It's no different to regulated bus routes. You can't compete with existing public transport services on the same routes in many states, which leads to some pretty stupid situations, especially in the bussing industry. It's the main reason Melbourne has effectively 2 bus operators that own everything. Aviation is probably the most competitive form of public transportation in Australia. Until UBER the taxi industry was the same, however not much is really changing in that space except taxi plates lost value, tariffs are pretty much the same. Freight is another thing altogether... Now that being said, the regulation of busses came about because unregulated bus operators crashed a lot and were constantly boom bust...
In anycase the point of regulated routes is to provide some stability of service at a consistent price. A subsidy will be offered if it needs that to keep price down.