The announcement comes as airports brace for a period of bumper demand driven by a school holiday rush, and as the federal government confirmed Qantas had the highest rate of cancellations of any domestic airline last month.

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 New South Wales and Western Australia.

Qantas said on Thursday it would “pull out all the stops” to ensure disruptions faced by travellers at Easter were not repeated during the holiday period.

The airline has tried to pin some of the blame on staff shortages at airports, with Qantas boss Alan Joyce reportedly writing to airport chiefs to raise the issue.

In a market update on Friday, the airline forecast it would make a significant loss this year of between $450m and $550m, with Qantas group predicting it would return to underlying profit in the next financial year.

It also announced it will give 19,000 employees a $5,000 payment once the new enterprise bargaining agreements covering them are finalised. Qantas will spend about $87m on the staff payments. The payment comes after a two year company-wide wage freeze.

In a statement Joyce said the company “can’t afford to permanently increase salaries beyond the two per cent threshold we’ve set, but we can afford to make this one-off payment on top of the Qantas share rights we’ve already given”.

For July and August, the airline will cut a further 5% of capacity on top of the 10% it already announced. The 15% reduction in capacity will last through September, with capacity cut by 10% from October to March. The airline will contact customers booked on flights that are cut.

While Qantas has not announced any reductions in its international capacity on Friday, it said the group will be flying at 83% of pre-Covid levels by the fiscal quarter beginning in July – down from 90% in the current quarter.

Qantas has been heavily criticised for delayed baggage and poor on-time performance this year, with the Transport Workers’ Union claiming the airline’s decision to outsource baggage handling staff is contributing to the issues.

Qantas said there will be a 15% increase in ground handling staff during the July holiday compared with staffing levels during the Easter holidays.

The TWU criticised the condition that workers would only receive the $5,000 payment once their relevant EBA was finalised – and called for the payments to be made to all workers, including recently outsourced ground handlers.

“The strings attached to this sham payment are just more wage suppression tactics Qantas has become accustomed to under the 15-year Joyce regime. All workers, especially those illegally sacked by Qantas management are owed this payment and far more,” national secretary, Michael Kaine, said.

“This tactic kills two birds with one stone: distract the angry public from Qantas becoming the worst-performing airline, and pressure workers into accepting wage freezes that will crush pay and conditions at the airport for decades,” Kaine said.

Joyce also announced on Friday that budget carrier Jetstar’s chief executive, Gareth Evans, will step down from his role in December.

Department of Transport figures showed Qantas network had an on-time arrival rate of 60.7% in May, compared with Virgin Australia with 65.7% and Rex with 75.5%.

Qantas also recorded the highest rate of cancellations in May, at 7.6%, while Rex Airlines recorded the lowest, at 1.4%.

The regional airline took a jab at its competitor over the latest data.

“Rex treats its customers with respect and decency; we don’t cancel flights en mass and we don’t lose truckloads of our passenger’s luggage,” the airline said in a statement on Thursday.

Sydney airport is forecasting more than 2 million passengers to pass through its doors between 24 June and 17 July, 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.

The 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.

Extracted in full form: Qantas to cut domestic flights as fuel prices soar | Qantas | The Guardian