance facility,” says Lodge. “All
                                                                            that expertise is valuable.”

                                                                              Rex is also negotiating with Douglas
                                                                            Aerospace for the purchase of a paint
                                                                            hangar at Wagga Wagga Airport, which
                                                                            would create more efficiencies for the

                “
                                                   PHOTO: KEN DONOHUE 5
                                                                      4     airline.

                                                                            COPING WITH PILOT SHORTAGE

                                                                              In 2008, with the demand for air
                Given that good Pilots can                                  travel growing both in Australia and

                usually transition to Captain at
                                                                            globally, Rex lost 115 Pilots—half its
                                                                            total complement—to other airlines.
                Rex within seven years, they                                “This created a significant operational
                                                                            challenge for us,” says Lodge. “It was
                wouldn’t lose anything if they                              the most intense period for the airline.”
                choose to stay, or go elsewhere                             The carrier discontinued only one

                for a First Officer position.                               route during this time, but its long-
                                                                            term survival demanded a creative
                                                                            solution to stem future Pilot attrition.

                            PHOTO: KEN DONOHUE 5   6   PHOTO: KEN DONOHUE

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 7   PHOTO: DAVID MORRELL, AVID CREATIONS

  The solution? Rex established                                     that good Pilots can usually         for our own survival, but we are
the Australian Airline Pilot                                        transition to Captain at Rex         also providing a great benefit to
Academy, a wholly owned                                             within seven years, they wouldn’t    the industry.”
subsidiary located in Wagga                                         lose anything if they choose to
Wagga. The residential campus                                       stay, or go elsewhere for a First      Captain Andrew Robertson,
opened in 2010, with the                                            Officer position.”                   who has been with Rex for
                                             4 Captain Andrew
academy training about 35                   Robertson, F/O
                                                                                                         eight years and is based in
cadets each year. Although it               Herrick Chan, and         The Academy has recently           Wagga Wagga, cannot see
does accept cadets with some                F/A Stephanie           diversified by collaborating         himself anywhere else. “I love
                                            Brennan.
piloting experience, Rex prefers                                    with other airlines for Pilot        the lifestyle that flying for Rex
                                             5 Rex has a Saab
students with none, so it can                                       training. Currently, 13 Pilots       offers,” he said. “I wouldn’t want
                                            340 flight simulator
train them to its high standards            at its wholly-owned     destined for Vietnam Airlines        to live in a big city and, here, I am
and operating procedures.                   Australian Airline      (VN) are studying at the school.     home every night.”
                                            Pilot Academy.
                                                                    Tan said that both Qantas (QF)
  Rex offers scholarships to                 6 Rex performs         and Tigerair Australia (TT)          STRETCHING THE REACH
cadets in exchange for a seven-             all of its heavy
                                            maintenance,
                                                                    aggressively recruit Rex Pilots.     ON THE OUTBACK
year employment commitment.                 including C checks,     Rex is the only Australian airline
“We understand that some Pilots             at its Wagga Wagga      that has its own Pilot academy         With nearly 60 destinations
                                            base.
will have bigger aspirations                                        and cadet program. “It’s pleasing    in its network, Rex flies to all
and may want to fly for larger               7 The Saab 340 is      to look back at all of our First     six states across Australia, most
                                            perfectly suited for
airlines, and so we think that a            Rex’s operations.
                                                                    Officers that have gone through      of which depend on the airline.
seven-year commitment is fair,”             With 55 in the fleet,   the cadet program and see many       “We operate to a lot of dots
said Ivan Tan, the Academy’s                Rex is the world’s      of them now as Captains,” Lodge      on the map, and if we didn’t
                                            largest operator of
Chief Operating Officer. “Given             the type.               told Airways. “We are doing this     operate to many of these places,

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they wouldn’t have air service,”
said Lodge. “Some communities
have become so accustomed to
air service that, if they were in
other parts of the world, they
wouldn’t get it because of their
small size. We don’t have the
deep pockets that other airlines
have, so we have a responsibility
to make the business work.”

   Last year, the airline expanded
its reach into Western Australia,
with two routes from Perth
(PER) to Albany (ALH) and
Esperance (EPR). This is a region
that Rex had long sought to add
to its network. The airline was
given a five-year license to
be the sole operator of these
routes. “We felt that this would
                                     8   PHOTO: KEN DONOHUE
give us the perfect opportunity
to establish a base in Perth that
would then allow us to expand
further in the state.”
                                                              Western Australia base in Perth        Fiscally, Rex has been flying
  Four aircraft are based in                                  would be the biggest drawback.       high but, in recent years,
Perth—two used to operate the                                 But Lodge says that the greatest     there has been a softening of
service to ALH and EPR, one a                                 challenge is having a small base     profits. “We have seen declining
dedicated spare, and the fourth                               in Perth without the economies       passenger numbers because of
enabling the airline to respond                               of scale that come with larger       instability in the mining industry
quickly to ad hoc opportunities.                              operations elsewhere in the          and, more broadly, economic
The economy of Western                                        network. Aircraft are cycled         conditions throughout Australia
Australia depends heavily on                                  through Adelaide (ADL) in South      have been poor,” Lodge said.
the mining industry, which is                                 Australia for maintenance, so        “There is a lot of untapped
currently in a downturn, but this                             the ferry flight to get Western      opportunity when economic
doesn’t deter Rex. “It says a lot                             Australia-based aircraft to and      conditions become as strong as
that we can still open new routes                             from Adelaide is just 800 miles      they were a decade ago. What
in a challenging time without                                 by way of Rex’s two ports in Port    makes me optimistic is that 10
losing money,” Lodge said.            Warrick Lodge,          Lincoln (PLO) and Esperance.         years ago, we were carrying 1.4
                                     General Manager,
“There will always be booms          Network Strategy
                                                                                                   million passengers annually with
and busts in the resource sector,       and Sales.               In the last fiscal year, Rex      a 70% load factor, and, today,
and this gives us an orderly way                              recorded an operating profit of      our yearly passenger numbers
to move into the region.” Rex                                 AUD$4.3 million, but posted an       are not far off that with a load
expects almost 10% of its total                               overall loss of over AUD$9 million   factor of 55% to 60%.”
passengers to come from the                                   because of non-cash write-
Western Australia routes over                                 downs caused by the cessation          Agriculture is second only
the coming year.                                              of a defense contract. This was      to mining for importance to
                                                              only Rex’s second loss, and the      the Australian economy and, in
  One would think that the                                    first since 2003. In a disarming     recent years, severe droughts in
2,000 miles and three-hour                                    act of transparency, the airline’s   much of the country have had
time difference between Rex’s                                 fiscal performance was outlined      a huge impact on the sector.
headquarters in Sydney and its                                in its inflight magazine.            However, the fortunes of farmers

