Air travellers can look forward to a discount fare bonanza during the next six months, with Australia's four domestic airlines fighting to maintain market share as the economy softens.
Yesterday, Peter Harbison, the founder of the Sydney-based Centre for Asia Pacific Aviation, said a fare war was certain as the economy slowed further.
"A fare war is inevitable," Mr Harbison said. "It's just a matter of how long and how deep and how many."
Fares are already near all-time lows, with Qantas offering Perth to Melbourne fares for $199 and Tiger Airways from $134.95.
Business class fares are the cheapest they have been, with Virgin Australia charging $999 for the Perth to Melbourne route.
According to the Department of Infrastructure and Transport, the domestic business class fare index has dropped 40 per cent in the past 12 months.
Mr Harbison said that Qantas and Virgin Australia were playing a waiting game. "Virgin has to add capacity but Qantas maintains its 65 per cent market share goal," he said.
In a special report, CAPA said: "Domestic overcapacity shows no signs of relenting as Qantas plans to increase mainline capacity by 9-11 per cent to ensure it maintains its market share against an expanding Virgin Australia. Yields, already weakened, will continue to fall."
The domestic market is Qantas' strongest market and it will defend it fiercely, Mr Harbison says.
The Qantas Group will take delivery of 35 aircraft in this financial year. Deliveries include one 301-seat A330 for Qantas Domestic, three Q400s for QantasLink, seven 162-seat 737-800s for Qantas mainline and 24 180-seat A320s.
Virgin Australia plans to introduce another four wide-body 278-seat Airbus A330s over the next 12 months.
At the lower end of the market, Tiger Airways has made a successful return from its grounding last year. Tiger Airways Australia has 11 A320 aircraft in Australia and is ramping up domestic services.