Rival's look at extending network to smaller centres prompts Air NZ promise to defend domestic stronghold.
Jetstar says it is looking at expanding its domestic network to regional centres, prompting Air New Zealand to say it will staunchly defend a stronghold of the airline.
Jetstar says airports have approached it about extending its network beyond the four main trunk centres and Queenstown that it currently serves.
Chief executive for Australia and New Zealand David Hall said Jetstar was experiencing 20 per cent year-on-year growth in NZ and was looking for new opportunities.
"We've always been focused on our jet business but the regional market has always been of interest to the leadership team."
Provincial centres would need to meet tighter security restrictions to handle jets, although Jetstar's parent company, Qantas, used turbo props on its regional routes in Australia, so the group had "experience" of using the planes.
Air New Zealand used the regions as a "big profit play", Hall said.
"There's an area of untapped potential. We need to look at a savvy way that we could tap into that regional market, bust those monopolies and put our low-fares proposition into play," he said.
"It's early days - we're working away in the background thinking about options and how a commercial construct might work."
Air NZ group general manager New Zealand and Pacific Islands, Cam Wallace, rejected claims his airline was exploiting its dominant position in the regions.
Comparing fares on main trunk services with provincial routes was not a valid comparison. The airline also faced steep increases in charges for turbo-prop planes at many NZ airports. "It's not comparing apples with apples, there's economies of scale, demand."
He said average regional fares were lower than they were five years ago. "In that time we have improved our load factor from 70 per cent to 78 per cent."
Air NZ was upgrading its regional fleet with new model ATR planes that had more seats and it was looking at ways of filling them.
"Passengers can expect the low fares to continue - we recently announced plans to release an additional 100,000 grabaseat fares across the domestic network this year - including on regional routes."
Air New Zealand does not separately disclose the profitability of each of its airline sector groups, but he said "this year all parts of our business are making a positive contribution".
"As we get more aircraft and more seats how do we stimulate more traffic? We want to to use more than just low fares," he said. "Some of that demand will come from people who have traditionally driven to these ports. It's a matter of getting them out of their cars and into a plane."
Wallace said Jetstar's entry into regional routes was "hypothetical" but if it did, Air NZ would staunchly defend them.
"Given New Zealand is our home - and most important - market you should expect us to aggressively defend our position in the regional markets by continuing to offer low fares, leveraging our frequency, network, lounges and loyalty products."
Air NZ has announced the end of standby fares, which has annoyed some. One Nelson consultant, Colin Bass, said the standbys were useful for business people in the regions whose meeting times in other centres needed to be flexible.
"What is surprising is the opportunity that seems to be sailing under Air New Zealand's nose - to further cement their position as champions of New Zealand small business, champions of New Zealand's regions and the glue in helping families and friends across the country stay in touch," he said.
"Brand value, the way a company builds trust and integrity with the community it operates within, is paramount to success. Reading the many varied online comments, Air NZ could well be in danger of eroding some well-earned good will with this."
Wallace said there had been other negative feedback but Air NZ believed it was better to offer confirmed seats that were often cheaper.
Jetstar has just celebrated flying five million Kiwis since launching its domestic operations in June 2009 but does not break out the financial details of its performance here.
Hall said the airline's financial performance was satisfactory.
"We're in a growth phase. I'm not saying we're not making a profit but I'm satisfied with where we are," he said. "You'll make the investment and then you'll ride the wave for a while. I'm happy with where we are in our 10-year plan."
Regional v Main Trunk
Cheapest Air NZ flights available last week for May 6
* Auck-Christchurch $69
* Auck-Wellington $29
* Auck-Dunedin $109
* Auckland-Queenstown $99
* Auck-Napier $89
* Auck-New Plymouth $99
* Auck-Nelson $119
* Auck-Tauranga $114.