Rex’s John Sharp on surviving the Omicron shutdown

“Rex has always been different, and that’s why we’ve survived. The pandemic gave us another opportunity to be different to everybody else because rather than reduce our aircraft, staff numbers and movements, we saw that this was a great opportunity to grow. We thought there’s never been a better time in our memory to expand into the domestic jet service business because all of a sudden – almost overnight – there were thousands of aircraft readily available. There were lessors who were distressed and would be happy to accept any price for a lease payment on one of their aircraft pushed up against a fence. 

“And for the first time in our memory, there were thousands of highly-skilled, qualified people we could draw upon to grow our business, including those who lost their jobs with Qantas and Virgin. And so last year, in November [2020], we were able to raise some capital, about $150 million, to facilitate that.”

In March this year, he continues, Rex launched its first jet service between capital cities by flying Sydney and Melbourne, before expanding to fly between Melbourne to Adelaide, Melbourne to the Gold Coast, Sydney to Gold Coast, Sydney to Canberra and Melbourne to Canberra. Next week, he adds, with a flourish, the business will go even further by flying between the NSW and Victorian capitals to Brisbane. In fact, the plan is to fly between every set of capital cities and expand their original regional network to boot. 

Introduction over, he gets down to work. “I want to talk to you,” he continues, “a little bit about one of the barriers that we face – and anyone else who wants to grow the airline business in Australia faces – and that’s the restrictions that apply to Sydney Airport. They were not caused by Sydney Airport, they were caused by” – he pauses here for effect – “um… me, many years ago in another life when I put a cap of movements to Sydney Airport at 80 movements per hour. And to make that function, we tried a thing called the slot system.”

Sharp’s other life is quite something. Before his stint as one of the key players in our aviation industry, he was a Nationals MP for 14 years, rising to become transport minister in John Howard’s first government, where he created his now-hated slot system. After resigning over the so-called travel rorts affair, he dusted himself down to embark on a downright impressive second life in business. His exhaustive LinkedIn profile could include his spell as chairman of the Aviation Safety Foundation of Australia; being a director of Airbus; his spell at working for trucking magnate Lindsay Fox; or the consultancy firm he founded, Thenford Consulting. That’s not including his time as deputy chairman at Rex, where he started in 2005. Whisper it, but it’s hard to imagine any other so-called disgraced politician managing to keep calm and carry on quite as admirably as he did. 

“So here I am, Peter, all these years later, nearly 30 years later, and what I have created then has come back to bite me in the bottom!”

The slot system, understood only by the most hardcore of aviation nerds, attempts to shield airlines from having to unexpectedly cancel flights and increase competition domestically, ensuring no one operator holds a monopoly. The slot is just that – a time slot that allows an airline to take off at a specific airport at a particular time. If they hold a slot, they can keep it, but only if they use it for 80 per cent of the time. Like the rest of the world, these rules were in Australia, suspended in the early days of COVID. But Coalition ministers weren’t to know the pandemic supposed to crush the industry into oblivion would see the dawning of a brave new era, with Bonza launching, Rex expanding and Virgin resurrecting. 

“What I have created then has come back to bite me in the bottom!””

“I will give you an example of what’s wrong with our current slot system at Sydney Airport,” says Sharp, warming to his theme. “Virgin is a good example. Pity Jayne [Hrdlicka, its CEO] isn’t here, so she could boo at this point! Virgin pre-COVID had 173 aircraft in their fleet. After administration, they had 58 aircraft. That’s a 56 per cent reduction. And now they’ve gone from that number to the 68 aircraft Jayne mentioned a few moments ago, but that’s still a 49 per cent reduction in their numbers pre-COVID. And yet today, Virgin has more slots in Sydney Airport than before, but half the number of aircraft. Virgin is sitting on slots and holding them, knowing that they will not use them, but they’ll keep holding onto them until the government changes the way things work.” 

“That’s our little story we wanted to share with you today.”

But before he gets ready to exit stage left and ready for Harbison’s inquisition, he has just one more tiny little thing he has to get off his chest. “If I may, Peter,” he says, “I might pass comment on something one of your guests said early yesterday morning, who commented on Qantas being the only Australian-owned airline in the country. Of course, I can’t speak for Virgin, but I can speak for Rex.”

