Rex Airlines collapse: Entire cities and towns could be cut off: The one key decision that killed Rex and the perfect storm of challenges that could stop flights going to your city

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The collapse of Rex Airlines has sparked fears regional towns will be cut off from the rest of Australia, as aviation experts blame the company's demise on its decision to compete with Qantas and Virgin on routes between major cities.

Regional Express Holdings Limited went into voluntary administration late on Tuesday night, with up to 610 of its 2,000 staff facing redundancy.

Domestic flights between capital cities have been cancelled and rival Virgin Australia is offering affected customers the chance to transfer free of charge.

Regional flights, which are often described as the lifeblood of rural Australia, are still running for the time being.

'Regional flights are unaffected by the administration and will continue to operate as normal,' a spokesperson for Rex said. 

But this assurance has done little to dampen fears among regional communities which rely on the airline for everything from hospital visits and mail to groceries. 

Locals in the small outback Queensland town of Birdsville, which sits on the edge of the Simpson Desert about 1,500km from Brisbane and has a population of just 100, fear being cut off from the rest of the world.

Regional Express Holdings Limited went into voluntary administration late on Tuesday night, with up to 610 of its 2,000 staff facing redundancy

Domestic flights between capital cities have been cancelled but regional flights, which are often described as the lifeblood of rural Australia, are still running for the time being (pictured: map of Rex Airlines' routes, including those now cancelled)

They rely on twice-weekly Rex Airlines services to receive mail and groceries, to get to bigger centres for medical care or to fly their children to boarding school in the city.

Mayor Francis Murray, who grew up in Birdsville and was once one of those boarding school students, is keeping a close eye on the future of the embattled airline.

'The ripple effect it would have on these small communities (if Rex flights stopped) would be like if the internet went down in Brisbane,' Mr Murray said.

'It would affect everybody every day.'

The Birdsville 'milk run' flights, which are subsidised by the Queensland government, also take in other regional towns like Charleville, Bedourie and Mount Isa. 

Locals in the small outback Queensland town of Birdsville (pictured), which sits on the edge of the Simpson Desert around 1,500km from Brisbane and has a population of just 100, fear being cut off from the rest of the world

The federal government said it would work with administrators to ensure the longevity of regional aviation.

But many fear for the future of Rex, particularly after the collapse of regional operator Bonza in April.

'Supporting regional aviation should be a national priority, one that allows for equality of opportunity to be connected regardless of where you live,' Regional Capitals Australia chair and Albury mayor Kylie King said.

Rex's troubles come at a critical time as rural populations grow and prepare for large-scale energy projects.

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The Flinders Shire, in north-west Queensland, is ready to welcome workers for construction of the 840km CopperString transmission line.

'The adage "build it and they will come" has rung true; we're building the infrastructure and the workers are arriving,' mayor Kate Peddle said.

'However, we now face the stark reality of potentially having no planes to bring them here.

'I'm pleased that Rex Airlines has confirmed that we will have continuation of our regional service, but you have to ask: for how long?'

Concerns about Rex's future also come as regional Australians deal with dwindling essential services like banking and health care.

The regions cannot afford to lose aviation too, National Rural Health Alliance chief executive Susi Tegen said.

'Rural, remote and regional Australia bring in two-thirds of Australia's export income and provide 90 per cent of the food Australians eat,' Ms Tegen said.

'But we're not providing the infrastructure and economic levers that ensure rural communities continue to thrive.'

As floods cut off major roads in outback Queensland, the Rex service has been critical for getting supplies to the Simpson Desert Oasis roadhouse.

'We get flooded out here for months,' operator Robbie Dare said.

Aviation experts have argued that Rex's problems stemmed from its decision to fight for capital city passengers in the major city routes

'The normal Joe in the street don't realise how much we suffer out here in the wet times.'

Shaun Radnedge, mayor of Murweh Shire in southwestern Queensland, said the council had a partnership with Rex to fly in key workers not based in Charleville, in addition to tourists, mail and supplies.

'As far as our rural communities go, this air contract to bring people to communities is our lifeblood,' Mr Radnedge told The Australian.

'It offers us opportunities not only for work, but medical transport and things like that. It is a vital service.'

Mr Radnedge said he held grave concerns for the future of towns like Charleville if Rex ceased to exist.

His fears are echoed by residents of the West Australian town of Carnarvon, 900km north of Perth.

Merome Beard, who represents the electoral district of North West Central for the Liberal Party in the West Australian parliament, told the paper the collapse of Rex would be 'catastrophic'. 

'We need the government to have a plan in place to provide continuity of service,' Ms Beard told the paper.

'There's a lot of anxiety in the community at the moment and they're looking for certainty around services going forward.'

Transport minister Catherine King said her department had been in discussions with the airline's administrators about supporting Rex.

'Rex is an important airline for regional and remote communities and Rex’s continuation is in the best interests of regional Australians, the travelling public, its workers and the aviation sector,' Ms King said.

It comes as aviation experts have argued that Rex's problems stemmed from its decision to fight for capital city passengers in the major city routes. 

The airline sought to compete with Qantas and Virgin in the so-called 'golden triangle' of flights between Sydney, Melbourne and Brisbane.  

Rob Nicholls, associate professor and policy expert at the University of Sydney, told SBS News the challenge Rex created for itself was to compete directly with Qantas and Virgin on city routes, when it was established initially to only fly regionally.

'You've got one major airline, one challenger airline that is strong and well funded and it's just hard for a third player to compete directly when there's a limited number of people who want to fly between places,' he said.

Prof Nicholls said Rex found it harder to be agile on pricing in its new market.

'Rex had a challenge in being the new entrant on those routes and with a high cost base,' he explained. 

'We've already seen Bonza [collapse], its major issue was that the cost of leasing aircrafts was very high and it's precisely the same aircraft or aircraft type that Rex has leased for those big city routes.'