By Lewis Jackson and Renju Jose

SYDNEY (Reuters) -Australian airline $REX.AU$ will cut hundreds of job after it entered voluntary administration, the second small airline to do so this year, in a move that will further concentrate the country's aviation market.

Traditionally focused on servicing Australia's vast regional areas, Rex in 2021 began flights in the lucrative "golden triangle" between Sydney, Brisbane and Melbourne, which is dominated by Qantas Airways and Virgin Australia.

However the airline failed to meaningfully dent their control of the overall market, which was over 90% in March, according to the competition regulator. On Tuesday, Rex called in administrators Ernst & Young.

The administrators will shutter the subsidiary which operates Rex's Boeing 737 flights between major cities and make 360 workers redundant, according to the Transport Workers Union (TWU). A further 250 jobs will be cut elsewhere, it said.

Regional flights on its fleet of Saab 340 aircraft will continue.

Transport Minister Catherine King said the government had already provided Rex some support to keep its regional flights in the air but stopped short of guaranteeing a rescue package.

I think it is fair to say that we would be reluctant to just throw money at the problem," she said. "What we would want to do is ensure that there is a long term solution to the security of regional aviation."

Treasurer Jim Chalmers said the government was prepared to play a "constructive role" but declined to say whether it would take an equity stake, as called for by the TWU and others.

AVIATION REFORM

The collapse, which comes only three months after budget airline Bonza closed down, is likely to put a spotlight on the barriers smaller airlines face breaking into the vast, sparsely populated market dominated by Qantas and Virgin.

The competition regulator has called on the government to reform how airlines are allocated flight slots, especially on busy state capital journeys, where critics argue Qantas and Virgin hoard profitable routes to keep out new entrants.

The company which administers flight slots is majority owned by the two airlines, which reject the accusation.

The regulator said in May that Rex needed a larger fleet and more slots at Sydney airport to grow to the point where it could meaningfully compete with Qantas and Virgin.

While slot availability at Sydney airport was an issue, Rex's failure also comes down to the general slowdown in aviation as leisure travellers cut back, according to Morningstar analyst Angus Hewitt.

There are operational issues like that but ultimately airlines are hopelessly competitive," he said.

Virgin, which had flight slots at Sydney, had not reported an underlying profit since 2012 when it filed for bankruptcy in 2020, he added.

In February the government announced reforms to slot management at Sydney airport, including greater reporting requirements. A government review into the aviation sector is due later this year.

(Reporting Lewis Jackson and Renju Jose in Sydney; Additional reporting by Rishav Chatterjee in Bengaluru; Editing by Sonali Paul and Christopher Cushing)