1 00:00:05,640 --> 00:00:07,880 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm sure 2 00:00:07,880 --> 00:00:10,719 Speaker 1: Almam e Y has been called in to work with 3 00:00:10,920 --> 00:00:14,640 Speaker 1: REX Regional Express, with the airline pausing sales of flights 4 00:00:14,680 --> 00:00:17,720 Speaker 1: between capital cities. Back in twenty twenty one, we spoke 5 00:00:17,760 --> 00:00:20,560 Speaker 1: on this podcast John Sharp, who is the deputy chair 6 00:00:20,600 --> 00:00:23,000 Speaker 1: of REX. At the time, REX had stepped up their 7 00:00:23,040 --> 00:00:26,120 Speaker 1: operations from purely regional flights to having seven three sevens 8 00:00:26,120 --> 00:00:29,440 Speaker 1: flying the Golden Triangle of Sydney, Melbourne, Brisbane, and he 9 00:00:29,520 --> 00:00:33,040 Speaker 1: accused Quantas of acting like a bully for retaliating by 10 00:00:33,080 --> 00:00:37,000 Speaker 1: moving into Rex's regional roots. But there's been signs of 11 00:00:37,000 --> 00:00:39,760 Speaker 1: trouble for weeks or months now at REX with major 12 00:00:39,840 --> 00:00:42,239 Speaker 1: board moves and then this week a training halt for 13 00:00:42,240 --> 00:00:45,559 Speaker 1: the airline, and then Ey was called in. Neil Hansford 14 00:00:45,680 --> 00:00:48,480 Speaker 1: is an international aviation consultant. He spent more than forty 15 00:00:48,560 --> 00:00:51,720 Speaker 1: years providing business plan assessments to airlines. We spoke to 16 00:00:51,760 --> 00:00:54,240 Speaker 1: Neil exactly three months ago when Bonza was in trouble. 17 00:00:54,600 --> 00:00:57,640 Speaker 1: Now it's Rex's turn, Neil, Welcome back to Fear and Greed. 18 00:00:58,360 --> 00:00:59,840 Speaker 2: Hi, it's presutive to be back. 19 00:01:00,560 --> 00:01:04,399 Speaker 1: What's going on, what's the story behind all this. 20 00:01:05,040 --> 00:01:08,560 Speaker 2: Well, there was a good fundamental business going back to 21 00:01:08,600 --> 00:01:13,959 Speaker 2: the days of Kendall operating in regional New South Wales 22 00:01:14,040 --> 00:01:18,399 Speaker 2: primarily in Queensland, then South Australia and Victoria, and it 23 00:01:18,520 --> 00:01:23,559 Speaker 2: was an essential service to rural Australia. And then somebody 24 00:01:24,000 --> 00:01:28,840 Speaker 2: within the REX organization decided that we're flying all these 25 00:01:28,840 --> 00:01:33,319 Speaker 2: people into huts and we can take these people on 26 00:01:33,360 --> 00:01:38,280 Speaker 2: the Golden Triangle of Sydney, Melbourne, Brisbane and that decision 27 00:01:38,800 --> 00:01:43,040 Speaker 2: great enthusiasm, but it hasn't been delivered. So somebody coming 28 00:01:43,040 --> 00:01:46,600 Speaker 2: from Tamworth coming down into New South Wales, they assumed 29 00:01:46,600 --> 00:01:49,920 Speaker 2: if they gained to Melbourne they would potentially stay on REX. 30 00:01:50,280 --> 00:01:51,200 Speaker 2: That hasn't happened. 31 00:01:51,720 --> 00:01:52,440 Speaker 1: Why is it? 32 00:01:53,000 --> 00:01:57,760 Speaker 2: I think everybody underestimates the power of the quantus frequent 33 00:01:57,840 --> 00:02:02,160 Speaker 2: flyer and to a lesser degree virgin Is. It's a 34 00:02:02,280 --> 00:02:06,240 Speaker 2: very very strong tool. Doesn't only you talk about British 35 00:02:06,280 --> 00:02:09,800 Speaker 2: Airways Executive Club or whatever. It is a market to 36 00:02:09,880 --> 00:02:14,359 Speaker 2: Storughton and people, particularly if they're using somebody else's money 37 00:02:14,360 --> 00:02:18,399 Speaker 2: to buy their miles, they will find that they will 38 00:02:18,520 --> 00:02:22,119 Speaker 2: use roots and times and if somebody else has money, 39 00:02:22,160 --> 00:02:27,079 Speaker 2: often high affairs to accumulate their miles and their status credits. 