Queensland-based SkyAirWorld became the latest carrier to respond to the worsening economy when it announced on Wednesday it was grounding three of its five aircraft and axing 40 jobs.
The news that SkyAirWorld would limit its flying to two Embraer 190 jets came as Virgin Blue said it would cut capacity by 8 per cent and remove five aircraft from its domestic operations.
SkyAirWorld chief executive David Charlton said the airline was talking to lessors about new homes for its two ERJ-145 and E-170 jets.
He said the decision was necessary to ensure the carrier's long-term sustainability after the downturn in the mining industry, and general decline in overall aviation activity.
"As a result we've made some decisions to try and restructure the organisation for long-term health," he said.
Mr Charlton said the airline intended to continue contract flying in Queensland and Western Australia, where it recently won the contract to operate services between Cocos Islands, Christmas Island and Perth in April.
"I think regional aviation in Australia is about to become a last man standing, because of the challenges it faces ... relating to infrastructure and the regulator and being in business in these very tough economic times," Mr Charlton said.