With the fuel bill for the current fiscal year, ending 30 June, set to rise 21 per cent year-over-year, Australia's low fare airline, Virgin Blue, announced a range of capacity reductions as well as a A$50 million ($46.9 million) cost-savings package on Friday.

Fuel prices now account for 35 per cent of the carrier's total costs. According to airline officials, high fuel prices are here to stay. "It's not a case of planning interim measures to offset a spike in the cost of fuel. All airlines must come to terms with a new reality in our industry," CEO Brett Godfrey said.

Blue says that it will add on a A$50 million savings initiative to its New World Carrier strategy, which has delivered good results over the past 18 months. It is also set to increase fares by an average A$5 on around 55 per cent of domestic routes and remove four aircraft from domestic routes during the September quarter. This will equal a 6 per cent reduction in planned capacity growth.

It said that it will redeploy an additional 2 per cent domestic capacity onto more profitable routes.

Blue is also set to commence layoffs, though no details are available as yet.