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and of the regional towns linked      evening. In a few cases, the focus
to the agricultural industry are      is reversed, with specialists flying
changing for the better. National     out to smaller communities for                                       Fast Facts
farm production is at an all-         the day to provide critical health
time high. This is good for Rex,      services.                                                          REX REGIONAL AIRLINES
but illustrates the challenge of                                                                         ZL / RXA / RADIO: REX
remaining profitable despite the        In 2009, Rex didn’t serve
ups and downs of conditions in        any routes in Queensland, the                                      ADDRESS:
                                                                                                         81-83 Baxter Rd. Mascot, New South Wales
the communities it serves.            historical home of the country’s                                   2020. Australia
                                      largest airline, Qantas, but,                                      TELEPHONE: +02 9023 3555
   “We need to operate as             today, Rex operates to 24                                          WEB: www.rex.com.au
                                                                                                         PARENT COMPANY: Regional Express Holdings
efficiently as possible, so we        destinations in the state, with
                                                                                                         EXECUTIVE CHAIRMAN: Lim Kim Hai
can keep fares at an attractive       just five receiving a government                                   CHIEF OPERATING OFFICER: Neville Howell
level and continue to offer           subsidy as they are considered                                     FOUNDED: 2002
the capacity and frequencies          public service routes. These                                       FFP: Rex Business Flyer
                                                                                                         PASSENGERS: 1.1 million (2016)
our customers expect,” Lodge          small towns require air service                                    SUBSIDIARIES:
said. “This is something we are       for mail, freight, and medicine                                    Air Link
always monitoring because, the        delivery.                                                          Australian Airline Pilot Academy
                                                                                                         Pel-Air
moment we lose frequencies,                                                                              FLEET:
we may start losing passengers.”         Queensland is also where Rex                                    Type                     Current Configuration
Because Rex is the sole operator      operates the ultimate outback                                      Saab 340                   55        Y33
on 90% of the routes it serves, he    milk-run: a nine-hour, seven-
added, the airline’s competition      sector route between Brisbane                                      Total:                  55
is the car.                           and Mount Isa. Flights depart
                                                                                                         DESTINATIONS:
                                      from Brisbane on Mondays
                                                                                                         Adelaide, Albany, Albury, Armidale, Ballina,
   Many passengers rely on            and Thursdays and return the            8 On approach              Bamaga, Bathurst, Bedourie, Birdsville, Boulia,
the airline to get to business        following day. Rex’s management        to Wagga Wagga,             Brisbane, Broken Hill, Burketown, Burnie, Cairns,
appointments or healthcare            knows as much as anyone how            home of Rex’s               Ceduna, Charleville, Coober Pedy, Cooma,
                                                                             operations base and         Cunnamulla, Doomadgee, Dubbo, Esperance,
services in the larger cities. Most   fickle the airline business can        the Australian Airline      Grafton, Griffith, Hughenden, Julia Creek,
flights leave the smaller regional    be. “We provide a critical service     Pilot Academy.              King Island, Kingscote, Lismore, Longreach,
centers in the morning and            to regional Australia. That’s what                                 Melbourne, Merimbula, Mildura, Mornington
                                                                             9 A Saab 340 at
                                                                                                         Island, Moruya, Mount Gambier, Mount Isa,
return in the late afternoon or       drives us,” Lodge said.                Wagga Wagga.
                                                                                                         Narrandera, Newcastle, Normanton, Orange,
                                                                                                         Parkes, Perth, Port Lincoln, Quilpie, Richmond,
                                                                                                         St George, Sydney, Taree, Thargomindah,
                                                                                                         Toowoomba, Townsville, Wagga Wagga,
                                                                                                         Whyalla, Windorah, Winton.

                                                                                                        “Not having air service, for
                                                                                                      many communities throughout
                                                                                                      the country, has a huge impact,
                                                                                                      and one small error in this
                                                                                                      business can result in significant
                                                                                                      loss. We’re very aware that 16
                                                                                                      regional airlines have gone out of
                                                                                                      business in Australia since 2002.”

                                                                                                         Rex was formed out of
                                                                                                      passionate determination. The
                                                                                                      same spirit that keeps the airline
                                                                                                      flying 15 years on.
 9   PHOTO: KEN DONOHUE

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Rex - Australia's Outback Airline - Ken Donohue Rex - Australia's Outback Airline - Ken Donohue Rex - Australia's Outback Airline - Ken Donohue
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