Rex airlines enters voluntary administration with all flights between capital cities grounded

All Rex flights between capital cities have been grounded and the airline has entered voluntary administration just hours after the Albanese government suggested it would intervene to ensure the nation’s third-largest carrier didn’t collapse.

Late on Tuesday, EY – formerly known as Ernst & Young – announced it had been appointed as administrators of the company, and that the airline’s Boeing 737 operations between capital cities such as Sydney, Melbourne and Brisbane had been grounded, with Virgin Australia stepping in to offer impacted passengers rebooking “free of charge”.

Rex’s regional operations with its Saab 340 turboprop planes remained unaffected by the administration and would continue to operate.

The administrators said Rex and Virgin Australia were also exploring opportunities to support regional customers, including by having Virgin Australia sell Rex’s regional services through codeshare or interline arrangements, and making Velocity Frequent Flyer benefits available to Rex’s regional customers.

Earlier on Tuesday, the federal transport minister, Catherine King, said her department had held “significant discussions” with Rex’s leadership after the airline on Monday requested a trading halt ahead of a significant announcement to the market.

That announcement had been due by Wednesday morning.

King, speaking from the site of the future western Sydney airport, said the government would wait for Rex’s announcement to the ASX which was understood to be in response to a report in the Australian newspaper that the airline had appointed consultants from Deloitte to advise how it could turn around its financial woes.

“We’ll wait for Rex to make an announcement … but can I say very, very clearly, the government is in no doubt about the importance of regional aviation and Rex to regional aviation,” King said.

Related: Rex has stopped taking bookings amid reports the airline is about to appoint administrators

“We will work with Rex, we want to make sure that they have a future as part of aviation in this country, and we’re very determined to make sure that happens. We obviously don’t want to do that at any cost, we want to be involved very closely in what that future might look like.”

Rural mayors across Australia whose communities rely on Rex for connectivity warned of further isolation if the carrier went under, while leaders of larger regional centres feared airfare price hikes from Qantas if the routes were left without competition.

“They’re crucial – this is our highway,” the Devonport mayor, Alison Jarman, said.

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The airline’s board – which has been rocked by tensions in recent months – was scheduled to meet on Tuesday evening, amid a report from 10 News that airline staff had been locked out of hotels and company Uber accounts.

Rex on Tuesday afternoon was not taking bookings for its jet services between capital cities such as Sydney, Melbourne and Brisbane. Regional services could still be booked at that time.

The airline on Monday requested a trading halt following the weekend news story it had engaged Deloitte. Bloomberg first reported on Tuesday that Rex was set to appoint EY as administrators.

Bridget McKenzie, the opposition transport spokesperson, was cautious about the government’s intention to help Rex, noting revelations in Guardian Australia on Tuesday that King had known about Bonza’s financial instability 10 days before it entered administration but turned down the budget carrier’s plea for financial help.

McKenzie blamed the government for failing to help smaller airlines compete with Qantas, which Rex had recently tried to do with flights between capital cities.

“As soon as Rex made the announcement they were going to tackle the big boys, take them on on that golden triangle and those capital city routes, Qantas all of a sudden took retribution on marginal regional routes. [Qantas] lost money, a bit like $1 milk for supermarkets … to actually damage Rex’s financial position,” McKenzie told ABC TV.

The federal Greens leader, Adam Bandt, said the prime minister “should consider just buying Rex”. “Transport is an essential service, so why not protect people who rely on regional services by bringing this critical airline into public hands?” Bandt said.

On Monday, the Australian stock exchange announced it had suspended trade in Rex’s shares at the airline’s request “pending it releasing an announcement”. Rex said the trading halt came ahead of an announcement “in relation to a news article published on Saturday”.

The competition watchdog’s most recent domestic airline monitoring report stated Rex had a 5% market share in March. At the same time, now-collapsed budget carrier Bonza held 2%. Rex recorded the lowest cancellation rate in March at 0.8% compared with Qantas at 3.8%.

Rex in February reported a loss of $3.2m for the first half of the 2023-24 financial year, compared with a $16.5m loss in the previous six months. It said escalating costs, particularly for fuel, made it hard to predict full-year profitability.

Rex was initially called Regional Express following its formation after the death of Ansett. Rex has mostly been a regional carrier, operating 36-seater Saab 340 turboprop aircraft.

However, in 2020, Rex began vying for a share of the lucrative market between capital cities, seizing on the instability in Australia’s domestic aviation market which occurred when Virgin Australia entered administration and underwent a significant restructuring.

Rex leased Boeing 737 jets, including several formerly flown by Virgin, and launched routes between Sydney, Melbourne and Brisbane.

However, it has struggled with numerous issues, including allegations of anti-competitive behaviour by Qantas, and difficulty accessing strategically important Sydney airport slots at peak times – a gripe echoed by Bonza .

Rex has also confronted a shortage of parts to repair its ageing fleet of Saab 340 aircraft for its core regional operations, which have also been hampered by a shortage of pilots for the smaller planes.

Rex shares have halved in value over the past 12 months and were trading at 56.5 cents before being suspended this week. Sources say the drop concerned PAG Asia Capital, the private equity firm that funded Rex’s expansion into capital city routes to the tune of $150m.

Rex has also been rocked by leadership tensions, with major shareholder and former executive chair Lim Kim Hai ousted in June.

Lim was replaced by John Sharp who had been deputy chair of the board. Sharp, a former Nationals federal transport minister, has in recent years made headlines with his criticism of Qantas and aviation policy.

Lim has since pushed to remove Sharp and three other directors from the board, with a special shareholder meeting due to vote on Lim’s demands.

The prime minister, Anthony Albanese, said on Tuesday he would consider proposals to save the company but added Rex already received substantial public funding with “no conditions attached”.

“One of the things I expressed concern about was having no conditions so Rex, for example, moved away from their traditional role of being a regional airline into flights, for example, from Sydney to Melbourne,” Albanese said.

- Additional reporting by Daisy Dumas