Qantas Airways will add extra economy seats to their domestic Boeing 737 fleet in a bid to boost capacity, but will introduce smaller lavatories as a result.

The move comes as the company is expected to report an annual loss of $700 million and attempts to increase the number of quick turnarounds in the domestic market.

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Qantas Domestic chief executive Lyell Strambi said there would be no change to the amount of seating space for each customer, according to a Fairfax report.

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Qantas will introduce new slimline lavatories in economy class, boosting the number of seats from 168 to 174.

Rival airline Virgin Australia already boasts 176 seats on similar flights.

A multi-million dollar investment will also see new fully-flat seats installed in Qantas business class and an upgrade to in-flight entertainment systems due to be rolled out in 2015.