The Regional Express Holdings (ASX: REX) share price is up by 5.51% today, after the airline released a notice to shareholders this morning in advance of its annual general meeting.
Contained in the notice was a request to shareholders to vote for the proposed deal with PAGAC Regulus Holding Pte Ltd (PAG) to fund its push into domestic city routes.
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A bit of backstory
Regional Express (Rex) has predominantly been an air service provider for connecting cities to rural areas, and vice versa. However, since the collapse of Virgin Australia in April, Rex has been entertaining the idea of domestic flights from city to city.
In May, Rex addressed the media speculation and stated that it was in discussions with several interested potential parties to provide the equity necessary for the endeavour.
Since then, the airline has jumped numerous regulatory hurdles. The first being approval from the Foreign Investment Review Board (FIRB) needed for the investment from PAG.
The second major step was acquiring a High Capacity Air Operator's Certificate by the Civil Aviation Safety Authority. This makes Rex an approved regular public transport service provider.
The last leg of the process is for shareholder approval for the funding arrangements of up to $150 million from PAG.
The opportunity for Rex
The airline industry is still in disarray from the impacts of COVID-19. Virgin Australia went into administration, and Qantas Airways Ltd (ASX: QAN) now finds itself in the crosshairs the High Court over ongoing disputes regarding the airline not providing sick, compassionate or carer's leave for staff that had been stood down.
Hence, now presents an opportunity for a well-capitalised entrant into the domestic airline market, and Rex is attempting to be exactly that.
In Rex's notice to shareholders today, the airline highlighted the following opportunities:
- favourable terms for the leasing of Boeing 737-800NG jets used for domestic services, 6 of which have been secured with more under consideration
- a surplus of experienced flight and cabin crew in the Australian aviation market
- historically low fuel prices
- distressed economy favouring demand for quality services as affordable fares
- a surplus of slots and gate space at airports located in Australian capital cities over the next 18 months.
What next?
Rex's annual general meeting will take place on Friday 29 January 2021. By this point, we will know whether the shareholders have voted for or against the proposed funding from PAG.
If approved, Rex will commence its flights between Australian capital cities on 1 March 2021, with the maiden voyages being between Sydney and Melbourne. Who knows, you might be booking your next flight with Rex.
At the time of writing, the Rex share price is sitting at $2.01, putting the airline's current market capitalisation at $209.84 million.
