Air New Zealand said on Wednesday it will lift domestic fares by an average 3 percent due to record high fuel prices.

Air NZ last lifted domestic fares by 3 percent in March but said another rise was necessary because it could not absorb the surging cost of fuel.

Singapore jet fuel has risen over 10 percent to USD$144 per barrel since mid-March, reflecting the rise in global oil prices.

The announcement comes a week after the company lowered its full-year operating profit forecast by up to 25 percent because of higher oil prices.

Shares in Air NZ, 77 percent owned by the New Zealand government, last traded up 2.5 percent at NZD$1.24 after trading between NZD$1.13 and NZD$3.13 over the past 12 months.

In January, the airline cut domestic fares by up to 30 percent to increase passenger numbers. It has also introduced bigger planes that are cheaper to operate.

Air NZ is facing increased competition in the domestic market, which it dominates, from Australian carriers Qantas Airways and Virgin Blue.

It has said its fuel bill was 80 percent hedged for the rest of the financial year but even with hedging and higher fares it could not insulate itself against the widening gap between crude oil and jet fuel.