SYDNEY, July 22 (Reuters) - Qantas Airways Ltd's domestic capacity has fallen to less than 40% of pre-COVID levels due to lockdowns in three Australian states, its chief executive said in a memo to staff, in a setback to what had been a strong recovery.

State border closures led to the sharp fall in domestic capacity from 90% of pre-COVID levels earlier in July and have dampened the capacity outlook through October, Chief Executive Alan Joyce said in memo dated Wednesday that was reviewed by Reuters. (Reporting by Jamie Freed; Editing by Jacqueline Wong)