40 00:02:27,320 --> 00:02:31,400 Speaker 2: And I think our friends are rex And let's face it, 41 00:02:31,400 --> 00:02:35,720 Speaker 2: it's not an Australian company. It's a primary singapore Ian 42 00:02:36,240 --> 00:02:42,280 Speaker 2: and Asian owned company now with a small Australian showlding. 43 00:02:42,760 --> 00:02:47,760 Speaker 2: They don't quite understand the dynamics of the Australian consumer 44 00:02:48,160 --> 00:02:49,160 Speaker 2: of air services. 45 00:02:50,440 --> 00:02:52,240 Speaker 1: So do you think if they had stuck to their 46 00:02:52,280 --> 00:02:55,959 Speaker 1: regional roots they may have succeeded? And you know we're 47 00:02:56,080 --> 00:02:59,240 Speaker 1: talking this morning. We don't know exactly what the outcome 48 00:02:59,240 --> 00:03:02,280 Speaker 1: of this is going to be, but it's fairly clear 49 00:03:02,320 --> 00:03:04,160 Speaker 1: it's in trouble. Do you think it would have done 50 00:03:04,200 --> 00:03:06,000 Speaker 1: better had it's done its regional roots? 51 00:03:06,880 --> 00:03:09,079 Speaker 2: Yes, it would have done better, but they still had 52 00:03:09,120 --> 00:03:13,320 Speaker 2: a looming problem. The fleet of SAAB three forties is 53 00:03:14,040 --> 00:03:18,040 Speaker 2: greater than thirty years old. So in this day and 54 00:03:18,120 --> 00:03:21,959 Speaker 2: age where Quadas and to a degree Virgin have got 55 00:03:22,040 --> 00:03:25,239 Speaker 2: new fleets, to be operating a thirty year old fleet 56 00:03:25,280 --> 00:03:29,720 Speaker 2: with all of the engineering costs and the shortage spares, 57 00:03:30,520 --> 00:03:34,560 Speaker 2: despite them monopolizing that market, there was decisions should have 58 00:03:34,560 --> 00:03:38,080 Speaker 2: been taken a decade ago to start upgrading the fleet 59 00:03:38,400 --> 00:03:42,480 Speaker 2: to either ATR or DASH and those decisions have never 60 00:03:42,520 --> 00:03:46,400 Speaker 2: been taken because how Singaporean friends in particular have been 61 00:03:46,440 --> 00:03:50,480 Speaker 2: more in about taking money out of REX rather than 62 00:03:50,520 --> 00:03:54,960 Speaker 2: investing long term with major commitments. If you took it 63 00:03:55,000 --> 00:03:58,800 Speaker 2: over tomorrow and kept the same fleet, you would need 64 00:03:58,840 --> 00:04:02,240 Speaker 2: to be committing to two billion dollars worth of airframes, 65 00:04:02,480 --> 00:04:04,800 Speaker 2: which if it did come to the market, would be 66 00:04:04,960 --> 00:04:06,200 Speaker 2: very hard to finance. 67 00:04:07,080 --> 00:04:09,280 Speaker 1: Okay. Now, the Prime Minister Anthon now Al Benezi yesterday 68 00:04:09,320 --> 00:04:13,920 Speaker 1: told the ABC that REX already received subsidies. He basically said, 69 00:04:13,920 --> 00:04:18,200 Speaker 1: there's no strings attached to them. Do you think the 70 00:04:18,279 --> 00:04:20,960 Speaker 1: government needs to step in? It doesn't sound like it 71 00:04:21,040 --> 00:04:21,440 Speaker 1: wants to. 72 00:04:22,320 --> 00:04:24,960 Speaker 2: I don't think it neither. It should look one of 73 00:04:25,000 --> 00:04:27,719 Speaker 2: the arts that REX has had while ever it's had 74 00:04:27,800 --> 00:04:32,800 Speaker 2: John Sharp, a former National Transport Minister, they've been very 75 00:04:32,800 --> 00:04:38,039 Speaker 2: good at winging and complaining about about quantas about the airports. 