The competition regulator has called for the country's biggest airports to increase their investment in terminals and other facilities to cope with surging demand from passengers.
In its annual report on the state of the airports, the Australian Competition and Consumer Commission found that service at the five largest airports - Sydney, Melbourne, Brisbane, Perth and Adelaide - had deteriorated in 2011-12 compared with the previous financial year.
It named Sydney Airport as the worst offender, given the "pattern of price and earnings increases, lower service standards and low investment levels compared with other airports".
ACCC chairman Rod Sims said continued growth in passenger numbers at most airports was placing pressure on their existing infrastructure, and contributing to lower service standards. "More investment is required to avoid excessive congestion," he said.
The Bureau of Infrastructure, Transport and Regional Economics has forecast that total passenger numbers at the five airports will more than double to almost 217 million a year by 2031.
The ACCC said the increased demands placed on the airports were greatest at Sydney, Brisbane and Perth. "If unaddressed, congestion issues will have direct impacts on users of the airports, as well as indirect impacts on the economy," it said.
"Despite investment in aeronautical assets over the last 11 years, there is evidence of emerging system-wide congestion at Australia's monitored airports."
But the Australian Airports Association rejected the competition regulator's suggestion that airports were falling behind in building new infrastructure.
It said each of the country's five biggest airports was working on or had plans for significant new investments, including new terminals and runways.
"With $9 billion invested in aeronautical infrastructure since privatisation, and another $9 billion planned for the next decade, it is clear that our major airports are making massive investments," the association's chief executive, Caroline Wilkie, said.
Brisbane Airport again received the highest ranking for quality of service from the ACCC, followed by Adelaide Airport, which recorded falls in passenger numbers, average revenues and margins in 2011-12.
Melbourne Airport was in third place for overall service.
On Tuesday, Darwin International Airport announced that work on the $42.5 million expansion of its terminal would begin on May 24, after it finalised a contract with the builder.
Qantas will more than double the size of its lounge at the airport by the middle of next year, while Virgin Australia will open its first lounge there.