WEBVTT - Should taxpayers rescue Rex?

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<v Speaker 1>You can listen to the Front on your smart speaker

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<v Speaker 1>every morning to hear the latest episode. Just say play

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<v Speaker 1>the news from the Australian. From the Australian, here's what's

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<v Speaker 1>on the Front. I'm Claire Harvey. It's Thursday August one.

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<v Speaker 1>A convicted child sex offender has been spared deportation under

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<v Speaker 1>Australia's new visa rules, in what looms as the first

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<v Speaker 1>test for new Immigration Minister Tony Burke. Philippines man Earl

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<v Speaker 1>Sanchez was last year convicted of sexual intercourse with a

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<v Speaker 1>child between the ages of fourteen and sixteen, but a

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<v Speaker 1>tribunal says he can stay despite the government's attempts to

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<v Speaker 1>deport him. That exclusive is live now for our subscribers

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<v Speaker 1>at the Australian dot com dot au. If you've got

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<v Speaker 1>a mortgage, heave a sigh of relief. Inflation grew by

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<v Speaker 1>three point eight percent in the year to June, but

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<v Speaker 1>that might just spare us another rate rise when the

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<v Speaker 1>Reserve Bank Board meets on Tuesday. Passengers are already grieving

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<v Speaker 1>for Rex, the airline that's gone into administration amid board

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<v Speaker 1>chaos and financial losses. The Albanezi government is under pressure

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<v Speaker 1>to bailout or take an equity stake in Rex, but

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<v Speaker 1>it's warning there will be strings attached today, how Rex

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<v Speaker 1>flew into the storm and whether taxpayers should come to

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<v Speaker 1>the rescue. Friday afternoon in the Australians newsrooms is tense.

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<v Speaker 1>We've got a giant paper to publish, the Weekend Australian,

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<v Speaker 1>and an always hungry website and app where we need

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<v Speaker 1>to be breaking big news all the time. Joanni Bishan

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<v Speaker 1>edits our business call them Margin Call, which is a

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<v Speaker 1>must read for anyone in industry or government. It's a

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<v Speaker 1>mix of entertaining gossip about powerful people and also hardcore

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<v Speaker 1>news which regularly breaks in the column. On Friday, he

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<v Speaker 1>got a call tipping him into a potentially massive scoop.

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<v Speaker 2>It was quite early on Friday afternoon, and I received

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<v Speaker 2>a call, as one usually does in this industry, with

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<v Speaker 2>some information that at first quite alarmed me. The information

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<v Speaker 2>was that Rex was in serious financial straits, that consultants

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<v Speaker 2>were getting under hood of the airline so to speak,

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<v Speaker 2>and even more concerningly, that it was possibly heading into

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<v Speaker 2>financial ruin such that administrators were about to be appointed.

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<v Speaker 2>Now my reaction to that was, well, I don't think

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<v Speaker 2>that's true. I think it's possible that they brought in consultants.

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<v Speaker 2>A lot of companies do that. But the idea that Rex,

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<v Speaker 2>which was operating flights at that time, had planes in

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<v Speaker 2>the sky at that very moment, would be going into

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<v Speaker 2>administration with a matter of days or a matter of weeks,

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<v Speaker 2>it sounded fanciful. In the end, I made a decision

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<v Speaker 2>to write the story, but took a very cautious approach

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<v Speaker 2>to mentioning the A word. I did end up using it,

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<v Speaker 2>but Eve and I was quite skeptical whether we'd end

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<v Speaker 2>up actually going down that route. And three days later,

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<v Speaker 2>on Monday, the company entered a trading halt, and here

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<v Speaker 2>we are, they're in administrations.

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<v Speaker 1>After March of Aki. Rex is Australia's third airline after

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<v Speaker 1>Quantus and Virgin It flies a bunch of regional routes

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<v Speaker 1>like Perth to Monkey Mayer where tourists can swim with dolphins,

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<v Speaker 1>Brisbane to Thaga, Minda, Cairns to Dumagy, Sydney to Narandra.

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<v Speaker 1>Our reporter Lillie McCaffrey has been speaking to Rex passengers.

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<v Speaker 1>I'm really sorry to hear this happened to Rex.

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<v Speaker 3>They're a fabulous little local airline.

