On a Friday afternoon in January, the domestic terminal at Sydney’s Kingsford Smith Airport is familiar in a way that is almost nostalgic: families piling luggage onto trolleys, lines at the check-in counters, and the unique combination of holiday anticipation and mild logistical stress that comes with peak summer travel. What’s going on behind the departure boards is less obvious but no less real: the airline industry is struggling to meet demand that hasn’t been this high in a number of years.
The average load factor for Australia’s domestic flight market is 84.4%, which provides you with nearly all the information you need to understand the current supply and demand situation. The airplanes are packed. Previously flexible routes are increasingly booking out days or weeks in advance of departure. Additionally, there is no competitive pressure that could otherwise regulate fares because Virgin Australia and the Qantas Group together dominate over 98% of the domestic market. As a result, peak-period costs are significantly higher than what the majority of Australians were paying during the same timeframe in 2022 or 2023, and airfares are currently at their highest average levels in three years.
Both big carriers have responded to capacity in a gradual yet intentional manner. With the addition of new Airbus A321XLR aircraft to the fleet—longer-range, more fuel-efficient aircraft that can more affordably handle the higher-demand trunk routes—Qantas is forecasting a 6% increase in domestic seating capacity. For some of its operations, Virgin Australia has taken a different approach, using Embraer E190-E2 aircraft, which are ideal for smaller regional routes where a larger narrowbody would fly with too many empty seats. The reasoning is the same in both situations: use planes that don’t cause operational drag and add capacity where it makes money.
The demand isn’t only a holiday phenomenon, which is what makes this summer intriguing. Since the post-pandemic period changed Australians’ perceptions of domestic travel, including shorter vacations, more frequent domestic travel, and a persistent desire to see more of Australia before committing to international flights, regional travel has continued to rise. This change has benefited Tasmania’s wilderness tourists, Queensland’s beach markets, and airlines operating the appropriate aircraft on the appropriate routes. Because business and leisure demand are now vying for the same seats on some of the busiest lines, it has also added to the capacity pressure.
The slower-moving component of this equation is airport infrastructure. In order to accommodate record passenger volumes, major ports are investing in long-term enhancements, although the advantages won’t be felt consistently in the near future due to lengthy building delays. Although there are active infrastructure programs in Sydney, Melbourne, and Brisbane, the passenger experience during peak hours—queues, crowded lounges, and tight connections—reflects a system that is being asked to accomplish more than it was intended to at this level of utilization.
Whether fare levels will significantly decrease as summer demand subsides is still up in the air. There is a perception that the market’s fundamental dynamics—strong leisure demand, little competition, and incremental rather than dramatic fleet expansion—point to higher pricing as a more enduring characteristic than a brief surge. If this is the case, Australians who intend to travel domestically in 2025 and 2026 might need to modify their assumptions regarding the true cost of a last-minute flight.
