The Pulse by Seena Sarram
Spread the support for Regional Aviation beyond Rex
On 4 November 2025, the Australian Government announced that it will loan AUD 60 million to Rex Airlines as part of its sale to U.S.-based Air T. This brings the total support Rex received from the Government since entering voluntary administration to AUD 220 million. Despite the significant support, and despite ending its troubled jet operation, Rex Airlines still lost AUD 29 million since it entered administration and that figure excludes the Administrators’ fee, which is AUD 33 million and counting. This situation raises a legitimate question as to whether there are more effective ways to support regional connectivity. To help develop a sustainable regional aviation system the Government should provide its support more consistently, and to a broader range of stakeholders. This could include a nation-wide price cap and subsidy for regional flights, subsidies for airport fees and subsidies to airlines who commit to growing regional operations.
The Australian Government will likely always need to support regional aviation to some extent because of Australia’s sparse regional population. Only a quarter of Australia’s 27 million people live outside major cities, and only one tenth live in regional areas. Given Australia’s large land area, this makes it one of the most sparsely populated countries in the world and a harsh environment for regional aviation.
Modern commercial aviation relies on scale. When the 747 entered service in 1970 it cut airline unit costs in half, mainly because it was over twice the size of the next largest aircraft in the market. Lower costs enable lower fares, and lower fares have proven to profitably stimulate travel. This is how Ryanair became Europe’s largest airline, carrying 200 million passengers last year with an operating margin of 13%. It’s also why it’s sometimes cheaper to fly from Sydney to Bali than to Dubbo. Technological innovation may change this dynamic in the long term but, for now, the sparse population makes high-scale air operations in regional Australia commercially infeasible.
Pouring taxpayer funds into only one loss-making business is arguably not the most effective way to develop a sustainable regional aviation system in Australia. It does not help that a variety of issues have been conflated in the case of Rex. It’s reasonable to argue that Rex’s jet operation was troubled and that it affected Rex’s core regional operation. It’s also reasonable to argue that the patchy rebound of air travel after the pandemic weighed on Rex. But it would not be reasonable to argue that Rex was otherwise a healthy business with a strong outlook. Rex had at least one major pre-existing issue, which was also one of the reasons Administrators have been unable to find a buyer for an extended period: Rex’s core fleet of 34-seat turboprops are ageing, having an average age of over 31 years, and there is no similarly sized alternative in production today. The nearest alternative is the 48-seat ATR 42-600 which costs about 10 times the value of Rex’s current aircraft.
The main attraction of selling Rex to Air T appears to be that they have expertise maintaining Rex’s aircraft type. But that doesn’t address the core issues, it just buys more time. To foster a sustainable regional aviation system, the Government should consider alternative mechanisms that alleviate the cost burden associated with a lack of scale.
Some state governments are already doing this. In 2022 the Government of Western Australia introduced the Regional Airfare Zone cap, a price cap and subsidy scheme for regional flights in that state. The scheme has the effect of reducing airfares without eliminating the commercial incentive to operate flights. It’s been so popular that the WA Government recently extended the scheme beyond mid-2026, and Regional Cities New South Wales recommended the Government of NSW to implement a similar scheme in NSW. The scheme cost the WA Government about AUD 34 million in the last financial year, which is far less than the amount given to Rex and benefited the whole industry. The federal Government should consider implementing such a scheme across the country.
Another way to alleviate the cost burden for regional aviation would be to subsidise airport fees at regional airports. Airport fees are usually a significant component of airline costs, similar to enroute navigation charges for which the Government has an existing regional aviation subsidy scheme. The same day that the Government announced the sale of Rex to Air T, they also announced a separate package of support to regional airports worth up to AUD 5 million. Aside from the fact that the amount of support is small, it is restricted to airports that served Rex during its voluntary administration and not an industry-wide benefit. In response to the Government’s announcement of further support for Rex, the Regional Aviation Association of Australia (RAAA) explicitly called on the Government to “support all Australian regional airline operators not just Rex”. The Government should consider a more substantial subsidy that covers regional airport fees across the country, perhaps on condition that airports commit to upgrading infrastructure so that airlines have more flexibility in their fleet decisions.
If the Government is willing to subsidise airlines directly, as it has done with Rex, it should open the opportunity to a broader field of regional airlines. When the Government first announced that it would support Rex, which was only a booking guarantee at the time, their primary justification was to ensure the continuity of essential air services to regional communities. It is true that Rex is one of the largest regional airlines in Australia, but the announcement overlooked the fact that there are at least 14 other smaller airlines across the country operating over 200 aircraft on about 150 scheduled routes. There could be more, and the RAAA has asked the Government to support all its members in finding solutions for regional aviation. The Government assumed that no one would replace Rex, and by only supporting Rex the Government ensured no one would replace them. The Government should reconsider its focused support of Rex and instead support airlines that commit to growing regional operations, rather than merely licencing very low-volume routes which provides little incentive to growth the market. This alternative approach would achieve the policy objective of ensuring continuity of essential air services while incentivising airlines to grow.
The regional aviation system in Australia is likely to continue needing some level of Government support because of Australia’s sparse regional population. The sparsity prevents airlines from achieving the scale needed to reduce unit costs in the way they can achieve on high volume routes between major cities. Pouring taxpayer money into Rex alone does not address this fundamental challenge. Rex has a fleet renewal dilemma and the Government’s support buys more time for Rex to find a solution. To address the fundamental challenge for regional aviation and develop a sustainable aviation system, the Government should consider implementing the WA Government’s price cap scheme for regional aviation across the country, introduce a subsidy for regional airport fees akin to the existing subsidy for navigation fees, and financially assist airlines that commit to growing regional air services.