First and business class flying collapses in downturn

As the local aviation sector reels from huge capacity cuts, the industry's peak body has warned there is worse to come.

Qantas, Virgin Blue and Singapore Airlines have all this week announced significant cuts with Qantas also moving its large domestic schedule in New Zealand to low-cost offshoot Jetstar.

The International Air Transport Association (IATA) on Wednesday night reported huge downturns in the number of passengers flying business and first class, with Asia leading the collapse.

"With job losses accelerating in January and consumer confidence falling further it looks as though even larger declines in air travel should be expected early this year," IATA's December premium travel report warned.

Domestic figures from the Bureau of Infrastructure, Transport and Regional Economics were slightly more positive but still showed a drop in traffic on the three busiest routes.

Melbourne to Sydney traffic decreased by 2.2 per cent, Brisbane to Sydney by 0.4 per cent and Brisbane to Melbourne by 0.1 per cent.

Virgin Blue announced on Tuesday it would remove eight per cent of capacity - or up to five aircraft - from its domestic fleet in May just hours after Qantas said it would significantly alter its flight schedule.

Virgin's plans will affect up to 400 staff, who the airline said could be offered job-sharing options or moved to international start-up V Australia before sackings were considered.

Qantas's international changes will cut capacity to China and alter India's schedule.

Tourism groups said on Wednesday the airlines were doing the right thing to ensure the future competitiveness of aviation.

Tourism & Transport Forum executive director Olivia Wirth said the cuts were the "sad reality" of the global financial crisis and came as 63 per cent of the forum's membership forecast staffing changes would need to be made to their businesses.

"The outlook is bleak and businesses are taking steps now to ensure they can deal with the drop in demand," Ms Wirth said.

"Airlines are no different."

Where the cuts would end was anyone's guess, Australian Tourism Export Council managing director Matt Hingerty said.

"Anybody who says they know when this is going to end or what the full impact on the industry is going to be is lying," he said.

Meanwhile, Treasurer Wayne Swan said the government's nation-building and jobs package would help the airline industry.

"One job lost anywhere is a big loss for the individual, and when many are lost, it's a big loss for the country," he told reporters on Wednesday in response to Virgin Blue's announcement.