76 00:04:38,400 --> 00:04:42,800 Speaker 2: They are confrontational in style. They've got had confrontations running 77 00:04:42,800 --> 00:04:48,000 Speaker 2: with airports governments and if you run the confrontational style, 78 00:04:48,279 --> 00:04:51,040 Speaker 2: it all comes around the corner to bite you. And 79 00:04:51,760 --> 00:04:55,880 Speaker 2: in the end this is not a quantus induced problem. 80 00:04:56,080 --> 00:04:59,880 Speaker 2: This is all induced within REX. No one has no 81 00:05:00,000 --> 00:05:03,200 Speaker 2: so Baddie outside. They've made all their own mistakes. 82 00:05:03,920 --> 00:05:07,120 Speaker 1: Okay, But is Quantus too big a gorilla in our 83 00:05:07,200 --> 00:05:11,280 Speaker 1: aviation sector, particularly when you look at what's happened previously 84 00:05:11,400 --> 00:05:14,040 Speaker 1: Bonza Obviously we speak to you about Bonza earlier on, 85 00:05:14,320 --> 00:05:16,200 Speaker 1: but you can even go back, you know, years before 86 00:05:16,279 --> 00:05:19,680 Speaker 1: that anst Virgin Indeed, is it just I mean, is 87 00:05:19,680 --> 00:05:22,719 Speaker 1: it a market issue? Is Quantus too big? What do 88 00:05:22,760 --> 00:05:23,159 Speaker 1: you reckon? 89 00:05:23,600 --> 00:05:25,920 Speaker 2: It's not? And I think one of the problems is 90 00:05:26,680 --> 00:05:31,800 Speaker 2: nobody wants to face the high costs of labor in 91 00:05:31,839 --> 00:05:37,240 Speaker 2: the Australian aviation industry. We want Rolls Royce services equal 92 00:05:37,279 --> 00:05:39,680 Speaker 2: with the best in the world. We want to pay 93 00:05:39,720 --> 00:05:43,640 Speaker 2: mini prices. We don't have low cost airlines. We have 94 00:05:43,760 --> 00:05:48,440 Speaker 2: low fares airlines and the cost of the aviation environment 95 00:05:48,520 --> 00:05:52,520 Speaker 2: here with all of the venture capitalists owning so much 96 00:05:52,560 --> 00:05:56,320 Speaker 2: of the airports, it is our high cost environment and 97 00:05:56,960 --> 00:05:59,880 Speaker 2: very difficult to make money in. And the fact that 98 00:06:00,080 --> 00:06:03,680 Speaker 2: quanders As have been able to recover as an indication 99 00:06:03,839 --> 00:06:08,800 Speaker 2: of their management rather than the poor management of others. 100 00:06:09,160 --> 00:06:11,839 Speaker 2: Let's face it, Bain and Company have still not been 101 00:06:11,920 --> 00:06:15,599 Speaker 2: able to get the float of Virgin away because the 102 00:06:15,680 --> 00:06:21,120 Speaker 2: market circumstances haven't been satisfactory and I don't think they'll 103 00:06:21,160 --> 00:06:25,440 Speaker 2: become satisfactory for some time. And that's why people like 104 00:06:26,200 --> 00:06:31,840 Speaker 2: Katar are taking a slab of Virgin and there may 105 00:06:31,880 --> 00:06:34,279 Speaker 2: be other airlines who will come into it in the 106 00:06:34,320 --> 00:06:37,120 Speaker 2: same way that Ettie Ad did, but somebody else will 107 00:06:37,160 --> 00:06:40,200 Speaker 2: come into Virgin rather than not relying on a float. 108 00:06:40,880 --> 00:06:46,400 Speaker 1: Stay with me there, we'll be back in a minute. 