Virgin forced Qantas to cut domestic costs: report

National carrier says Virgin's aggressive campaign has caused its domestic arm to refocus.

Virgin Australia Holding's (VAH) aggressive campaign for local market share has forced Qantas Airways (QAN) domestic business to lower costs and refocus on customer services, The Australian Financial Review reports.

According to the newspaper, Qantas' head of domestic operations Lyell Strambi conceded John Borghetti taking the helm of Virgin in 2010 was "quite threatening" as it drove the national carrier's costs higher.

"In this world, you try and keep your revenues up as high as you can – knowing they are going to chip away, because you have got competition that you didn’t have before," Mr Strambi said.

"And at the same time, drive your costs down as fast as you can."

The AFR reports, Mr Strambi also warned competition based on price would shrink the revenue pool because of modest growth in capacity and customer demand.