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Air New Zealand will today announce big cuts to its domestic fares in an attempt to entice more people to travel by air.
The Herald understands the airline will make cuts of more than 15 per cent on its cheapest fares on many routes, including the main trunk routes and regional routes.
The price of a cheap Auckland-to-Wellington flight, for example, could go down from $89 to $76.
Air NZ has come under pressure this week to reduce fares after Qantas acknowledged the recent drop in oil prices by cutting the fuel surcharge on its domestic and transtasman flights by A$5.
It is understood today's price cut is unrelated to the fall in the price of oil, which hit a 20-month low last week of less than US$52, down from more than US$78 in July.
Staff at Air NZ have been working on a review of the airline's domestic, transtasman and long-haul pricing for several months.
Further announcements on Tasman and long-haul routes are expected.
Air NZ will start a new domestic advertising campaign on Sunday week.
Deutsche Bank transport analyst Jason Bloom said any Air NZ fare cut might be an attempt to stimulate demand if forward bookings were slowing.
The airline might also be trying to send a message to any competitors planning to fly on domestic routes to say, "We are willing to lower prices and it isn't a market where you can make lots of money".
Air NZ dominates domestic routes, but Pacific Blue owner Sir Richard Branson said this week that his airline was likely to set up a domestic service in the next year.
Qantas said last month that competition and declining passenger numbers were forcing it to stop flying between Wellington and Christchurch.
Air NZ got a huge boost in passengers when it last made a big fare cut, in late 2002. In the year to October 2002, it carried 5 million domestic passengers compared to 6.2 million last year.
The airline does not charge a fuel surcharge on its fares, as the Commerce Commission ruled that any extra charge for fuel had to be incorporated in the ticket price.
But the national carrier has come under pressure from the Consumers' Institute and the Flight Centre travel agency to cut fares because of the falling oil price.
Flight Centre spokesman John McGuinness said yesterday a big drop in fares would be a boon for travellers, particularly if it was sustained.
The cuts would boost domestic travel, which had been hit by cheap transtasman fares to holiday destinations such as the Gold Coast.
"We do find that a reasonable cut in airfares does have that immediate escalation effect," he said.
"Those people who may have considered visiting family or friends in another centre will now have much more motivation to do so, and people who travelled once a year will now take two trips."
Shares in Air NZ closed down 1c yesterday at $2. But they have recovered from a low of $1.08 in November as fuel costs have dropped, increasing the airline's profitability.
Stockbroker Forsyth Barr's head of research, Rob Mercer, said in a note to clients late last year he expected Air NZ to make a pre-tax profit of $206m in the year to June 30, up from $148m in the previous year, aided in part by falling fuel costs.
Pacific Blue and Emirates, which fly across the Tasman, have not reduced their fuel surcharges.
