Federal Transport Minister Anthony Albanese says Regional Express is running a "ridiculous scare campaign" with its comments that government measures such as the carbon tax are buffeting its bottom line.
The regional airline on Wednesday warned of a profit drop of as much as 40 per cent.
Rex chairman Lim Kim Hai said in a statement that the airline's outlook was negative given "increasing government taxes and regulations dampening domestic expenditure resulting in slowing passenger demand" and rising fuel costs.
Mr Albanese said these were "inaccurate comments from a Singapore based CEO who only recently said Rex is the `nation's most profitable airline'."
"Australia's aviation industry has a bright future and will continue to grow in spite of the ridiculous scare campaign that insists on talking our economy down," Mr Albanese said in a statement.
"Not only have the number of regional passengers increased since Labor came to government, the number of airports serving regional routes has also gone up.
"The fact is more people are flying than ever before and paying less for their airfares."
Mr Lim said in his statement that not only had policies like the carbon tax increased cost significantly, there had also been a significant drop in passenger numbers owing to government policies exacerbating the effects of a fragile global economy.
"Many regional carriers are now struggling for survival. If the government does not reverse tack very soon, we will see irreversible damage being inflicted by the destructive policies that they have adopted," he said.
Rex management also previously blamed the end of a government rebate scheme for air traffic control charges and additional security costs for hurting profitability.
Rex said net profit slumped 33 per cent to $9 million in the six months to December 31, with revenue down 2.7 per cent to $135.4 million.
Passenger numbers fell five per cent in the half.
Profit guidance was for the full-year result to be between 35 to 40 per cent below the prior year.
In addition to scheduled passenger operations, Rex also runs air freight and charter operator Pel-Air, a Dubbo, NSW, based airline Air Link and a pilot academy.
Rex closed down 11 cents, or 9.24 per cent, at $1.08.
No dividend was declared.