Air wars: Air New Zealand slashes fares ahead of Jetstar arrival

Air New Zealand has dominated the domestic air travel market for years. Photo / Bloomberg News

Air New Zealand has fired some heavy shots in what's shaping up as an intense regional air fare war.

Figures show the airline slashed lead-in fares earlier this month just as Jetstar prepares to enter the market.

Air New Zealand has had a stranglehold on the regional aviation market for years and lead-in fares have dropped by up to 40 per cent on dozens of routes ahead of Jetstar's announcement next month of where it will fly.

Eight destinations are being considered by Jetstar for the initial launch phase: Hamilton, Rotorua, Tauranga, New Plymouth, Napier, Palmerston North, Nelson and Invercargill, with the first flights due to take off in December.

Grant Kerr, Jetstar head of New Zealand said the Air New Zealand response to his airline's planned services showed what competition brought to air travellers.

"We're delighted to see that without even announcing destinations or publishing a schedule, Jetstar is already making regional travel much more affordable," Kerr said.

The figures show reductions on 32 regional routes earlier this month ranging from 11 per cent to 40 per cent. They are nearly all the lowest introductory fares.

Air New Zealand's chief sales and commercial officer Cam Wallace said his airline had said earlier this year - before Jetstar announced its plans - that it would cut prices.

"We are now seeing this play out," Wallace said.

Air New Zealand was not undercutting fares to target Jetstar routes as many were to towns not on its list of possible destinations.

"We have delivered reduced lead-in fares to every domestic port we operate over the past six months or so. The biggest reductions have been on routes that are being up-gauged from the 19-seat Beech aircraft to the larger 50-seat Q300s."

Wallace said that to fill the extra seats his airline had cut fares on 600,000 seats to below $100 on the regional network.

The number of cheap fares was likely to grow by at least another 30 per cent.

While analysts say Jetstar will have to fight hard to make its regional services pay, the entry of the Qantas subsidiary will hurt Air New Zealand's bottom line as well as it offers more discount fares to shore up its market.

Frontrunners for Jetstar regional services are believed to include Napier, New Plymouth, Palmerston North and Nelson. It hasn't said what its fares may be but has said where it enters markets fares can drop by up to 40 per cent.

Wallace said Air New Zealand was already competing with other small airlines on some routes and initiatives have been in the pipeline for the past 18 months.

A board member of Business Hawkes Bay, Mike Purchas, said travellers in the regions were relishing competition.

"We would welcome a second carrier to Hawkes Bay, any region where there is a monopoly inevitably means there are higher fares." He wasn't surprised Air New Zealand was vigorously protecting its patch by dropping fares.

"It's not a charity."

House of Travel commercial director Brent Thomas said spending reports from corporate clients showed the prospect of competition was already being seen.

"We have seen a material movement in pricing," Thomas said.

"There may have been a significant reduction [in] the lead-in price but what we don't know is the quantity they've got selling at that price."