Unfazed by local skeptics, Regional Express takes flight

 - May 6, 2008, 5:36 AM

While most startup airlines enjoy at least a short honeymoon with local press and industry pundits, Michael Jones spent some of his first moments on the job last month as boss of Australia’s newest regional carrier deflecting criticism about his business plan. Built from the remains of former Ansett subsidiaries Kendall and Hazelton Airlines, Sydney-based Regional Express (Rex) opened for business on August 6, just five days after holding company Australiawide Airlines paid bankruptcy administrators some A$40 million ($21.5 million) for the operation. But it took even less time for at least one local “expert” to sound the death knell for the airline, despite a 25-percent increase in bookings during the new owners’ first week in business.

During an interview with Australian Broadcasting Corp. Radio, Aircraft Owners and Pilots Association of Australia technical director Bill Hamilton said the new airline faced near impossible odds of survival because of the high costs associated with airport charges, fuel and maintenance. Although Jones dismissed Hamilton’s analysis as “irrelevant” and “uninformed,” the Rex CEO continues to face an environment of cynicism bred by Ansett’s demise and intensifying competition for short-haul business from the likes of Virgin Blue and Qantas, which in April added six new Boeing 717s and seven new routes in eastern Australia.

Undaunted, Regional Express flew its inaugural flight with one of 21 ex-Kendall Airlines Saab 340s from Wagga Wagga, New South Wales, to Sydney. Its fleet also includes eight 19-seat Fairchild Metro turboprops formerly flown by Hazelton. Once wholly owned divisions of the now bankrupt Ansett Airlines, Kendall and Hazelton stumbled along for nearly a year after Ansett collapsed last September under the weight of its mounting debt. Finally, in May, administrators accepted a A$275,000 ($148,000) deposit from Australiawide, soon after Richard Branson’s Virgin Blue decided to abandon a proposed takeover of the two regional airlines.

Now flying to 35 destinations throughout New South Wales, Victoria, Tasmania and South Australia, Regional Express introduced its new paint scheme at an August 6 ceremony in the capital city of Canberra. Attended by deputy prime minister John Anderson and the local parliamentary district’s representative, Kay Hull, the ceremony underscored the role the government played in the sale of the two airlines. “Without [the deputy prime minister’s] strong personal support, and that of Kay Hull and the assistance of the minister’s office, it is unlikely that this day would have occurred,” said Jones. Before the sale to Australiawide, Anderson said the federal government would offer financial incentives to the eventual owners, including a reduction or cancellation of debt on government loans.

Along with Jones, eight Singaporean investors have emerged as 30-percent owners in the airline. One of the Singaporean investors, aircraft broker Lee Thian Soo, told the Singapore Straits Times that Australiawide would soon approach Singapore Airlines with a plan to form a code-share agreement or other alliance. Although Singapore Airlines has long expressed interest in the Australian market, it declined to comment about any planned overtures by Australiawide. Regional Express has not yet signed a code-share deal with a major airline partner.

The airline plans to place a newly repainted Saab into service at a rate of one per week over the next six months. Regional Express estimates that the entire rebranding process, including office renovations and repainting of the Metro 23 fleet, will take about a year, during which time it expects to increase service from Sydney by 30 percent, Melbourne by 20 percent and Adelaide by 35 percent. It also plans to operate a shuttle service between Sydney and Canberra every 70 min, using a one-way fare structure designed to allow customers “to construct the cheapest round-trip price.”

Now employing 623 of the combined Kendall-Hazelton roster of roughly 1,000, Jones calculates that the cost advantages realized through consolidation of the two operations will return the airlines to profitability in a relatively short time. “We don’t have to establish the infrastructure, we don’t have to train the people and we don’t have to establish the markets,” said the Rex CEO. The airline’s business plan predicts break-even margins with 52-percent load factors, and its current capital base will allow it to sustain losses for another 13 months.

Of course, no one can forecast every potentially damaging development, such as a report released on August 5 by the Australian Transport Safety Bureau that detailed a near-disastrous in-flight incident involving a Hazelton Airlines Saab 340. The preliminary report revealed that the aircraft, carrying 32 passengers on a June 28 scheduled flight between Sydney and Bathhurst, New South Wales, came within 1.68 sec of certain destruction when it dove uncontrollably to within 114 ft of the ground before its pilots managed to pull it from its plunge.

Released the day before Regional Express’ inaugural flight, the report said that as the airplane reached 1,266 ft during its descent into Bathurst, it rolled 28 deg right, followed by an uncommanded roll to the left, reaching 109-deg bank within four seconds, before pitching down 27 deg. In 16 sec the airplane descended 1,080 ft, to 114 ft agl, when the pilots regained control. At press time the ATSB investigation into the incident was continuing.