Customers whose flights are delayed would receive a full refund and assistance in booking a new flight under a new aviation charter of rights being considered by the Albanese government.
Under the plan, if a flight is delayed by more than 3 hours for reasons within the airline's control such as crewing or maintenance issues, customers can receive a full refund within 14 days.
It would also require airlines to give customers help to re-book a flight with them or another airline via a customer service representative at the airport or a phone number, with the airline to also cover necessary meals, accommodation and transfers.
The Aviation Customer Rights Charter would also cover compensation for lost luggage, with airlines required to pay the cost of returning suitcases and bags when they are found and compensating if they are not.
It comes as the major airlines, Qantas and Virgin, have come under heavy criticism for claims they have squeezed out competitors and Qantas had sold tickets to flights that had already been cancelled.
In 2023, refund requests were the most common complaint for customers followed by flight delays or cancellations.
Virgin received the most complaints followed by Jetstar, while Qantas took the longest to resolve complaints, on average 97 days.
Federal Transport Minister Catherine King said the charter will provide more certainty for customers.
"The Australian flying public deserve to be treated with dignity and respect, and this includes receiving timely and fair remedies when their flight is cancelled or delayed and protecting those who require assistance.
"The customer charter or rights will make clear what has been hiding in fine print for far too long. It will give Australians greater certainty about what they can expect when flying in Australia and where to go if these conditions are not met."
The draft rights charter is out for public consultation until the end of February, with the government intending to introduce legislation next year that would include penalties for airlines not complying under an Aviation Industry Ombuds (AIO) Scheme.
An interim AIO Scheme will get underway until the legislation passes, with an interim ombudsman to respond to customer complaints.
Ms King said the ombudsman would bring "significant change" to the Australian market.
"They will be able to seek remedies directly from airlines and be able to name and shame about the number of complaints they'll be getting," she said.
"We've had a voluntary system at the moment that's really not been working for the travelling public."
However the opposition has been critical of the move, accusing the government of putting off the issue "until after the election".
The Coalition's Pay-on-Delay bill provided new protections for customers, obliging airlines to compensate customers when their flights are delayed or cancelled, or when their luggage is lost.
It has been before the Senate for much of the year, with a Senate committee due to report back on it by March.
The shadow minister for transport, Bridget McKenzie, said if the government was serious about the issue "it would have backed this legislation months ago".
"Putting out a set of draft guidelines for discussion on the eve of Christmas shows the Albanese government is not serious about dealing with the poor treatment of customers by the aviation duopoly," she said.
"Rather than another round of consultation and a vague commitment to implementing sometime after the election, the Albanese government should adopt a genuine customer compensation scheme to assist travellers impacted by excessive delays, cancellations and lost baggage," she said.