Rex calls force majeure and cancels Queensland flights
31 March 2020, Written by David Simmons
In a strange turn of events regional airline Regional Express (ASX: REX) has announced it will shut down its Queensland services, just days after thanking the Federal Government for much-needed financial support.
Rex has essentially performed an aerial backflip; over the weekend the company's deputy chairman John Sharp welcomed a $198 million support package for regional air networks.
Now the company is blaming a lack of Queensland State Government support for the shutdown of all air services in the State.
"While the Federal Government has announced several assistance packages for airlines, no concrete details have been forthcoming and more importantly, not a single cent has been disbursed," says Rex.
"Further, the Federal Government is only funding a minimum essential service of one return weekly flight per route, and this reduced schedule approach was rejected by the Queensland State Government."
"With cash fast running out and no immediate prospect of a workable solution from the Queensland State Government, Rex has no choice but to declare a force majeure for the contract and suspend all services on Queensland regulated routes indefinitely until it has the ability to service the contract in a commercially viable manner."
The shutdown of services will take effect from tomorrow and will include the five regulated routes operated under Contract with the Queensland Government. Just last week however Queensland was the only State that Rex intended to operate in specfically because of Queensland State Government support.
Since Rex first contacted the Queensland Government for further assistance the airline says its financial position and cash flow has seen a sharp degradation due to a drop of patronage arising from travel being limited to essential travel only, as well as the border control measures being put in place across the nation.
Affected passengers will have their tickets placed on credit for when services resume.
Rex will continue to service its remaining network in Australia outside of Queensland on a scaled back basis.
Air New Zealand to become a "much smaller airline"
In other aviation news Air New Zealand (ASX: AIZ) has announced it will be reducing its workforce by 3,500 people in the coming months as it grapples with the problems raised by Covid-19.
The impact of losing many international tourists to the country will see the group's annual revenue dive from $5.8 billion to an expected $500 million.
"This has the potential to be catastrophic for our business unless we take some decisive action," says Air New Zealand CEO Greg Foran.
The company is planning on becoming a "much smaller airline" and is transitioning into a domestic airline with limited international services to keep supply lines open for the foreseeable future.
"Our monthly labour cost alone is $110 million," says Foran.
"We have $960 million in cash reserves today, but with very little revenue coming in, our cash balance will fall by tens of millions of dollars each week."
"And I am acutely conscious that a smaller Air New Zealand also comes with a significant impact on many of our suppliers, some of whom will probably have to reduce the size of their workforces because we won't be doing as much business with them."
Updated at 10:30AM AEDT on 31 March 2020.
Author: David Simmons