With a cap on capacity, Australia’s domestic airfares are starting to rise with the fastest growth coming from unrestricted economy fares on business routes, which have increased at twice the rate of leisure fares.

“We’re seeing 20% increases on the business side of things versus roughly 10% for leisure,” said Macquarie Equities analyst Sam Dobson.

Same day return fares between Sydney and Melbourne can now cost as much as $1100 on Qantas, while Virgin typically charges a little less.

He said yield at Qantas and Virgin grew by around 3% in the first half of this financial year.

“We expect stronger prices in the second half  with Qantas domestic yields up by 3.6% excluding Jetstar.

“It will be broadly similar for Virgin, while Jetstar yields will remain broadly flat.”

The major factor for fare yield increases, said Mr Dobson, is the zero growth in capacity through financial year 2015.

This compares with 3% capacity growth in FY14 and 9% in FY13.

There is also a feeling that both Qantas and Virgin are being less aggressive with discounting.

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