Rex Airlines announced on Friday it had stood down about 500 workers across the country and paused scores of routes.

Business NSW regional manager Joe Townsend said the sector would be forced to take on huge costs to maintain their aircraft without running them.

"The hard part for the airlines and for us as consumers is that they have to maintain their planes, keep the mortgage of the leases going on those planes," he said.

"In the future these airlines are all going to have to recover those costs which ultimately ends up meaning that us as consumers will be paying a small premium going forward.

"You can only expect that their commercial decision will be weighing up the demand and also recouping some of the costs that they have worn during these kind of lockdown periods."

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Mr Townsend said competition will recover, but it wasn't yet clear when that would happen.

The entire region's visitor economy had been disrupted, he said - and locals couldn't even organise major events to get people coming back.

In February, Rex Airlines announced plans to develop a long-awaited alternative to Qantas for the Tamworth, in NSW's north east, to Sydney route.

Tamworth Mayor Col Murray said the plan is likely to be shelved for the foreseeable future, but in the long run he was bullish for the air sector.

"Certainly not in this current climate. I don't think we'll expect any growth in the airline industry whilst we're in the current climate. We will get back to some sort of normal, maybe a new normal at some stage and then all those conversations will reboot," he said.

"I think commerce needs air travel. Leisure needs air travel. As soon as some normality comes back I've got absolutely no doubt that our airline industries will regain all or at least most of their previous profile."

Virgin Australia pulled out of Tamworth in September last year.

Rex Airlines told the ASX on Friday that it had stood down 500 pilots, cabin crew, engineers, and airport workers among others on the federal government's $750-a-week airline industry assistance plan.

The announcement follows a decision to make schedule reductions, which the company expects to last until September 12.