Sharp is, of course, referring to the comments by his arch-nemesis, Qantas CEO Alan Joyce. The pair never let a pandemic get in the way of a good rivalry and have spent much of the last 18 months at loggerheads. It started – innocently enough, in hindsight – when Sharp criticised Qantas’ “predatory” decision to launch services on previously tiny, Rex-exclusive regional routes. Mere weeks later, Joyce gobbled up the bait to declare Sharp had presided over what he called “the worst launch of a new jet airline in Australia’s aviation history, with empty aircraft and announced routes that have never been flown”. Not one to be outdone, Sharp’s rear-guard offensive on the Australian Aviation podcast, no less, saw him say his opposite number considered himself a “wizard” but was letting his company down. 

“Qantas has got this arrogant approach that we’re too big to fail and an icon,” Sharp told me on air. “We play We Still Call Australia Home in the cabin to remind people that we’re the Australian airline. They call themselves a national carrier, but they’ve been privatised. They’re this big bully.” He concluded that Joyce was “such a hypocrite” and, for a dazzling encore, said, “It’s amazing he can look at himself in the mirror some mornings.” 

With Delta vanquished and hostilities resumed, Sharp dons the rubber gloves, digs into the trenches and carries on right where the pair left off here on stage in Sydney. “We have 65 per cent of our shareholding held by foreign owners. But I’d point out to you that Qantas has 49.9 per cent of its shares held by foreign interests. And I can also tell you – because I’ve seen it on the other side of the counter in another life – that Qantas has lobbied ever since I can remember to have that 49.9 per cent cap lifted so that they can have an unlimited number of foreign shareholders. 

“Bear that in mind, and we should probably not be so jingoistic about this. We should not necessarily be so xenophobic about this. We just need to work and focus on making our airline industry as competitive as we can be in Australia to make our airline operate as strong and sustainable as possible. 

“And with that, Peter, thank you very much for having me here today.” 

Two months later, it turns out we were both too quick to think COVID was over. Sharp is joining me for an interview via Zoom to talk not just about his appearance at CAPA but the introduction of Bonza and the industry’s recovery. After the high jinks of the conference, Sharp had to knuckle back down to the serious business, navigating a way through staff shortages and chronic cancellations caused by omicron’s phantom lockdown. How’s it all been, I ask? 

“Frustrating is the word that springs to mind,” he says. “We thought we were reaching the light at the end of the tunnel. I mean, it’s been a long, dark tunnel since the commencement of COVID. And the light was there, shining brightly! But Omicron came along and dashed that hope. Having said that, there are always positives. I’m amazed at just how well everybody in our businesses has responded. It’s been very tough on many people in our business, who have been stood down for, in some cases, nearly 12 months over the last two years. But things like our decision to impose compulsory double vaccination for our frontline staff was extraordinarily well supported by everybody. I just can’t get over how positive everybody is and how pleased they are to be back at work. And the other positive thing is we haven’t lost anybody. It shows we’ve got a resilient, robust culture amongst our people.”

In a sense, I add, the Omicron wave must have been far trickier to navigate than past outbreaks. Previously, we were in lockdown, or we weren’t, and when restrictions subsided, life snapped back to normal. But as we speak, Australians are steering clear of the pub and working from home, meaning few people are flying interstate. Worse, the mind-boggling COVID numbers in the country now mean everybody knows a handful of people who have caught the virus, with huge numbers isolating at home because either they’ve got it or live with someone who has. How on earth did Rex form a plan to cope on the fly? 

“We used to say, pre-COVID, that we did two schedules a year: summer and winter. Now we almost do a daily schedule.” Back in those heady pre-pandemic days, he says, the business could peak at its forward bookings and accurately guess what its load factors were going to be three weeks out and crew and roster accordingly. “What’s happened with Omicron is people have had their own self-imposed lockdown and decided they’re not going to travel. Alternatively, they’re not travelling because they’ve got coronavirus, or they’re a close contact to somebody with it.”

