SYDNEY, March 10 (Reuters) - Qantas Airways Ltd's (QAN) budget...

SYDNEY, March 10 (Reuters) - Qantas Airways Ltd's (QAN) budget arm Jetstar is flying 90% of its pre-pandemic domestic schedule in March amid a rebound in demand as state borders have reopened in Australia, Jetstar's chief executive said on Wednesday.

"We are feeling certainly more positive than we have in 12 months," Jetstar Group CEO Gareth Evans said at a CAPA Centre for Aviation event.

The low-cost airline in December had hoped to reach more than 110% of its pre-pandemic domestic schedule by this month, but that was downgraded because of state border closures amid COVID-19 case clusters.

Qantas has been boosting capacity at Jetstar more quickly than at its main brand because business travel is taking longer to recover to pre-pandemic levels than leisure travel.

Qantas expects its total domestic capacity, including Jetstar, to reach 80% of normal in the fourth quarter, which ends June 30.

Qantas is also leveraging Jetstar's lower-cost offering in competition with Regional Express Ltd (REX) , a new entrant on the Sydney-Melbourne route.

Jetstar has been offering fares as low as A$29 each way to undercut Rex's lowest fares on the route by A$20.

"We are absolutely going to be watching them very carefully as we do with all competitors," Evans said. "We are always going to have the lowest fares in the market."

Australia's international borders are largely closed, meaning domestic travel is the only option for most residents.

Qantas does not expect widespread international travel to return until at least Oct. 31, in line with the country's COVID vaccination programme.

Jetstar has delayed the delivery of its first Airbus SE AIR.PA A321neoLRs, aimed at the international market, to 2022 or 2023, Evans said. Before the pandemic hit, it had expected the first of 18 of the planes to arrive in August 2020.

Jetstar plans to resume using its Boeing Co BA.N 787s in the international market as soon as borders reopen, Evans said.