I agree it’s a very complex issue and it is exacerbated by CASA amongst other things. It needs to be easier to start aviation businesses and you don’t need QF level of bureaucracy and international airport regulations to run a country airline and aerodrome but CASA will make sure you have that.
Ironically country RPT competes with Train and Bus services which are also subsidised. If those modes of transport actually paid the full economic price of travel you will find that aviation might be more viable. There is also a lack of airports in major cities too which just makes it more expensive for country airlines to fly there.
So all things considered all you can do is limit competition and create a monopoly route that is regulated if you want to go down that path. Once you start throwing public money at it, it will just become a bottomless pit and every country town in Australia will be on the gravy train. Just look into the NDIS if you want to see what unrestrained government subsidy looks like. That was set up with ‘good intentions’ and ‘ we can afford it’ yet now look where it has gotten to.