The federal government has waived the normal “use it or lose it” rules over Sydney Airport’s tightly held landing slots, meaning that international airlines retain their slots despite not flying there during the pandemic.

The ACCC said it was working with the federal government on reforms to how airline capacity is managed at the nation’s busiest airport, including considering recommendations from a detailed review by former Productivity Commission chair Peter Harris which he delivered to government in February 2021.

Failure to improve the system could result in a “permanent duopoly” in Australian aviation, Mr Sims said.

Bonza, backed by US private equity group 777 Partners, plans to launch with 25 routes connecting 16 destinations when it starts flying in the middle of this year. The bare-bones operation is avoiding the busy Sydney-Melbourne-Brisbane triangle, and is instead focused on connecting regional towns and popular holiday destinations such as the Sunshine Coast, Coffs Harbour and Cairns.

Mr Sims said there had been “significant” declines in ticket prices on routes where Rex now challenged Virgin, Qantas and its budget arm Jetstar, after the new challenger launched jet services from Sydney, Melbourne, Brisbane, the Gold Coast and Adelaide.

Average airfares across all four carriers had fallen about 25 per cent seven weeks after Rex’s launch onto flights from Melbourne to Sydney, Adelaide and the Gold Coast, and Sydney to the Gold Coast, the report says.

However, airfares were trending up in February, with the cheapest fares available on flights between Sydney, Melbourne, the Gold Coast and Brisbane jumping by $10 to $20.

Airlines are now facing the highest fuel prices in eight years, but the ACCC said that airfares generally reflected consumer demand and competition rather than underlying costs.

Virgin Australia has, meanwhile, succeeded in its goal of capturing one-third of the market following its stint in administration and takeover by private equity firm Bain Capital in 2020, hitting 34 per cent market share in January, the report shows.

That made it the country’s biggest airline brand behind Qantas and Jetstar (31 per cent each) and Rex (4 per cent). Virgin had 22 per cent market share pre-COVID while also operating its budget arm Tigerair, which it has shut down.