Kerry Dillow, a Perth advertising executive, made the 3 1/2 flight to Melbourne last week to visit friends after paying A$366 ($321) for

a round-trip ticket, about a quarter of her fare in 2005.

“We are definitely taking advantage of the cheap prices as soon as they are available,” said Dillow, 31, who flew with Richard

Branson-backed Virgin Blue Holdings Ltd. “It’s completely about the price.”

Australian fares have tumbled as Tiger Airways Holdings Ltd. challenges Virgin Blue and Qantas Airways Ltd. in a market that has never previously supported more than two national carriers for longer than two years. Capacity may also grow 4.2 percent a year until 2014, as domestic airlines begin to receive the 184 narrowbody planes they have on order, according to Royal Bank of Scotland Group Plc.

“The mother of all domestic battles is brewing,” said Peter Harbison, managing director at the Sydney-based Centre for Asia Pacific Aviation. “There are going to be some very bruised bodies as this intensifies.”

Qantas and its budget unit Jetstar, which together carry about two-thirds of domestic passengers, have already reported lower passenger load factors on internal routes as capacity growth outpaces traffic. In May, the Qantas brand carrier filled 75.4 percent of domestic seats with paying passengers compared with 77.9 percent a year earlier, according to a company filing. Jetstar’s domestic flights were 74.4 percent full, a decline of 7.2 percentage points.

Virgin Blue, the nation’s No. 2 carrier, in May cut its profit forecast as much as 75 percent citing falling demand for leisure travel and rising capacity. The carrier fell as much 1.6 percent to 30.5 Australian cents at 10:33 a.m. in Sydney, extending this year’s decline to 48 percent.

Sydney-based Qantas fell 1.3 percent to A$2.37 after dropping as much as 2.1 percent. The carrier has tumbled 21 percent this year, the second-worst performance among the 30 stocks in the Bloomberg World Airlines Index.