109 00:06:49,560 --> 00:06:54,400 Speaker 1: I'm speaking to international aviation consultant Neil Hansford. So you 110 00:06:54,440 --> 00:06:56,520 Speaker 1: talk about it being high cost in Australia. Is that 111 00:06:56,600 --> 00:07:00,400 Speaker 1: because of airport costs or is it labor costs? Why 112 00:07:00,440 --> 00:07:01,440 Speaker 1: is it high cost here? 113 00:07:02,240 --> 00:07:05,680 Speaker 2: It is clearly labor. As long as I've been in 114 00:07:05,720 --> 00:07:11,600 Speaker 2: the industry, it's labor. It's manning practices. A lot of 115 00:07:11,640 --> 00:07:17,400 Speaker 2: the practices in the aviation sector have come from the Wolves, 116 00:07:17,400 --> 00:07:20,560 Speaker 2: and it goes back to when the wolves pre containerization, 117 00:07:21,120 --> 00:07:26,640 Speaker 2: guarantee gang levels, guaranteed manning levels, guarantee sick leave, the 118 00:07:26,760 --> 00:07:30,920 Speaker 2: employees rostering their own sick leave to make sure that 119 00:07:30,960 --> 00:07:34,720 Speaker 2: the overtime is attained. The problem has never been the 120 00:07:34,760 --> 00:07:38,240 Speaker 2: paid wage is what we call the gray conditions and 121 00:07:38,440 --> 00:07:41,320 Speaker 2: is still as inherent in the industry as it ever was. 122 00:07:42,320 --> 00:07:44,120 Speaker 1: So what happens to Rex do you think can it 123 00:07:44,160 --> 00:07:44,480 Speaker 1: make it? 124 00:07:44,920 --> 00:07:48,600 Speaker 2: The problem is if you try to sell res, somebody's 125 00:07:48,600 --> 00:07:52,480 Speaker 2: got to be prepared to with very deep pockets to 126 00:07:52,880 --> 00:07:59,720 Speaker 2: refinance a fleet of modern turbo props. And maybe it 127 00:07:59,760 --> 00:08:06,160 Speaker 2: would have to be a downsized regional operation and it 128 00:08:06,200 --> 00:08:09,240 Speaker 2: can be saved, but it's going to be not by 129 00:08:09,880 --> 00:08:14,800 Speaker 2: pimply faced spartas merchant bankers. It will be by aviation 130 00:08:15,000 --> 00:08:20,600 Speaker 2: professionals who clearly understand the market. They understand the dynamics 131 00:08:20,640 --> 00:08:25,200 Speaker 2: of our regionals, our servicing of indigenous communities. They really 132 00:08:25,240 --> 00:08:28,480 Speaker 2: have to know the business and there's no textbook on 133 00:08:28,680 --> 00:08:33,800 Speaker 2: understanding the Australian intra state market. And for certain they 134 00:08:33,840 --> 00:08:36,560 Speaker 2: would have to stay out of trying to be the 135 00:08:36,640 --> 00:08:40,000 Speaker 2: smallest player on the Golden Triangle. You're not going to 136 00:08:40,000 --> 00:08:43,120 Speaker 2: be attractive if you do six flights a day as 137 00:08:43,160 --> 00:08:48,439 Speaker 2: against Quadas providing fifty four and Virgin with similar numbers. 138 00:08:48,840 --> 00:08:52,920 Speaker 2: So it's not a market for small players as attractive 139 00:08:52,960 --> 00:08:56,640 Speaker 2: as it looks as being the second biggest city pairs 140 00:08:56,920 --> 00:08:57,199 Speaker 2: in the. 141 00:08:57,160 --> 00:09:03,880 Speaker 1: World, Quantas or Virgin likely to be attracted to the 142 00:09:04,000 --> 00:09:07,960 Speaker 1: rump of Rex and I'm not saying the whole lot, 143 00:09:07,960 --> 00:09:09,360 Speaker 1: deliberately saying the rump of REX. 144 00:09:10,200 --> 00:09:14,439 Speaker 2: I don't think Quantus would want to. Look, they've provided 145 00:09:14,640 --> 00:09:18,360 Speaker 2: enough of the regional feed. Quantus only keep their Quantus 146 00:09:18,440 --> 00:09:22,560 Speaker 2: ling operations because of its feed to their interstate and 147 00:09:22,600 --> 00:09:28,560 Speaker 2: their international services and this historic commitment to rural Australia. 