Qantas will shut down its Jetstar Asia subsidiary more than two decades after the budget airline launched. The announcement to the ASX on Wednesday came as Jetstar Asia struggled with rising costs and competition in the region, and was expected to post a $35million loss this financial year.

Qantas will redirect the 13 Jetstar Asia Airbus A320 aircraft to routes in Australia and New Zealand . Around 500 jobs could be axed from the Singapore-based airline which serviced 16 routes in Asia.

Jetstar domestic flights within Australia, New Zealand – as well as flights to and from Bali and Japan – are not affected. However, passengers with bookings that include a connecting flight with Jetstar Asia may be impacted.

Jetstar Asia will continue flights for the next seven weeks and cease operating on July 31. All affected employees would be provided with redundancy payments, the airline said.

Qantas said the move will free up $500 million to invest in fleet renewal. Qantas Group CEO Vanessa Hudson said Jetstar Asia’s supplier costs had increased by ‘up to 200 percent’.

‘We are currently undertaking the most ambitious fleet renewal program in our history, with almost 200 firm aircraft orders and hundreds of millions of dollars being invested into our existing fleet,’ Ms Hudson added.

‘We’re making disciplined decisions which recycle capital across our business and prioritize it to stronger performing segments as well as strategic growth initiatives like Project Sunrise.’ Qantas will receive its first Airbus A321XLR later this month and the first Project Sunrise A350-1000ULR in 2026.

Aussie airlines have faced a mixed bag of opportunities and challenges in recent years. Last year, Regional Express collapsed after it made a bid to compete against Qantas and Virgin Australia with popular city routes.

Budget carrier Bonza also folded after servicing lesser-travelled cities and towns for a mere 15 months. In general, however, the demand for both domestic and international air travel is increasing, with the major airlines responding with expanded fleets and additional routes.

Qantas Group and Virgin Australia dominate the domestic market, which has limited consumer choice and pushed up fares, according to the Australian Competition and Consumer Commission. Singapore remains a critical hub for Qantas Group as its third most-used international airport.