The commonwealth will underwrite a range of flights, spending $165 million to help the ailing airlines to stay in the air.
Deputy Prime Minister Michael McCormack said the move was about ensuring essential workers including frontline medical and defence workers were able to travel.
It will also enable the movement of crucial freight like medicine and personal protective equipment.
“We know that a strong domestic aviation network is critical to Australia’s success and today’s announcement demonstrates our commitment, yet again, to maintaining connectivity during this pandemic,” McCormack said.
“This investment will also help Australians returning from overseas, who find themselves in a different city after 14 days of mandatory quarantine, complete their journey home safely.”
It covers flights from all state and territory capitals, along with Albury, Alice Springs, Coffs Harbour, Dubbo, Kalgoorlie, Mildura, Port Lincoln, Rockhampton, Tamworth, Townsville and Wagga Wagga.
The new arrangements will last for eight weeks with the government set to undertake a review which will determine if more support is needed.
The announcement is well short of the $1.4 billion government bailout Virgin is hunting to stay alive.
Treasurer Josh Frydenberg is instead putting pressure on the company’s shareholders, who he said had “deep pockets”.
Frydenberg said the government was continuing to talk to the company as well as Qantas, having already provided more than $1 billion in relief for the aviation industry.
“We want to see Virgin continue, we want to see two airlines in the domestic market, but we’re not in the business of owning an airline,” he said.
“Where our focus has been is on providing industry-wide support.”
Prime Minister Scott Morrison said any bailouts would be sector wide, dousing Virgin’s chances of a massive cash injection.
“I’m aware that there are many market-based options that are currently being pursued, and I would wish those discussions every success,” he said.
Virgin on Thursday announced a further seven-day trading halt for its shares to continue talks on financial aid and restructuring alternatives to help it weather the crisis.
But the airline didn’t identify who the talks are with.
Reuters reports Virgin is also in talks with creditors about debt restructuring options such as a debt-for-equity swap and has hired UBS, Morgan Stanley, Houlihan Lokey and Deloitte as advisers.
McCormack said aviation sector employers dipping into their own super to bail out Virgin was an option.
“We want to see a market resolution for this and if Virgin can’t raise the capital through its shareholders … then let’s see what happens,” he said.
“We want to see two airlines out the back of the COVID-19 and I think we can and we will.”
A private equity firm and an investment bank are considering purchasing Virgin, the Australian Financial Review reported on Friday.
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