148 00:09:28,920 --> 00:09:32,040 Speaker 2: But I don't think it certainly wants to take a 149 00:09:32,240 --> 00:09:37,040 Speaker 2: big scoop of more regional roots and a lot of 150 00:09:37,080 --> 00:09:40,960 Speaker 2: the public service roots and other things that REX have 151 00:09:41,080 --> 00:09:44,400 Speaker 2: taken from other governments. So a lot of the things 152 00:09:44,440 --> 00:09:47,880 Speaker 2: that they're taking on should best have been done by 153 00:09:48,440 --> 00:09:53,319 Speaker 2: small five and six aircraft operators, not with the overheads 154 00:09:53,360 --> 00:09:55,160 Speaker 2: of a very big carrier. 155 00:09:55,720 --> 00:09:59,480 Speaker 1: Which ultimately means that regionals could lose out at the 156 00:09:59,559 --> 00:10:00,400 Speaker 1: end of the day in all this. 157 00:10:01,080 --> 00:10:03,960 Speaker 2: Yeah, well, what the government will have a responsibility for 158 00:10:04,520 --> 00:10:09,080 Speaker 2: is providing service to some of the monopoly roots that 159 00:10:09,120 --> 00:10:13,640 Speaker 2: have been granted by licensing. If the roots worth having, 160 00:10:14,240 --> 00:10:18,360 Speaker 2: I think Quatus or Virgin is there. So it's a 161 00:10:18,360 --> 00:10:21,400 Speaker 2: bit like bondser go and try and make a market 162 00:10:21,440 --> 00:10:24,439 Speaker 2: out of something that isn't there without government support. 163 00:10:25,040 --> 00:10:27,840 Speaker 1: Yeah, very difficult, Neil. Not only has this been entertaining. 164 00:10:27,880 --> 00:10:31,160 Speaker 1: It's the only time this podcast has ever heard the 165 00:10:31,200 --> 00:10:35,600 Speaker 1: phrase smart ass, pimple faced merchant bankers. That in itself 166 00:10:35,920 --> 00:10:37,880 Speaker 1: is fantastic. Thank you very much for talking to f 167 00:10:37,920 --> 00:10:38,760 Speaker 1: you'r and greed. 168 00:10:38,800 --> 00:10:40,800 Speaker 2: And the difference is I agree with it. But the 169 00:10:40,880 --> 00:10:45,439 Speaker 2: other thing that I like, and Rex, what they've done 170 00:10:45,920 --> 00:10:48,120 Speaker 2: is you go down to the beach and pick the 171 00:10:48,160 --> 00:10:51,360 Speaker 2: biggest fellow laying on the beach and kick sand in 172 00:10:51,440 --> 00:10:54,720 Speaker 2: his face and wonder what you getting humbled? 173 00:10:55,760 --> 00:10:58,760 Speaker 1: Yeah, Rex, v Quantas is what you're talking about. 174 00:10:59,440 --> 00:11:03,360 Speaker 2: Quatus. They took virgin on and they've got a bloody nose. 175 00:11:05,320 --> 00:11:06,720 Speaker 1: Thanks for talking to us this morning. 176 00:11:07,080 --> 00:11:10,640 Speaker 2: Always a pleasure to talk to people who understand the business. 177 00:11:11,040 --> 00:11:14,760 Speaker 1: That was International Aviation consultant Neil Hansford. This is the 178 00:11:14,800 --> 00:11:17,240 Speaker 1: Fear and Greed Business Interview. Join us every morning for 179 00:11:17,280 --> 00:11:20,000 Speaker 1: the full episode of Fear and Greed, daily business news 180 00:11:20,000 --> 00:11:22,320 Speaker 1: for people who make their own decisions. I'm Sean Elmer. 181 00:11:22,600 --> 00:11:23,200 Speaker 1: Enjoy your day.