* Airline operating at 40% of pre-pandemic capacity v 60% estimate * Will cut up to 350 head office roles as part of 3,000 job cuts * Larger rival Qantas has also lowered domestic capacity forecasts (Adds details of Qantas capacity, Virgin job cuts) SYDNEY, Jan 27 (Reuters) - Virgin Australia said on Wednesday it was operating at 40% of its pre-pandemic domestic capacity in January, missing a forecast of 60% due to state-based travel restrictions that are hampering an aviation market recovery. Australia recorded a 10th straight day of no new local COVID-19 cases on Wednesday, but many states have left some travel restrictions in place following an outbreak in Sydney last month. Larger rival Qantas Airways Ltd expects to run at 60% of pre-pandemic domestic capacity in the March quarter, below its previous forecast rate of nearly 80%, due to the state travel curbs, Chief Executive Alan Joyce said this month. Virgin Australia, now owned by U.S. private equity group Bain Capital, added it had informed employees on Wednesday that it would cut up to 350 head office roles in the coming months to finalise 3,000 job cuts announced in August. “The challenging environment shows the need to finalise our restructuring and reduce costs in line with our simplified business model,” a Virgin Australia spokeswoman said. Virgin Australia has shifted away from being a full-service carrier to occupy a mid-market position between Qantas and its budget arm Jetstar. Virgin Australia this month unveiled a new senior leadership team under chief executive Jayne Hrdlicka, including several executives who had worked with her when she ran Jetstar. (Reporting by Jamie Freed; Editing by Tom Hogue and Jane Wardell)