You can listen to the Front on your smart sneaker every morning to hear the latest episode. Just say play the news from the Australian. From the Australian, Here's what's on the Front. I'm Claire Harvey. It's Thursday August one. A convicted child sex offender has been spared deportation under Australia's new visa rules, in what looms as the first
test for new Immigration Minister Tony Burke. Philippines man Earl Sanchez was last year convicted of sexual intercourse with a child between the ages of fourteen and sixteen, but a tribunal says he can stay despite the government's attempts to deport him. That exclusive is live now for our subscribers at the Australian dot com dot au. If you've got
a mortgage, heave a sigh of relief. Inflation grew by three point eight percent in the year to June, but that might just spare us another rate rise when the Reserve Bank Board meets on Tuesday. Passengers are already grieving for Rex, the airline that's gone into administration amid board
chaos and financial losses. The Albanezi government is under pressure to bailout or take an equity stake in Rex, but it's warning there will be strings attached today, how Rex flew into the storm and whether taxpayers should come to the rescue. Friday afternoon in the Australians newsrooms is tense. We've got a giant paper to publish, the Weekend Australian, and an always hungry website and app where we need
to be breaking big news all the time. Joanni Bishan edits our business call them Margin Call, which is a must read for anyone in industry or government. It's a mix of entertaining gossip about powerful people and also hardcore news which regularly breaks in the column. On Friday, he got a call tipping him into a potentially massive scoop.
It was quite early on Friday afternoon, and I received a call, as one usually does in this industry, with some information that at first quite alarmed me. The information was that Rex was in serious financial straits, that consultants were getting under hood of the airline so to speak, and even more concerningly, that it was possibly heading into financial ruin such that administrators were about to be appointed. Now my reaction to that was, well, I don't think
that's true. I think it's possible that they brought in consultants. A lot of companies do that. But the idea that Rex, which was operating flights at that time, had planes in the sky at that very moment, would be going into administration with a matter of days or a matter of weeks, it sounded franciful. In the end, I made a decision to write the story, but took a very cautious approach to mentioning the A word. I did end up using it, but Eve and I was quite skeptical whether we'd end
up actually going down that route. And three days later, on Monday, the company entered a trading halt, and here we are, they're in administrations.
After hearing demarche of Aki. Rex is Australia's third airline after Quantus and Virgin It flies a bunch of regional routes like Perth to Monkey Mayer where tourists can swim with dolphins, Brisbane to Thaga, Minda, Cairns to Dumagy, Sydney to Narandra. Our reporter Lillie McCaffrey has been speaking to Rex passengers. I'm really sorry to hear this happened to Rex.
They're a fabulous little local airline. We rely on them a lot, and I'm really sorry for all the stuff too.
It's such a shame. It's just really sad.
I really hope that the government or get behind them and support them to get them back up and running. I mean, Australia is regional, so we need support in that area. You know, they have supported Quantas in the past. Everybody knows about that.
I just hope that for the guys that you know work for REX, they're able to find like we're able to save for REX, and that you know, these guys are able to get work or still have work.
There's genuine sadness in the community. I think it almost is a piece of critical infrastructure or in essential service for people living in the regions. But I've noticed from the commentary, on the stories I've written and on talkback as well, people don't want to see this airline go under. Neither as the Prime Minister anyone in government. The last time I flew REX, I went from Sydney to Adelaide
and back. It was quaint, it was fun, it wasn't a packed flight, which is always pleasant, food was good, and I remember thinking this was actually a really puzz experience. I should really fly the airline more. It was also cheaper than the mainstream airlines at flight Adelaide. So yeah, it's quite sad news that this has happened. I don't think anyone wanted this.
Funnily enough, REX arose out of another airline crisis in two thousand and one and set collapsed. The federal government made a multimillion dollar cash bailout of Anset's regional subsidiaries, and a group of Australian and Singaporean investors got together to buy them and start a new airline. They called it Regional Express REX. So YOI, it seems like REX
is really teetering on the brink. They've grounded flights between the major cities, and those flights seemed to be part of Rex's problem, don't they.
Yeah, well, it looks like Rex's problem wasn't so much the regional side of its business. That side of the business was traveling quite well back during COVID during the pandemic. At the start of twenty twenty one, REX basically got one hundred and fifty million dollars from an outfit called Pacification Group.
It's an investment firm.
They use that money to buy seven three seven planes from Virgin and their idea was they were going to launch this expansion into the capital city market or what's commonly known in aviation circles as the Golden Triangle. That's the prized busiest routes between Sydney, Melbourne and Brisbane.
Australia's friendliest and most reliably airlied now brings you to Sydney three times a day. Fly Rex. They keep fares low. REX our heart is in the country.
Sounded like a great idea at the time. It hasn't quite gone to plan. They've been up against Quantus, Virgin Jetstar. Their market share hasn't hit the double digits. The losses have been severe, something in the order of a million dollars per week on that route, the Golden Triangle route. And I guess we all sort of knew that REX wasn't doing that well. Its results have always told that story.
