Qantas chief Alan Joyce says there has been a "tapering off" of capacity in the domestic market in the past few months but concedes there is still some way to go before it reaches more rational levels.
Mr Joyce also said he was hopeful of a rise in demand for air travel after the election, the lead-up to which had dampened consumers' willingness to spend. His comments come after Virgin Australia warned it expected to post a loss of up to $110 million this year. The carbon tax and a new reservations system eroded Virgin's earnings.
Mr Joyce said capacity in the domestic market had lessened after growth reached about 8 per cent over the last year. But he said the level of growth in flights remained too high in a market in which both Qantas and Virgin derive the bulk of their earnings.
"Overall there is still big growth coming into certain markets," he said, citing flying to regional centres and leisure destinations.
Mr Joyce pointed to Tigerair Australia's plans to expand services on domestic routes, which would result in Jetstar "protecting its position" by increasing services.
"[But] when capacity rationalises the position for everybody I think should improve," he said at CAPA's aviation conference in Sydney. "The capacity in the Australian domestic market has gone through these cycles before. It is a very competitive market."
Mr Joyce said Qantas would benefit overall from a fall in the value of the dollar, partly because it would reduce the incentive for foreign airlines to put on more flights on routes to Australia.
Foreign airlines have benefited from selling tickets in Australia because of the higher gains made when they exchange revenue generated here into other currencies.
However, Cathay Pacific made clear on Thursday that it wants to expand services to Australia. But it needs the Australian and Hong Kong governments to agree to lift a cap on the number of flights.