Qantas says it will stand down 2,500 staff as a lockdown in Sydney impacts air travel across Australia.
The furlough – affecting pilots, crew and airport workers – will last for at least two months, the airline said.
Qantas said it would pay staff until mid-August, after which they could apply for government support payments.
Since June, fresh Covid outbreaks have forced most Australian states to reimpose restrictions.
The highly contagious Delta variant has forced lockdowns in several cities and some state border closures.
The situation is most severe in Sydney. It is seeing about 200 new infections each day, despite being in lockdown since 26 June.
Nearly all states have banned travellers from Australia’s largest city.
Qantas chief executive Alan Joyce said the latest Delta outbreaks had led to thousands of cancelled flights.
Qantas and its budget carrier, Jetstar, had lost about 60% of their domestic business from May to July, he added.
A travel bubble with New Zealand has also been suspended.
Mr Joyce said the airline could no longer keep the 2,500 workers on its payroll, but described it as a temporary measure.
“This is clearly the last thing we want to do,” he said.
But he added it was “also very different from this time last year when we had more than 20,000 employees stood down”.
Last year, Qantas was forced to axe about 6,000 staff – about a fifth of its workforce.
In May, the airline said it would report an annual loss of more than A$2bn (£1.1bn; $1.5bn) but hoped for a rebound in domestic travel.
On Tuesday, Mr Joyce said domestic travel could return to 50-60% of normal levels with the expected reopening of Victoria and South Australia.
Qantas has not been able to resume international routes – except to New Zealand – due to Australia’s international border closure.
The airline has previously said it’s losing about A$2.3m a week from its international division.