SYDNEY (REUTERS) - Qantas Airways said on Thursday (Dec 16) it expects domestic competition to intensify in the second half of the financial year as state borders open, after forecasting a first-half loss due to months of lockdowns.

The airline, which separately said it would switch its narrow-body fleet to Airbus SE jets from Boeing, forecast a first-half underlying loss before interest and tax of more than A$1.1 billion (S$1.08 million).

Domestic booking demand slowed in late November when the Omicron coronavirus variant emerged but there had been a recent improvement, the airline said.

In the international market, Qantas has slowed the ramp up of capacity by around 10 percentage points for the second half and now expects it to reach around 40 per cent of pre-pandemic levels.

Qantas said it boosted its liquidity position during the half through the A$802 million sale of land near Sydney Airport. It expected to have A$5.6 billion of net debt as of Dec 31, the end of the first half of its financial year, lower than its June 30 debt position of A$5.9 billion.

"We have significantly reduced our cost base, which improves our ability to recover," Qantas chief executive Alan Joyce said in a statement.

Australia's domestic airline industry, held back during the pandemic by state border closings, is gearing up for a price war as new entrants in the jet market challenge Qantas and its biggest rival, Virgin Australia.