The potential demise of embattled regional airline Rex highlights an aviation system that is set up for failure, according to Australia’s former competition tsar.

The cash-strapped carrier has appointed administrators and grounded Boeing 737s on its intercity routes, while its regional services remain operational.

A potential federal government bailout has been flagged as key ministers stress the importance of the carrier being able to service the nation’s regions.

But former Australian Competition and Consumer Commission chair Rod Sims said criticism of Regional Express’ decision to compete with major operators Qantas and Virgin on capital-city routes ignored public-policy failures.

Sims said any suggestion only two airlines could service key routes was “nonsense” and said Australians would keep paying more for flights until the government addressed systemic problems in the industry.

“The government outsources the management of the slots at Sydney Airport to a company that’s majority owned by Qantas and Virgin, it is just unbelievable,” he told ABC radio on Thursday.

“When (Rex) wants those key slots they must have to be viable, they have to go and ask that from Qantas and Virgin.

“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.

Transport Minister Catherine King has said the government is working closely with administrators to ensure the airline’s survival.

But she has faced opposition criticism for leaving a review of demand-management slots at Sydney Airport sitting on her desk for months.

She said the government was working through a suite of significant slot reforms announced in February.

Commercial flights require a slot to land at Sydney Airport, with 80 available each hour of its 6am-11pm operation.

Swinburne University law and corporate governance specialist Helen Bird told AAP 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.

A failing company would not attract unconditional funding, Ms Bird added.

“Unless you saw it as an essential service, which it is in regional Australia, and you said, ‘well, if we are going to give that kind of money as a government we’ll need to have a shareholding stake’,” she said.

“We haven’t done that in the past, certainly with Qantas, and the government gave lots of money to Qantas during COVID.”

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 said.

“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.

– AAP