What we didn't know was that there had been consultants who had been brought in over the past couple of months, and that was done by Pacification Group that's the company that invested the money with rexbec in twenty twenty one. The hope, of course, was to try and figure out how to separate the two sides of the business or stanch the outflows of the money on those capital city routes.
Hasn't worked. What's interesting about it is that no one saw this coming.
So there's one issue, which is that it entered a very competitive market in that Golden triangle that you described. But there's also been board kind of wrangling going on at Rex. What does that boiled down to? That conflict?
So the corporate regulator Assik began asking questions of Rex about certain potential conflicts of interest that arose with a certain board member. The sum of it was that the executive chairman, a guy who had been leading the company for twenty one years, he was basically hot swapped for the deputy chairman, John Sharp. He's a former Transport minister and the Howard government. And again this came absolutely out of the blue. So you suddenly had this long standing
executive chairman, he's turfed out. In comes the deputy chairman and within about a week or so the guy had been turfed out. He lobbed a requisition with the market basically saying well, I want four of these directors gone, I want two of my guys put on the board instead. So you've had this boardroom bus stuff for reasons which weren't really made clear to the market.
Now this has happened.
Basically, you've had a combination of a governance problem happening at the top. You've had a financial issue happening at the bottom with this Capital City triangle expansion. And whether the two are related, I mean that would seem plausible, but certainly the airliners hit troubled straights.
Now the Transport Workers Union wants the government to take a financial stake in REX. So it's this real sort of fundamental question about what we want from aviation. You know, do we consider it basically public transport it's something that we expect the government to ensure gets delivered. Or do we regard it as something that private companies can offer if they want to. How do you think we sort of navigate our way through those questions?
Well, we always do navigate these questions, don't we.
I Mean, the question comes up perpetually government ownership and equity stake nationalized, not to nationalized. We've got the Transport Workers Union now calling for the government to take an equity.
Stake in Rex. What does that give you?
In the words of National Secretary Michael Kine, it gives government a seat at the table. To me, that really sounds more like it's an umbilical cort a lifeline.
You know, it's too big to fail.
If you've got government sitting at the table, there's always an opportunity for recovery. I think the tw would say that, then you have propositions of a government run airline altogether, one that's managed as an essential service for the country.
Not the worst idea in the world.
It seems like a lot of people who are commenting on this story would like to see that. The counter argument to it that hasn't changed. You know, you have a nationalized airline. It's costly, it can be in a fiction, it can be sluggish with innovation. An equity stake might be the halfway point.
Coming up after the break, Virgin has offered to fly REX passengers for free. Nice or opportunistic. Our subscribers were the first to know about this story, and a subscription is a lot cheaper than a freezing cold sandwich on a flight these days. Check us out at the Australian dot com dot au you only ninety four percent of air travel in Australia is on either Quantus or Virgin.
Let's just talk about Quantus for a moment. It's an extraordinarily powerful company in the Australian market, isn't it.
Well, yeah, I mean every MP upon entering Parliament is given Quantus chairman's lounge access. Virgin has their own version of that, and they provide a similar service to politicians entering Parliament too. It's that classic execution of soft power. Politicians declare their membership with these clubs within about five minutes of walking into Parliament. Some might say it's pretty hard to turn down overtures from an airline on any issue. When they're comping. MP is a plush seat and glass
of pinot at Camber Airport whenever they travel. They'll quietly get the ear of every politician this way. Others might say it's a really savvy way of doing it. It's perfectly legal. But of course this is the way the airlines have been doing it for years. It's worked very effectively.
And now, as for Virgin, the other competitor, who also plays things pretty hard, they are offering to fly any Rex passenger who's been stranded for free. And they're also putting it out there that if REX employees want a job, they should come and ask for one at Virgin. What's going on there?
The question is why are they doing it?
Well? On its face, it certainly looks like it's altruistic. It's possibly the right thing to do. Who knows, maybe the government got in their ear as well. We don't see quantas doing it just yet, maybe they will in the near future. On the other hand, it's partly tactical. Presumably more people using the Virgin airline might discover that they actually like it and they want to keep using it. Offers have also been made to REX staff potentially if
they need assistance. You can see how Quantus, Jetstar and or Virgin might try and move into this space for their own tactic advantage given what's happening to REX. But at the moment it's the right thing to do, certainly helping out Australians. I don't see how anyone loses out of it.
Quantus and Virgin might argue that this is already a very competitive sector. They compete hard with one another. REX is a third airline. We've seen other third airlines come and go. Would Australians really lose out if REX word to go into liquidation.
Well, I think they would.
I mean, reducing competition in a competitive market is never a particularly good thing for prices, which is what Australians care about. But I think more importantly, REX services destinations that the others don't. And if people in regional Australia need to get where they need to go, while people in the cities want to venture into the regions for all sorts of economic and touristic.
Purposes, it will just be harder for them to do it. That's not good for anyone.
Joanni Vashan's margin call column has the scoops and the skull, but check it out right now by joining ours subscribers at the Australian dot com dot au