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<v Speaker 4>We rely on them a lot, and I'm really sorry

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<v Speaker 4>for all the stuff too.

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<v Speaker 1>It's such a shame. It's just really sad.

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<v Speaker 4>I really hope that the government or get behind them

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<v Speaker 4>and support them to get them back up and running.

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<v Speaker 4>I mean, Australia is regional, so we need support in

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<v Speaker 4>that area. You know, they have supported quantas in the past.

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<v Speaker 4>Everybody knows about that.

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<v Speaker 3>I just hope that for the guys that you know

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<v Speaker 3>work for X, they're able to find like we're able

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<v Speaker 3>to save for REX, and that you know they'se guys

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<v Speaker 3>are able to get work or still have work.

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<v Speaker 2>There's genuine sadness in the community. I think it almost

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<v Speaker 2>is a piece of critical infrastructure or an essential service

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<v Speaker 2>for people living in the regions. But I've noticed from

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<v Speaker 2>the commentary, on the stories I've written and on talkback

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<v Speaker 2>as well, people don't want to see this airline go under.

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<v Speaker 2>Neither as the Prime Minister anyone in government. The last

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<v Speaker 2>time I flew REX, I went from Sydney to Adelaide

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<v Speaker 2>and back. It was quaint, it was fun, it wasn't

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<v Speaker 2>a packed flight, which is always pleasant, food was good,

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<v Speaker 2>and I remember thinking this was actually a really puzz experience.

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<v Speaker 2>I should really fly the airline more. It was also

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<v Speaker 2>cheaper than the mainstream airlines at flight Adelaide. So yeah,

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<v Speaker 2>it's quite sad news that this has happened. I don't

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<v Speaker 2>think anyone wanted this.

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<v Speaker 1>Funnily enough, REX arose out of another airline crisis in

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<v Speaker 1>two thousand and one and SET collapsed. The federal government

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<v Speaker 1>made a multimillion dollar cash bailout of anset's regional subsidiaries,

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<v Speaker 1>and a group of Australian and Singaporean investors got together

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<v Speaker 1>to buy them and start a new airline. They called

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<v Speaker 1>it Regional Express REX. So YOI, it seems like REX

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<v Speaker 1>is really teetering on the brink. They've grounded flights between

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<v Speaker 1>the major cities, and those flights seemed to be part

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<v Speaker 1>of Rex's problem, don't they.

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<v Speaker 2>Yeah, well, it looks like rex's problem wasn't so much

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<v Speaker 2>the regional side of its business. That side of the

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<v Speaker 2>business was traveling quite well back during COVID during the pandemic.

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<v Speaker 2>At the start of twenty twenty one, REX basically got

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<v Speaker 2>one hundred and fifty million dollars from an outfit called

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<v Speaker 2>Pacification Group.

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<v Speaker 3>It's an investment firm.

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<v Speaker 2>They use that money to buy seven three seven planes

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<v Speaker 2>from Virgin and their idea was they were going to

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<v Speaker 2>launch this expansion into the capital city market or what's

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<v Speaker 2>commonly known in aviation circles as the Golden Triangle. That's

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<v Speaker 2>the prized busiest routes between Sydney, Melbourne and Brisbane.

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<v Speaker 3>Australia's friendliest and most reliably airlied now brings you to

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<v Speaker 3>Sydney three times a day fly Rex. They keep fares low.

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<v Speaker 3>REX our heart is in the country.

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<v Speaker 2>Sounded like a great idea at the time. It hasn't

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<v Speaker 2>quite gone to plan. They've been up against Quantus, Virgin, Jetstar.

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<v Speaker 2>Their market share hasn't hit the double digits. The losses

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<v Speaker 2>have been severe, something in the order of a million

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<v Speaker 2>dollars per week on that route, the Golden Triangle route.

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<v Speaker 2>And I guess we all sort of knew that Rex

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<v Speaker 2>wasn't doing that well. Its results have always told that story.

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<v Speaker 2>What we didn't know was that there had been consultants

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<v Speaker 2>who had been brought in over the past couple of months,

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<v Speaker 2>and that was done by Pacification Group, that's the company

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<v Speaker 2>that invested the money with rexbec in twenty twenty one,

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<v Speaker 2>the hope, of course, was to try and figure out

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<v Speaker 2>how to separate the two sides of the business or

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<v Speaker 2>stanch the outflows of the money on those capital city routes.

