Domestic passengers face higher fares flying in and out of Auckland following a boost in the charge to airlines.

Auckland International Airport announced this afternoon that it was increasing the domestic passenger charge on airlines from July 1, adding more than 30 per cent - or $1.32 - per fare to the fees airlines pay the airport. These fees currently stand at $4.23.

As the new charge will be levied directly from airlines, they in turn may chose to recover the cost from passengers.

Air New Zealand said it would face a $65 million increase in charges over the next five years which would have to be passed on to the travelling public.

The national carrier said AIA's new pricing meant its rate of return was above the rate recommended by the Commerce Commission and it awaited the outcome of the watchdog's reviews of both AIA and Wellington International Airport pricing regimes.

"Tourism is critical to the growth of our economy and airports' pricing is critical to ensuring airlines can price flights to continue to stimulate demand," an Air New Zealand statement said.

Air New Zealand called on Commerce Minister Craig Foss to "fix the current ineffective regulation to protect consumers from monopoly price increases".

AIA also said international passenger fees for airlines will drop by 58 cents to $21.55.

Average charges would increase by around 2 per cent annually over the next four years in line with the expected rate of inflation, said departing AIA chief executive Simon Moutter.

Revenue from the domestic passenger charge will go towards development of the planned new domestic terminal which Moutter, who will take over the top job at Telecom in September, said was sorely needed.

This morning he announced two options for the site - either already developed land between the existing domestic and international terminals, or north of the international terminal on ''greenfields'' land.

Increasing domestic capacity was a priority and work on a second runway to the north of the airport would not be considered until ''next decade'', Moutter said.

Consultation on the domestic terminal was ongoing.

In the meantime $28 million of modifications will be made to the existing domestic terminal to ease pressure on baggage processing, boarding and disembarking, forecourt, traffic flows, security screening and toilet facilities.

''Travellers will be more than aware we are experiencing space constraints at the current domestic terminal, which was built more than 45 years ago in a very different era.

''The modifications will patch-up the existing domestic terminal for a few more years while we finalise our longer term plans for a new terminal.''

The airport will also cut the exemption on international passenger charges for children aged 2 to 11 years-old, introduce a transit passenger charge, and align both domestic and international landing charges. A terminal services charge will be cut.

In general Moutter said the airport wanted to align its pricing strategy with a push to increase volumes through it gates from airline partners.

"By increasing the number of passengers passing through Auckland Airport, and by keeping a tight hold on our expenditure and driving operational efficiencies, we are now able to spread airport costs over a larger base and reduce international charges on a per passenger basis,'' he said.

''This gives us greater alignment with airlines on the risk and reward of passenger volume growth, and more importantly is great news for the tourism sector, which is such an important contributor to the New Zealand economy.''

- © Fairfax NZ News