Airline Regional Express has announced it will shut down its regular public transport services in all states except Queensland.
The decision comes after an emergency board meeting on Sunday, where it was decided that all operations will cease from April 6, unless federal and state governments are willing to accept the losses.
The airline's services in Queensland are already underwritten by the Queensland government.
Deputy chairman John Sharp said Rex was supportive of the "strong" measures taken by the governments to shut down state borders and imposing lockdowns as well as discouraging all non-essential travel.
"These measures will definitely reduce the number of infections from COVID-19, prevent the health care system from being overwhelmed and save many lives," he said.
"However, tragically for the airline industry, this means that we can expect the year-on-year reduction of passenger numbers to nosedive to around 80 per cent from the 60 per cent we are experiencing today.
"There is a tipping point in the airline business beyond which it will no longer be sustainable to operate reduced services."
"We believe that with only 20 per cent of our passenger numbers left we have reached that point and the Rex Group has decided that the quasi-suspension of all services at this stage presents the best option to preserve its cash."
Mr Sharp said Rex would only see a direct benefit from the government's package for the airline industry of $1 million a month, which he said was "grossly insufficient" to cover their expected losses of $10 million a month if they continued to run the reduced schedule initially announced last week.
"Australia's total airline revenue is AUD$23 Billion indicating that an equivalent effort in Australia would require a rescue package in the order of AUD$4.6 Billion instead of the AUD$715 Million proposed," said Mr Sharp.
The closure of passenger services will not affect Ambulance Victoria fixed-wing air ambulance services, charter contracts with mining companies, freight services and pilot training at its pilot academies in Victoria and New South Wales.