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Air New Zealand is cutting domestic air fares by up to 30 per cent to stimulate demand, as the airline struggles to fill increased numbers of seats.
Air NZ, which is facing competition on domestic services from Australian airlines Pacific Blue and Qantas, was on track to beat last year's annual profit of $214 million despite the fare cuts and higher fuel prices, said chief executive Rob Fyfe.
The changes, effective today for travel from February 23, would reduce lead-in Smart Saver fares by between 9 per cent and 27 per cent on around 40 domestic routes, and cut top end fares by 20 per cent to 30 per cent on some regional routes popular with business customers.
Domestic main trunk fares would fall by 15 per cent at the top end.
The biggest Smart Saver reduction was a 23 per cent fall between Wellington and Queenstown, to $109, and the smallest was a 9 per cent fall in price between Timaru and Wellington, to $99.
The lowest Smart Saver prices tended to be make up around 5 per cent of seats on a flight, although it varied.
High fuel prices meant that price cuts were not across the board, but there were no domestic price increases planned, Mr Fyfe said.
"We wouldn't be creating a fanfare if we didn't expect they were sustainable, but I certainly couldn't go as far as guaranteeing their sustainability. So yes, if we see fuel prices continue up then we'll have to review our prices."
Fuel costs had a bigger impact on the international flights, making up just 20 to 25 per cent of the cost of a flight between Auckland and Wellington compared with around 60 per cent for a flight between Auckland and Los Angeles.
The airline had increased seat capacity on regional routes by 46 per cent in the last two-and-a-half years, but was struggling to fill the extra seats despite growing passenger numbers.
That was in contrast with international flights where load factors - seats filled - were rising.
"There's no value for an airline flying around with empty seats," Mr Fyfe said.
Air NZ had spent $350 million on expanding the number of regional aircraft, and planned to spend a further $50 million over the next 18 months.
Air Nelson had swapped its 17 30-seat Saab aircraft for 21 more efficient 50-seat Bombardier aircraft, meaning only an extra four or five seats had to be filled to make the same profit, Mr Fyfe said.
No changes were planned to its Grabaseat internet fares, although the airline was considering increasing volume of Grabaseat deals.
Since Grabaseat's introduction, visitors to the Air NZ website had risen to between 120,000 and 150,000 visitors a day, from 30,000 to 40,000.
The move was not aimed at heading off increased competition, with most of the reduced fares on routes without its Australian competitors, Mr Fyfe said.
Virgin Blue's subsidiary Pacific Blue began flying between Auckland, Wellington and Christchurch in November, a month after Qantas announced the reintroduction of flights between Wellington and Christchurch and a better service for business travellers.
Air NZ shares were up 2.8 per cent, or 5c, at $1.81, beating the top-50's 1.7 per cent gain.
- NZPA
