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Transport Minister Catherine King announced an overhaul of Sydney Airport's demand management system this morning to make slots more competitive and the processes governing them more transparent.
"It's a signal to the airlines that the slots are not your property," King said.
"They are the Australian travelling public's property... we want to make sure that we have strong capacity at Sydney Airport for slots to be used not pretended to be used."
Under the new rules, airlines will have to justify their cancellations and delays, and will face losing their slots or even legal action if the government deems it necessary.
"Independent audits of slot usage will be undertaken, with results published, to better detect and crack down on anti-competitive behaviour," a statement from King's office said.
"This will help make sure that travellers have better information about airline performance.
"The first such audit will be carried out this year, meaning that any misuse of slots will be uncovered and acted upon as soon as possible.
"To ensure slots are not misused, the government will modernise the compliance regime to include penalties that address anti‑competitive behaviours, along with updated and strengthened enforcement tools for the government to watch airlines more closely and take effective legal action where necessary."
There will be no change to the airport's curfew or its daily flight cap under the new rules, but King did announce a "recovery period" will be introduced to help the airport work through delays caused by severe weather or other major disruptions.
The recovery period would allow the airport to increase its hourly flight cap from 80 to 85 for a maximum of two hours following a major outage.
Sydney Airport CEO Scott Charlton welcomed the new policy.
"Every year we have examples of where a two-hour weather disruption leads to dozens if not hundreds of domestic cancellations, and the impacts are still being felt days later," he said.
"In the future, with a recovery mechanism hopefully it won't be necessary for the airlines to cancel these flights, which is a great outcome for passengers."
What is slot hoarding?
Slots are the time an airline is given to operate a flight.
The number of slots at Sydney is constrained due to the 80 flights per hour cap, meaning what ones are available are highly sought after by airlines, particularly those during peak times.
Under the existing "80/20" rule, airlines are allowed to keep their slots as long as they operate at least 80 per cent of their flights and cancel no more than 20 per cent of them.
That has led to accusations that major airlines Qantas, Jetstar and Virgin engage in "slot hoarding" – the practice of scheduling more flights than what there is demand or capacity for, then deliberately cancelling some of them without reaching the 20 per cent threshold.
That allows the airline to keep its slots and prevent other carriers from scheduling competitive flights.
Virgin and Qantas, which owns Jetstar, have fiercely denied accusations of slot hoarding.
Government data showed 5 per cent of all domestic flights were cancelled in December last year, up 1.6 per cent from the year before.
Charlton, who has previously called for the 80/20 rule to be scrapped and described it as outdated and unfit for purpose, said the government's new policy would help ensure flights are operated as advertised.
"These (are) really practical and sensible improvements to the rules that govern how Sydney Airport operates," he said.
"These changes will promote competition and efficiency by ensuring landing slots are used as they are intended.
"Importantly, the more than 40 million passengers that come through Sydney Airport annually also stand to benefit from these reforms."
Both the Australian Travel Industry Association and Tourism and Transport Forum also welcomed the announcement.