We’re talking at the end of January, as the first signs emerge that Omicron might be in a slow retreat. Has he seen any hints that things might bounce back? “To be honest, I don’t see bookings picking up. And I don’t want to be one of those people, like one of our better-known airline CEOs” – he means Joyce, but you knew that – “who likes to give forecasts, such as, ‘Our business will be back to 105 per cent of pre-COVID by this date. He’s made three or four Nostradamus-like predictions in the last two years. And none of them has come within a bull’s roar of being accurate. 

“I don’t want to look silly and make forecasts that aren’t going to come true. And so, I think the best thing to say is we take every day as it comes. The only question that is relevant in my view is when it will happen? One of the sad aspects is people have lost faith in predictions and promises made by state governments on border closures. People will be conservative about how they travel, and it will have a dampening effect for some time.”

I wonder how all of this will affect Rex’s plan to expand? Later in his CAPA speech, Sharp let slip the airline would increase its current 737 fleet from six up to 14. “I stand by that,” he insists. “The market will come out of this sort of COVID collapse, and we will add destinations to our network. But we’ll probably do it a little slower than we would have done, and we’ll probably do it a little later than we would have done.”

Yet when the domestic market recovers, Rex will face a new threat in Bonza. The budget airline will fly from smaller cities and towns direct to holiday destinations not currently served by any other carrier. Days earlier, its CEO, Tim Jordan, announced its fleet would balloon from three to eight (It even emerged days before this issue went to press that Bonza would fly a bigger-than-expected 25 routes across 16 destinations). The concept of flying point-to-point, as the industry parlance goes, is almost totally alien to the Australian market. Does Sharp, an old hand, really think it can work? 

“We’re a featherweight in the heavyweight section, and we’ve always fought very hard to stay in the ring”

“Bonza has to start from the very beginning. They’ve got no structure, no systems, no manuals, no space. They’re starting with a blank piece of paper, so it’s a very challenging task that they want to take on.” But do these new routes, I press him, really exist, or is it all just wishful thinking on Bonza’s part? “Well, it’s interesting because I’d like to think we’re reasonably good at what we do, so I’d like to think that we would have spotted these opportunities ourselves. In answer to a similar question before Christmas, Alan Joyce said, ‘If Qantas hasn’t found these markets that allegedly exist, then shame on Qantas’ and I agree.”

Talking of competition, I ask him more about those slot rules that he’s insistent are hampering Rex’s ability to compete. I put it to him that his criticism of the government is slightly unfair. The slot rules were suspended because – the thinking went at the time – the industry would struggle to survive without action being taken. It’s not fair to ask any airline, I suggest, to fly 80 per cent of the time if lockdowns are killing their demand. Still, Sharp believe the rules need an overhaul when the COVID leniency period is over. 

“We shouldn’t have been so generous with the 80–20 split,” he says. “It should have been 90–10. Or we should have put an audit process in place to make sure airlines were only cancelling flights within a slot for legitimate reasons or reasons related to something beyond their control. So that’s a mistake we made at that time.” He’s happy to get more into the nitty-gritty, too. The government, he says, needs to take those extra slots off Virgin and disperse them around the industry. “It’s a sizeable national asset just sitting there not being used and squatted on by, in this case, Virgin, who are using those slots to block other competitors from entering the market.”

I must say, since first covering the aviation beat two years ago, I’ve loved reporting on Rex, and Sharp in particular. Adored and loathed in equal measure, you can’t doubt they’re having a crack. Sharp knows the aviation business here in Australia is a contact sport, so he ensures every tackle is full-blooded, even if he occasionally goes too far. So, I put it to him, he loves being the plucky upstart, right? It feels, from the outside, that Rex’s expansion has given him personally something of a new lease of life.  

“We love the fight,” he grins. “We are the underdog. Over the last two decades, about 20 regional airlines have gone broke. Rex has managed not just to survive but thrive and has more than doubled in size during that same period. We survived because we fought above our weight. We’re a featherweight in the heavyweight section, and we’ve always fought very hard to stay in the ring.

“And we’ve had some tremendous fun in the last 18 months or so with our public utterances. I’ve enjoyed it enormously. We do it not because we want to say these things but because we want to survive. We want to grow. And that’s our purpose. And that’s why I know we will ultimately succeed in this. It’s just a question of patience and a modicum of luck. And if there’s one thing I’ve learned in life, it’s that perseverance is a very substantial quality to have, and that’s one thing Rex has proven we have.”