The prime minister has denied government policy enabled the potential demise of key regional carrier Rex despite Australia's ex-competition tsar describing the aviation sector as set up for failure.
The cash-strapped carrier has appointed administrators and grounded Boeing 737s on its intercity routes, while its regional services remain operational.
Former Australian Competition and Consumer Commission chair Rod Sims said criticism of the decision by Regional Express to compete with major operators Qantas and Virgin on capital-city routes ignored public-policy failures.
Mr Sims said any suggestion only two airlines could service key routes was "nonsense" and Australians would keep paying more for flights until the government addressed systemic problems in the industry.
But Prime Minister Anthony Albanese on Thursday encouraged Rex to look in the mirror, suggesting its decision to target well-served capital-city routes was the reason it became unstuck.
A potential federal government bailout has been flagged but servicing regions - as opposed to competing on popular routes - would be the key aim of any deal.
"Sydney to Melbourne is not a regional route, it's one of the top-10 routes in the world, and at various stages, has been literally number one in the world," Mr Albanese said.
"We're working through that with the administrators who've been put in place to make sure that any damage that occurs is limited, and that we continue to look after the workforce, but we continue to look after those regional communities as well."
Mr Sims earlier said the government's outsourcing of Sydney Airport slot management to a company majority owned by Qantas and Virgin was "just unbelievable".
"When (Rex) wants those key slots they must have, to be viable, they have to go and ask that from Qantas and Virgin," he told ABC radio.
"The government sets this system up for failure, it sets this system up for a duopoly and therefore sets the system up for higher airline prices than Australians should be paying."
Research provided by the Australian Airports Association said airfares on flights between Melbourne and Perth dropped by 40 per cent when Rex began competing on the route, adding 46,000 seats a year in extra capacity.
The government has faced opposition criticism for leaving a review of demand-management slots at Sydney Airport sitting on Transport Minister Catherine King's desk for months.
Commercial flights require a slot to land at Sydney Airport, with 80 available each hour of its 6am-11pm operation.
Ms King said the government was working on its response to a review of the key airport's slots, adding it had done more to reform the aviation sector than the coalition had done after a decade in office.
"We will (work with administrators) in the best interests of the travelling public and the taxpayer," she said.
Sydney University professor Rico Merkert said Rex was making considerable profits on its regional flights and it might not need government support.
"On many of the routes there was little to no competition, allowing Rex to generate high yields and sustainable profit margins," the Institute of Transport and Logistics Studies deputy director told AAP.
"The aircraft were old and they would have had to replace them at some point but that was in the planning, including electrification projects."
In February, Rex reported a net loss of $3.2 million for the first half of the 2023/24 financial year as it burned through money spent on its major city services.
Swinburne University law and corporate governance specialist Helen Bird said a government bailout of Rex would need strict conditions and could even require it to take a seat on the board.
"Whoever is the new investor, be it government or otherwise, is essentially taking up fixing a corporation that got to where it is because of poor governance and poor management," she said.
