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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 an increased number of seats.
The airline, which faces competition on domestic routes from Australian carriers Pacific Blue and Qantas, yesterday slashed prices for almost 40 domestic services, with those in the regions standing to benefit the most.
The change, effective immediately for travel from February 23, means a drop of between 9 and 27 per cent on lead-in Smart Saver fares - the lowest available everyday fares - while the top rate on regional routes popular with business customers falls by between 20 and 30 per cent.
Top-end fares on travel between the main centres also drops by 15 per cent.
Chief executive Rob Fyfe said the new pricing strategy was geared towards stimulating travel and tourism within New Zealand.
Air New Zealand had increased seat capacity on regional routes by 46 per cent in the past 2 1/2 years, but was struggling to fill the extra seats despite growing passenger numbers, he said.
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."
Rival Pacific Blue's general manager commercial, Adrian Hamilton-Manns, said Air NZ's move was "an admission that it has been charging too much for too long on domestic flights".
"We said we'd set out to keep the air fair in New Zealand and this is the result. Imitation is the sincerest form of flattery so we take it as a compliment because, really, would they be doing this if we hadn't started local flights? We kind of doubt it."
Qantas was more taciturn. Regional general manager Grant Lilley said: "We will continue to remain competitive in the pricing that we offer across all of our domestic New Zealand routes."
But Mr Fyfe said the move did not have any "direct connection" to competition from Pacific Blue and Qantas, as they were not flying the vast majority of routes affected by the price cut.
He said drops in international fares were "less likely" with high oil prices, as fuel made up around 55 to 60 per cent of a longhaul flight's operating costs, compared with 20 to 25 per cent of a domestic flight.
Bruce Parton, the group's general manager for short-haul airlines, said it was about encouraging more travel rather than charging higher fares. But fuel prices and airport charges meant the group could not offer across-the-board cuts.
Air NZ's popular Grabaseat promotion, which offers new daily super-low fares on selected routes, would stay.
House of Travel retail director Brent Thomas said the move would encourage even more travel, especially to the smaller town centres.
A Ministry of Tourism-run domestic travel survey showed a $1 billion rise in domestic travel spending to $8 billion in the year to last September, up 10.4 per cent from the year before.
