Australian domestic aviation recovers but supply/demand mismatch drives up fares

The number of passengers flying domestically within Australia each month has returned to pre-pandemic levels, according to the latest report published by the Australian Competition and Consumer Commission (ACC). However, growth in the domestic sector has been heavily stifled by an overall lack of capacity, which has not kept up with demand, placing upward pressure on domestic airfares at the detriment of the consumer, the Commission adds.

In June 2025, the number of seats flown by the major airlines in Australia was reported to be 2.8% lower than in the same month in June 2019. Although both the Qantas Group and Virgin Australia have increased capacity since 2019, the industry has not yet filled the gap left by Tigerair’s exit from the market in 2020. Tigerair was a Virgin Australia subsidiary that was closed down, with its operation being merged into that of its parent company in 2020.  

Peterfz30 / Shutterstock“The withdrawal of Tigerair in 2020 significantly reduced the capacity for low-cost travel from the domestic market,” ACCC Commissioner Anna Brakey said. “Since then, the lack of growth in seat capacity to meet rising demand has likely meant consumers are paying more than they would have in a more competitive, better-supplied market.”

But it is not just the loss of Tigerair that has impacted the Australian domestic market. More recently, Bonza tried and failed to open up new previously unserved domestic routes before it closed down in April 2024, while long-term Australian domestic specialists Regional Express (Rex) fell foul of an attempt in 2023/24 to enter onto trunk routes between state capitals with Boeing 737-800s and retrenched to its core regional network served by around 50 Saab340 turboprops, heavily supported by the Australian Federal Government. However, even these operations have been reduced due to cost-cutting measures in the last year.

Ryan Fletcher / ShutterstockDespite jet fuel prices falling by 12.3% in the year to June 2025, the average airfare across all fare types was slightly higher in June 2025 than it was a year earlier. This rise indicates that a restriction in overall seat availability in the domestic market is driving air fares upwards, as consumers struggle to find seats on their preferred flights and look to potentially more expensive alternatives.

Despite this, some release of this market pressure may be heading towards the marketplace, says the ACCC. Both Qantas Group and Virgin Australia, the two largest domestic carriers, are due to receive new additional aircraft in the coming months, with Jetstar and Qantas receiving new Airbus airplanes and Virgin Australia taking delivery of new 189-seat Boeing 737 MAX 8 jets before the end of 2025. However, these airlines have indicated that at least some of the new aircraft will be used to replace older aircraft in the first instance, meaning that they will not all contribute to an immediate overall rise in capacity.

The Qantas Group’s fleet will also be receiving an unexpected additional boost following the decision by the Group to wind down its Singapore-based arm, Jetstar Asia. The carrier had 13 Airbus A320-200s in its fleet, and these are expected to be redeployed to Jetstar Australia to mop up some of the excess demand for domestic services, as well as those to New Zealand.

Additionally, a new Australian startup in the form of Koala Airlines still looms on the horizon, although this carrier has been on the drawing board since 2018, and it remains to be seen when, if at all, the airline commences regular passenger services.             

Koala AirlinesReliability improvements

According to the ACCC, the on-time performance rate for domestic air travel in Australia reached a three-year high in April 2025 following sustained industry efforts to improve the reliability of arrival times. Domestic flights arrived at their destination on time 82.4% of the time in April 2025, with Jetstar, Qantas, and Virgin Australia all beating the long-term industry average of 80.7%. An on-time arrival is regarded as such when it arrives within 15 minutes of its scheduled arrival time.

In April and May 2025, Virgin Australia recorded the best on-time arrival rate for any domestic airline since February 2022, when its flights arrived on-time 84.4% and 84.8% of the time, respectively.

aiyoshi597 / Shutterstock.com“This improvement in on-time performance is good news for travellers as they can have more confidence that their flight will arrive at their destination at the time they booked,” Brakey said. “The improved performance follows a collective effort by airlines, air traffic controllers at Airservices Australia, and airports.”

Cancellation rates have also improved, says the ACCC, and were below the long-term industry average of 2.2% in both April and May 2025 before increasing slightly to 2.4% in June 2025. This improvement was largely driven by the strong performance of Virgin Australia and Jetstar. In April 2025, both airlines cancelled just 0.7% of their domestic flights.

Qantas’ cancellation rate continues to be higher than other airlines, stated the ACCC report, and has been, on average, more than double the cancellation rate of Jetstar and Virgin Australia over the quarter to June 2025. “We will continue to closely monitor cancellation rates on all routes and expect airlines to make improvements where cancellation rates are high to minimise disruptions for travellers,” Brakey concluded.

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