Air NZ To Cut Domestic Fares By Up To 30 Percent

January 25, 2008

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Air New Zealand said on Friday it would reduce its domestic fares by up to 30 percent to stimulate local travel, and as it faces tougher competition.

Australian competitors Virgin Blue and Qantas Airways have both been expanding their domestic services in New Zealand.

The airline said its Smart Saver fares would be cut on some routes by between 9 percent and 27 percent, while top-end fares would be reduced by between 15 and 30 percent.

The company had boosted its capacity by investing in larger aircraft that were cheaper to operate, chief executive Rob Fyfe told a media briefing.

"Air New Zealand is committed to growing our business and can only do that by stimulating demand," Fyfe.

Fyfe declined to say what impact the fare reductions would have on earnings.

Shares in Air New Zealand, 77 percent owned by the New Zealand government, last traded up 2.3 percent at NZD$1.80, in a broader market up 1.6 percent.

Due to cost pressures, primarily fuel, Air New Zealand was not in a position to offer across-the-board fare reductions, Fyfe said.

Pacific Blue, a subsidiary of Virgin Blue, began flying New Zealand's main domestic routes from November, offering a range of cut-price fares.

Air New Zealand responded by cutting its fares and reconfiguring its domestic services into premium and budget classes.

Qantas announced an overhaul of its New Zealand domestic services in October, introducing a service between the capital Wellington and Christchurch, the biggest city on the South Island, and expanding its service to business travellers.

(Reuters)