Air New Zealand has slashed fares between the main centres by up to 29 per cent as a domestic battle with budget competitor Jetstar heats up.

Travellers to and from regional centres like Nelson could also benefit from cheaper flights in future, as the airline reviews its Link operator fares before the arrival of larger ATR72-600 turboprop aircraft later this year.

Bruce Parton, Air New Zealand head of Australasia, said leisure travellers between Auckland, Christchurch, Dunedin and Queenstown would benefit first.

However, fares for business travellers were also being reduced with the cheapest Flexi-Plus fare from Wellington to Auckland and Christchurch both cut to $199 from $244 and $224 respectively.

The cheapest lead-in fares for flights between Wellington and Auckland will drop $20 to $49 one-way, and fares to Christchurch will also reduce to $49, saving $10.

A trip to Queenstown could cost $10 less at just $69 from Wellington.

The new fares went on sale yesterday for travel from September 1. The reductions are the second in nine months by Air New Zealand and bring fares back to levels they were two years ago.

Jetstar said it had no plans to respond directly to Air New Zealand's move.

The Qantas offshoot would rely on its weekly Friday Frenzy sales to push special fares, which yesterday included $39 fares to fly from Wellington to Auckland and Queenstown in September.

House of Travel commercial director Brent Thomas said reductions were a “boon for the travelling public” and should significantly increase the number of people travelling by air. Passengers were increasingly opting for the cheapest one-way fare, regardless of the airline, Mr Thomas said.

More lucrative business travellers were also becoming less loyal to Air New Zealand by relaxing travel policies to fly either airline according to cost.

Industry analysts said Jetstar was winning passengers from Air New Zealand and was planning to add more capacity on its domestic network which included the main trunk as well as Queenstown and Dunedin.

Air New Zealand carried 8.5 million domestic passengers over the past 12 months, slightly fewer than last year.

But figures from Auckland International Airport show the number of domestic passengers passing through the country's biggest gateway were up more than 3 per cent during that time.

Jetstar said its domestic passenger count was up 30 per cent this year, although it provided no figures to back the claim and travel agents said the number appeared to be overstated.

Apart from the increased competition from Jetstar, Air New Zealand also needs to fill an extra 320,000 seats a year as it introduces new, larger aircraft, putting further pressure on fares.

The airline is in the process of replacing its Boeing 737-300 jets with larger 171-seat Airbus A320, adding 38 seats per flight.

The cuts also come at a time that Air New Zealand rails against airports, including Wellington International Airport, for pushing through huge increases in landing fees, which the carrier said would lead to fare increases. Fairfax NZ

- © Fairfax NZ News