The airlines will be fine. As Chimbu pointed out there's been no GA in Europe for decades. Easyjet and Ryanair have been taking the vast majority of their pilots as 200 hour cadets for 20+ years now and most of their captains now are products of that system, they've never flown GA or C206's or anything of the sort, they've never known anything outside of a B737 / A320 and believe it or not they're actually all bloody good. As long as the training department is robust and knows their stuff, and is free to operate without management / financial pressure, the system works.
Furthermore there are more than a few halfwits floating around the contract world, guys with the legendary Aussie "GA background" who presumably have stick and rudder skills, but also have some pretty cowboy attitudes and interpersonal skills. A d
khead is going to be a d
khead whether he's got a GA background or not.
For what it's worth, I predict that the traditional "stepping stone" route from GA to airline is going to continue to decline, and eventually fall by the wayside altogether. Simply because cadet schemes are more profitable for the airlines and also easier to plan and administer. Your argument that the airlines "need" GA to give pilots the essential old-school stick and rudder that they need, is, I'm afraid to say, a complete load of baloney. I flew with plenty of ex-cadet captains in my Easyjet days and it would be absolutely ridiculous to accuse them, of being in any way less competent or somehow deficient, compared to the ex-mil or ex-GA guys.
You make a fair enough argument that there's always going to be a need for GA in Oz, therefore, GA needs to step up to the plate and solve their own problems. You seem pretty keen to spread the blame around the schools and the airlines and CASA for breaking down the supply of "quality applicants" that your business wants, but not so keen to ask what GA as an industry can do to attract and keep those guys.
You have already recognized that the stepping-stone model has broken down, therefore you need to also realize the logical conclusion from that, that you are no longer a "feeder" for the airlines, you are directly competing with them, to attract and keep the quality pilots that you seek.