Virgin Airways is cutting its domestic flight capacity by 90 per cent and grounding 125 planes.
The airline’s budget arm TigerAir will also suspend all flights immediately.
Virgin, which has already cut all international flights, will also stand down 8000 of its 10000 employees until at least May.
The airline said it would try to redeploy workers and encourage them to use leave, but leave without pay was inevitable for many.
Virgin Airways chief executive Paul Scurrah said the closure was unprecedented.
“There has never been a travel environment in Australia as restricted as the one we see today and the extraordinary steps we’ve taken have been in response to the federal and state government’s latest travel advice,” he said.
Virgin’s move comes after most states imposed restrictions on people crossing their borders.
The rules aim to further limit movement and control the spread of the coronavirus. People travelling for work and medical reasons will be allowed to cross borders.
“We are now facing what will be the biggest grounding of aircraft in this country’s history,” Mr Scurrah said.
Virgin’s move follows a decision by rival Qantas last week to stand down two-thirds of its 30,000-strong workforce.
Most domestic flights will be suspended from March 27 until June 14. The airline’s previously announced international ban will be in place from March 30 to June 14.
Virgin is also discussing closing its New Zealand cabin crew and pilot base, and its Tigerair Australia Melbourne pilot base.