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<v Speaker 3>Hasn't worked. What's interesting about it is that no one

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<v Speaker 3>saw this coming.

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<v Speaker 1>So there's one issue, which is that it entered a

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<v Speaker 1>very competitive market in that Golden triangle that you described.

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<v Speaker 1>But there's also been board kind of wrangling going on

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<v Speaker 1>at Rex. What does that boiled down to? That conflict?

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<v Speaker 2>So the corporate regulator ASSIK began asking questions of Rex

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<v Speaker 2>about certain potential conflicts of interest that arose with a

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<v Speaker 2>certain board member. The sum of it was that the

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<v Speaker 2>executive chairman, a guy who had been leading the company

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<v Speaker 2>for twenty one years, he was basically hot swapped for

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<v Speaker 2>the deputy chairman, John Sharp. He's a former Transport minister

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<v Speaker 2>and the Howard government. And again this came absolutely out

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<v Speaker 2>of the blue. So you suddenly had this long standing

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<v Speaker 2>executive chairman, he's turfed out. In comes the deputy chairman,

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<v Speaker 2>and within about a week or so the guy had

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<v Speaker 2>been turfed out. He lobbed a requisition with the market

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<v Speaker 2>basically saying well, I want four of these directors gone,

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<v Speaker 2>I want two of my guys put on the board instead.

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<v Speaker 2>So you've had this boardroom bus stuff for reasons which

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<v Speaker 2>weren't really made clear to the market.

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<v Speaker 3>Now this has happened.

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<v Speaker 2>Basically, you've had a combination of a governance problem happening

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<v Speaker 2>at the top. You've had a financial issue happening at

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<v Speaker 2>the bottom with this Capital City triangle expansion. And whether

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<v Speaker 2>the two are related, I mean that would seem plausible,

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<v Speaker 2>but certainly the airliners hit troubled straights.

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<v Speaker 1>Now the Transport Workers Union wants the government to take

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<v Speaker 1>a financial stake in REX. So it's this real sort

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<v Speaker 1>of fundamental question about what we want from aviation. You know,

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<v Speaker 1>do we consider it basically public transport it's something that

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<v Speaker 1>we expect the government to ensure gets delivered. Or do

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<v Speaker 1>we regard it as something that private companies can offer

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<v Speaker 1>if they want to. How do you think we sort

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<v Speaker 1>of navigate our way through those questions?

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<v Speaker 3>Well, we always do navigate these questions, don't we.

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<v Speaker 2>I Mean, the question comes up perpetually government ownership and

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<v Speaker 2>equity stake nationalized, not to nationalized. We've got the Transport

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<v Speaker 2>Workers Union now calling for the government to take an equity.

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<v Speaker 3>Stake in REX. What does that give you?

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<v Speaker 2>In the words of National Secretary Michael Kine, it gives

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<v Speaker 2>government a seat at the table. To me, that really

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<v Speaker 2>sounds more like it's an umbilical cort a lifeline.

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<v Speaker 3>You know, it's too big to fail.

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<v Speaker 2>If you've got government sitting at the table, there's always

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<v Speaker 2>an opportunity for recovery. I think the tw would say that,

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<v Speaker 2>then you have propositions of a government run airline altogether,

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<v Speaker 2>one that's managed as an essential service for the country.

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<v Speaker 3>Not the worst idea in the world.

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<v Speaker 2>It seems like a lot of people who are commenting

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<v Speaker 2>on this story would like to see that. The counter

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<v Speaker 2>argument to it that hasn't changed. You know, you have

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<v Speaker 2>a nationalized airline. It's costly, it can be in a fiction,

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<v Speaker 2>it can be sluggish with innovation. An equity stake might

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<v Speaker 2>be the halfway point.

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<v Speaker 1>Coming up after the break, Virgin has offered to fly

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<v Speaker 1>REX passengers for free. Nice or opportunistic. Our subscribers were

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<v Speaker 1>the first to know about this story, and a subscription

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<v Speaker 1>is a lot cheaper than a freezing cold sandwich on

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<v Speaker 1>a flight these days. Check us out at the Australian

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<v Speaker 1>dot com dot au. You only ninety four percent of

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<v Speaker 1>air travel in Australia is on either Quantus or Virgin.

