However, he was willing to work towards a solution with local stakeholders.
"I can't make a commitment and say it's happening, but we want to have a more intelligent conversation ... we do know it's a big priority," he said.
Rotorua Mayor Steve Chadwick met Mr Luxon earlier in the day and said he was receptive to future opportunities - but without the new route.
"Air New Zealand is a little bit of a barrier to growth at the moment," she said.
"We have kept our end of the bargain and have moved out of Sydney, now we want to work with Air New Zealand to put the right proposition and business case together to justify a Rotorua-Queenstown link."
She felt Mr Luxon was open to the idea, but there was still a lot of work to be done.
Mrs Chadwick said linking New Zealand's two biggest tourist destinations would be good news for the two regions.
Mr Luxon described the decision to cut the Rotorua Sydney route as a "mature outcome" for the city that allowed money to be invested in other areas.
He used his speech to highlight Rotorua's unique proposition as a tourist attraction, and said it remained an "incredibly important destination" for the airline.
"This is a city that has real potential and promise ... it is not the same town it was 20 years ago." But he insisted the airline's commitment to the city was reliant on local businesses driving the tourism effort.
"You guys need to tell us what you want to do."