Qantas says it will not be cutting its fares, despite removing its carbon price surcharge.

The airline says its carbon surcharge of between $2-$7 did not add to the cost of domestic airfares, with overall prices falling due to intense competition with its rival Virgin.

Qantas says the cost of the carbon tax instead fell directly upon its bottom line over the past two financial years, costing the airline a total of more than $100 million per year.

"Given the level of competition and the unique pressures in the domestic aviation market, we haven't been able to recover the cost of the carbon tax through price increases as we originally intended," Qantas said in a statement.

Instead, Qantas says the carbon surcharge was added to fares and retained to help it keep track of how much the tax was costing it.

"Our all-inclusive fares have not risen, though we have kept a small carbon surcharge on domestic fares so that we can keep track internally of the cost of the tax," the airline explained.

"This has now been removed, but there won't be any change to the prices that customers pay."

A capacity war with Virgin that saw both airlines adding more seats to their routes than there was profitable demand from travellers has kept airfares down.

However, Qantas recently announced that it would stop adding domestic capacity over the start of the 2014-15 financial year.