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<v Speaker 1>Let's just talk about Quantus for a moment. It's an

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<v Speaker 1>extraordinarily powerful company in the Australian market, isn't it.

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<v Speaker 2>Well, yeah, I mean every MP upon entering Parliament is

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<v Speaker 2>given Quantus chairman's lounge access. Virgin has their own version

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<v Speaker 2>of that, and they provide a similar service to politicians

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<v Speaker 2>entering Parliament too. It's that classic execution of soft power.

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<v Speaker 2>Politicians declare their membership with these clubs within about five

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<v Speaker 2>minutes of walking into Parliament. Some might say it's pretty

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<v Speaker 2>hard to turn down overtures from an airline on any issue.

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<v Speaker 2>When they're comping. MP is a plush seat and glass

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<v Speaker 2>of pinot at Camber Airport whenever they travel. They'll quietly

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<v Speaker 2>get the ear of every politician this way. Others might

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<v Speaker 2>say it's a really savvy way of doing it. It's

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<v Speaker 2>perfectly legal. But of course this is the way the

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<v Speaker 2>airlines have been doing it for years. It's worked very effectively.

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<v Speaker 1>And now, as for Virgin, the other competitor, who also

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<v Speaker 1>plays things pretty hard, they are offering to fly any

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<v Speaker 1>Rex passenger who's been stranded for free, and they're also

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<v Speaker 1>putting it out there that if REX employees want a job,

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<v Speaker 1>they should come and ask for one at Virgin. What's

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<v Speaker 1>going on there?

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<v Speaker 3>The question is why are they doing it?

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<v Speaker 2>Well? On its face, it certainly looks like it's altruistic.

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<v Speaker 2>It's possibly the right thing to do. Who knows, maybe

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<v Speaker 2>the government got in their ear as well. We don't

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<v Speaker 2>see quantas doing it just yet, maybe they will in

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<v Speaker 2>the near future. On the other hand, it's partly tactical.

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<v Speaker 2>Presumably more people using the Virgin airline might discover that

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<v Speaker 2>they actually like it and they want to keep using it.

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<v Speaker 2>Offers have also been made to REX staff potentially if

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<v Speaker 2>they need assistance. You can see how Quantus, Jetstar and

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<v Speaker 2>or Virgin might try and move into this space for

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<v Speaker 2>their own tactic advantage given what's happening to REX. But

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<v Speaker 2>at the moment it's the right thing to do, certainly

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<v Speaker 2>helping out Australians. I don't see how anyone loses out

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<v Speaker 2>of it.

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<v Speaker 1>Quantus and Virgin might argue that this is already a

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<v Speaker 1>very competitive sector. They compete hard with one another. REX

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<v Speaker 1>is a third airline. We've seen other third airlines come

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<v Speaker 1>and go. Would Australians really lose out if REX word

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<v Speaker 1>to go into liquidation, Well.

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<v Speaker 3>I think they would.

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<v Speaker 2>I mean, reducing competition in a competitive market is never

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<v Speaker 2>a particularly good thing for prices, which is what Australians

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<v Speaker 2>care about. But I think more importantly, REX services destinations

0:12:34.760 --> 0:12:35.520
<v Speaker 2>that the others don't.

0:12:35.840 --> 0:12:37.040
<v Speaker 3>And if people in.

0:12:37.000 --> 0:12:39.400
<v Speaker 2>Regional Australia need to get where they need to go,

0:12:39.440 --> 0:12:41.439
<v Speaker 2>while people in the cities want to venture into the

0:12:41.480 --> 0:12:44.160
<v Speaker 2>regions for all sorts of economic and touristic.

0:12:43.720 --> 0:12:45.960
<v Speaker 3>Purposes, it will just be harder for them to do it.

0:12:46.040 --> 0:12:54.600
<v Speaker 3>That's not good for anyone.

0:12:56.200 --> 0:13:00.199
<v Speaker 1>Joanni Bishan's margin call column has the scoops and the skull,

0:13:00.240 --> 0:13:03.080
<v Speaker 1>but check it out right now by joining ours subscribers

0:13:03.160 --> 0:13:06.160
<v Speaker 1>at the Australian dot com dot au