Questions loom about whether the federal government will step in to save Regional Express, also known as Rex, after the airline entered voluntary administration overnight.
Australia's third-largest airline cancelled all flights between major city airports and grounded its domestic fleet of Boeing 737 aircraft.
Regional services remain unaffected and will continue to operate, with customers impacted by cancellations on major city routes offered replacement tickets free of charge by Virgin Australia.
Treasurer Jim Chalmers said the government has had "discussions" over whether taxpayer support would be used to assist the airline.
"Look, obviously there's been discussions. But I don't want to pre-empt the company statement," he told ABC News on Wednesday morning.
He indicated the priority was to ensure "regional services continue" and assist employees who might lose their jobs due to the announcement.
"[Transport] Minister Catherine King is also talking with the other airlines to make sure if there's job losses, that the other airlines can re-employ and re-deploy some of the workers as well," he said.
Greens leader Adam Bandt has urged the government to step in and save the airline permanently by purchasing it.
"Transport is an essential service, so why not protect people who rely on regional services by bringing this critical airline into public hands?" he said on social media platform X.
Is there room for a third major city airline?
On Tuesday, Prime Minister Anthony Albanese questioned the carrier's expansion into major capital city routes.
He noted Rex had received substantial public funding during the pandemic with "no conditions attached".
"One of the things I expressed concern about was having no conditions, so Rex, for example, moved away from their traditional role of being a regional airline into flights, for example, from Sydney to Melbourne," Albanese said.
Nationals senator Bridget Mackenzie has accused Qantas and Virgin Australia of putting pressure on Rex after it launched its city routes in March 2021.
"Let's not continue to pretend that Qantas's behaviour is acceptable in the aviation industry," McKenzie said.
"Every time they are challenged they seek to monster those airlines like Rex ... who have sought to actually give Australians another way of travelling."
Virgin Australia CEO Jayne Hrdlicka said it was imperative Rex could support regional communities.
When asked if her repeated use of "regional" was code for Rex to stay out of capital cities, she denied the suggestion.
"It's absolutely not," Hrdlicka told ABC News.
"We don't want that history lost and we know how important it is for those communities to be connected to the rest of Australia.
"If Rex isn't there to support them, it means we've got one player basically supporting regional Australia, and we think that competition is very important."
With additional reporting from the Australian Associated Press.
