The Transport Workers Union says administrators of Rex Airlines expect up to 610 jobs to be axed after the carrier entered into voluntary administration.
Its fleet of Boeing 737 jets, which provide services between the major capital city airports, have all been grounded.
Rex's regional services will continue to operate.
A statement posted to the Rex website late on Tuesday said Regional Express Holdings Limited and a number of its subsidiaries under the Rex Group had entered voluntary administration, with EY appointed as administrators.
It said Rex and Virgin were exploring opportunities to support regional customers, including Virgin Australia selling Rex's regional services.
The statement also said regional Saab 340 flights were continuing and Virgin was offering customers on affected capital city routes free-of-charge rebooking.
Rex is contacting affected customers directly.
A spokesman for administrators EY said "the aim was to restructure the business so it can continue to service regional Australia".
He said in the coming days there would be "further statements made about who is impacted and what it is going to take to turn things around".
The decision came after the company halted share trading on Monday amid speculation about the airline's future.
Rex, which is an ASX-listed company, requested a trading halt ahead of making a "material announcement dealing with a media report over the weekend".
While it did not provide details of the report it was talking about, it was understood to be a piece published in The Australian's Margin Call column that suggested the airline had called in a turnaround team from consultants Deloitte.
The newspaper reported the Deloitte partners were attempting a "restructure solution as part of a rescue package" but the firm told The Financial Review it was not seeking to be appointed as administrator.
A spokesperson for private equity firm PAG, which invested millions in the airline's expansion into major city routes, and ASIC declined to comment on the reports.
A statement on Virgin Australia's website said any customers needing to rebook flights should contact Virgin before August 14.
Customers travelling within 48 hours were advised to contact the Virgin Australia Guest Contact Centre on 13 67 89.
"What we're doing today is making sure that anybody who is booked on a flight that's been cancelled … they've got the opportunity to rebook on Virgin Australia," Virgin Australia chief executive Jayne Hrdlicka said.
The news came amid reports of travellers being unable to book flights with the airline on inner-city routes on Tuesday. Customers could still book on regional routes.
Union warns up to 850 jobs will be axed
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The Transport Workers Union (TWU) said administrators had contacted it and told it hundreds of staff would be made redundant.
It said administrators said up to 610 jobs would go across across the businesses.
"This is obviously distressing news for many workers," Michael Kaine, from the TWU, told the ABC earlier today.
He said the administrators "made it really clear that these positions are not going to be there".
"They have been made redundant. They are no longer required. It's going to be very tough today for hundreds of families hearing that news."
EY and Rex did not confirm the number of expected job losses when contacted by the ABC.
Mr Kaine said the administrators appointed by EY told him consultations with the affected workers would begin today.
"And we will hope in that consultation about these worker redundancies that we will get further details about what is to happen with the regional operation with Rex.
"This is a very serious situation. Once again we've got aviation under severe stress and we're now at the point where we are calling for the federal government to act and step in and assist to ensure that the regional operation that remains is viable and continues to operate and there are no further job losses."
Mr Kaine called on the federal government to "take an equity stake and be a decision-maker at the table to assist and stabilise Rex into the future".
The TWU said the affected workers must get their redundancy payments and their entitlements paid out "as quickly as possible".
"The administrator has indicated that there are serious concerns about the finances, particularly of the subsidiary that was running the capital cities routes," Mr Kaine said.
'We want to make sure, of course, that that doesn't suggest that there's any concern about payment of entitlements.
"We'll be calling on the federal government to make sure all entitlements are honoured.
"Today is a day where we think about 600 to 850 families who may well find out that they no longer have a job, and that is a shock, an absolute shock in any family unit, and our job is to support them in any way we can."
Virgin boss says Rex employees will be prioritised for jobs
Ms Hrdlicka said: "All Virgin Australia jobs that are open will get prioritised for Rex affected employees."
"We're intending to bring on three 737 from the Rex fleet, we can bring more Rex employees to new jobs, and it's important to make sure people in our industry are as well supported as they can be," she said.
Rex employees who were not authorised to speak publicly told the ABC on Tuesday that several crew members in Brisbane and Melbourne were locked out of their hotel accommodation due to bills the airline had not paid.
Crew members also told the ABC they were unable to use the company's Uber account due to payments being declined.
Staff have been growing increasingly frustrated by the airline's lack of official communication except for a routine flight operations notice issued to crew members and seen by the ABC that included a directive to ignore media reports and continue working as normal.
"Recent media speculation is a threat to the safety of our operations that needs to be managed like all other threats we face," the notice said.
"All crew must be vigilant in managing distractions and remain focused on the correct execution of [standard operating procedures] and sound [crew resource management] principles."
What went wrong for Rex?
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The regional carrier has been losing millions after a failed bid to take on Qantas and Virgin on major routes within the so-called "golden triangle" of Melbourne, Sydney and Brisbane, as well as Perth.
The airline first entered the lucrative inner-city market in March 2021, with nine return services from Sydney to Melbourne running a day.
Rex was the first new challenger to fly these routes in two decades, leasing 10 737 jets as part of the venture, but complained it was having issues accessing slots at Sydney Airport at peak times.
"Slot hoarding means that there are less flights, which means higher prices to the consumer," then deputy chairman and former Howard government minister John Sharp said earlier this year.
"This is a sign that the aviation industry is broken, it's actually in crisis," Mr Kaine told the ABC.
"We're looking forward to hearing back from Rex as a matter of urgency to try and get some more clarity on this situation."
He accused Qantas of "coming down like a tonne of bricks" on the mainline routes to "squeeze Rex out".
Qantas has said it is still not back to pre-COVID capacity levels across Sydney-Melbourne-Brisbane flights and it has "added capacity in line with demand".
Qantas said Rex was awarded the majority of additional peak slots it sought — 108 additional slots in total.
As Rex expanded to new routes, the airline cut its Sydney services from seven regional cities, including Coffs Harbour, Port Macquarie, Parkes and Orange, citing pilot, engineer and part shortages.
Rex downplayed the changes to its network at the time, describing them as minor and saying it hoped the measures were temporary.
In June, the company halted trading in its shares ahead of updated forecasts for the financial year.
Rex had initially estimated an operational profit but updated those expectations to a $30 million loss, again blaming the unexpected financial loss on a global shortage of pilots and engineers, as well as post-pandemic supply chain issues it said had disrupted its network.
In recent months, Rex has also been caught up in internal strife that came to a head in a boardroom coup.
The former executive chair, Lim Kim Hai, was replaced by Mr Sharp.
When asked whether the federal government would help keep Rex in the air if required, Prime Minister Anthony Albanese said on Monday it was "an important airline" and he was "very hopeful that they'll see their way through".
"We want to see not just those jobs maintained, but we also want to see those communities continue to have access to aviation that's so important for their economy and for their way of life," he said.
Federal Transport Minister Catherine King said ahead of the administration announcement that the government would support the embattled regional carrier but not "at any cost".
"We want to make sure that they have a future as part of aviation in this country and we are very determined to make sure that happens," she said to reporters on Tuesday afternoon.
"We obviously don't want to do that just at any cost."
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