The Australian airline industry says a tax rise on international air and sea passengers is likely to damage Australia's appeal as a travel destination.

The Federal Government wants to increase the passenger movement charge from AU$38 to AU$47.

Warren Bennett, from the Board of Airlines Representatives of Australia, has told a Parliamentary committee that the extra charge, combined with rising fuel prices, will have a worrying effect.

"This increase in the PMC could all be overwhelmed very much by the impact of fuel prices on air tickets," Mr Bennett said.

"Nonetheless it is still an element of ticket prices and they will combine to have a dampening effect on the amount of air traffic to and from Australia."

Fuel Prices Forcing Airlines to Edge

Australian domestic airline, Virgin Blue, has raised concerns high oil prices will force some major airlines around the world to shut down within the next six months.

In Australia, both Qantas and Virgin Blue have responded to soaring costs by cutting back flights and increasing fares.

Virgin Blue's chief executive, Brett Godfrey, says there could be problems if the oil price keeps rising.

"Our competitors in this market have already made statements to the affect that they're going to have to place planes and people out of work," Mr Godfrey said.

"We've been able to prevent that to date but no one is going to be unaffected.

"Not one single airline, not one single company in Australia that uses fuel as an input is going to be unaffected if fuel hits AU$200," he said.

On June 19, the new chairman of the International Air Transport Association (IATA), Samer Majali, said rising fuel prices are the biggest challenge facing the air transport industry.

Fuel accounts for more than 30 per cent of airline costs.