Thousands of Qantas staff could be given bonuses to share in an expected return to profit, but the airline has flagged fare increases to cover rising costs.
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Chief executive Alan Joyce on Friday said the national carrier's fuel bill would be $1.7 billion higher next year compared with pre-COVID levels.
"Airfares have to go up to cover that," he told reporters in Perth.
"The way to do that is you cut back on capacity. ... you fill more of the seats, that's more efficient, and airfares go up. That's the reality."
In a market update, the company said it would cut domestic capacity across Qantas and Jetstar by a total of 15 per cent from July to September.
A previously announced 10 per cent reduction will apply from October to March.
Passenger numbers are tipped to surge to pre-pandemic levels from Friday, the last day of the school term in Victoria and Queensland. Schools close a week later in NSW and Western Australia.
Mr Joyce said he was hopeful disruptions faced by travellers at airports during Easter were not repeated during the holiday period.
"As we get the system up and running again and get people across the entire system working in unison, we think it'll get smoother and smoother," he said.
"Absolutely the performance at the moment is not where we need it to be but it will improve over the next few weeks."
On Friday, Qantas said up to 19,000 employees would be offered a $5000 boost as the national carrier shared "the benefits of its recovery", flagging a return to profit in the next financial year.
The one-off payment would be made to employees once a new enterprise agreement was finalised, the company said in a statement.
The airline stood down thousands of staff during the pandemic and controversially outsourced ground crews in a move challenged in federal court.
In the statement, Qantas thanked customers for their "patience and understanding" while it worked through a "challenging restart for the industry globally".
"The group is working with industry partners to improve the travel experience during the upcoming school holiday peak," it said.
'While a tight labour market and COVID-related impacts persist, there will be a 15 per cent increase in ground handling staff compared with the Easter holidays and airports are increasing their security screening resources."
Sydney Airport is forecasting more than two million passengers to pass through its doors between June 24 and July 17, with 1.5 million of them expected to take a domestic flight.
Melbourne Airport is expecting similar figures, with more than 2.1 million people predicted to pass through its terminals.
Sydney Airport chief executive Geoff Culbert warned passengers to prepare for queues amid widespread staffing problems.
"The root cause of these challenges is that every business at the airport is rebuilding its workforce and doing it in the tightest jobs market in nearly half a century," he said.
Australian Associated Press
