There's a lot that is not pure economics in the Australian regional market. When Rex began QLink as it was came to an agreement shortly afterwards where Rex would take certain under performing routes and leave others to the Q. This was very evident in Tasmania where Rex stuck to Wynyard and QLink took Devonport and Launy. This extended later to QLink pulling completely out of South Australia and leaving the state as a cash cow for Rex. NSW was a similar arrangement where QLink serviced the larger lucrative markets and left Rex to whatever else only suited one or two competitors. At that point Sunstate held the monopoly on Queensland with no real competition, especially when Macair left the scene. In the vacuum of real competition Rex put pressure on any local operators on major port routes and drove them out of business. When Rex announced it was going into Queensland is when QLink started to move back into Rexs territory, or at least increase services to ports like Wagga and Albury as a warning to watch your manners. The timing of the Jets couldn't have been worse for the Regional arm as QLink was just about to retire it's 300s. All of a sudden the 300s were retained, not only that, the PropStar venture in NZ collapsed with all those airframes returning to Australia. So QLink swung about and put all the aircraft to use in Australia, specifically on East coast routes held by Rex, South Australia was added, services to Wynyard, Merrimbula, Broken Hill. That was when Rex needed to step up and fight the war they had started, nope, lets use east coast crew to prop up WA and QLD, on routes that could change hands at a moments notice if the tender was changed.
I've worked against the Q400 and Q product and seen how it leeches passengers. It offers a much quieter and more important faster option to the smaller turbo-props, something the ATR does not compete well with. Mildura was a good example, the Q400 was sent there early on to compete with VAs E-Jet. Rex at the time had just had it's first major pilot shortage and had some small reliability issues. Q pretty much took over half of Rexs passengers, Rex had to drop schedule frequency to maintain some semblance of load. When Rex returned to reliable service, even with cheaper fares, the passengers did not come back, they had tasted the Q400 services and now knew the SAAB was old and noisy. Rex was saved by dumb QLink luck, that is, when VA got rid of the EJet service and had to reduce schedule, QLink decided to re task the Q400 to other ports and return the Q300 to Mildura. Suddenly it was slow again, delays into Melbourne, etc, ect. Passengers jumped ship back to Rex on cheaper fares as they could see that the 300 and SAAB were not much different. On larger ports in NSW its not as evident, as the QLink flights can book out and get so expensive that there is still profitable leftovers for Rex, although not when they get bigger or more frequent flights.
What QLink was able to do when Rex decided to go domestic is pull on the profit they made using the Q400 and bomb into Rexs routes, for subsidized competition. Rex being used to just bullying and complaining for what it wants had forgotten how to actually attract and keep customers by then, let alone having any marketing and sales ability. They also had become fixated on WA and QLD, which were both only profitable at the whim of the tenders, leaving their guts in the South East regional network exposed and ripe for exploitation. QLink on the other hand knew exactly what to do and where the money is.
Rex was always on borrowed time when it decided to shift its main focus away from its 'heart' lands. The airline was on a slow but steady decline from around 2010, the profits were made by strict cost control, rather than generating new revenue. The old squeeze blood from a stone (SAAB), by conducting minimal maintenance, having very little to no marketing, shelving upgrade programs and minimizing workforce. That's why so much overtime was available to Rex crew, cheaper to pay a captain $200k working their ass off, than two captains $300k, remembering there are significant other costs for a single employee behind the scenes on top of what they get paid.