Regional airline Rex says it will spend $200 million to fly between Australia's capital cities, sticking it to Qantas and Virgin

• Australian airline Regional Express (Rex) will raise $200 million to create a new serice flying between capital cities, not just to them, the AFR has reported.

• Promising it will be between a budget and full-service airline, Rex said it is looking to lease around 10 planes and hire new staff at a time when other airlines are struggling.

• The proposition would see Rex compete with the likes of Qantas, its budget subsidiary Jetstar as well as Virgin Australia, which entered administration last month.

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After a possible Virgin collapse seemed like it would leave Australia with just one major airline, the country could soon boast three as its smallest aviator looks to expand.

Regional Express (Rex), scraped together out of the ashes of that other failed airline Ansett, will invest $200 million to fly between Australian capital cities as well as to them, the AFR reported.

The service would compete directly with Qantas, its budget subsidiary Jetstar, as well as Virgin Australia, in whatever form it may emerge from administration – if it does at all.

In fact, Rex's expansion plans would be the last thing Virgin administrators would want to hear, as they search for buyers for the struggling airline saddled with some $6.8 billion in debt. After Qantas threatened to undercut the market with fares as low as $19, another rival will only undermine Virgin's business further and potentially push down the amount new investors are willing to throw into the Mark 2 venture.

Rex has indicated the new airline would offer something between budget and full-service and fly between Australia's five biggest capitals, Sydney, Melbourne, Adelaide, Brisbane and Perth when it launches in early 2021. It believes it could compete on price due to what it says is a lower cost base than Virgin and possibly even Jetstar.

As airlines both locally and abroad struggle, Rex says it's the opportune time for a profitable one to expand, with plans to lease around 10 planes at distressed prices.

The airline has indicated the $200 million it would require could be raised through the selling of new shares on the ASX, with conversations ongoing between it and private equity funds and investment banks. It entered a trading halt on Tuesday pending what's expected to be a formal announcement to the ASX.

Business Insider Australia has contacted Regional Express for comment.