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Jetstar will quit flying to regional centres - dealing a blow to those who have benefited from lower airfares as a result of competition.
The airline is talking with 70 staff about the move to come into effect from December 1.
Jetstar has been flying to Napier, Nelson, New Plymouth and Palmerston North for the past four years. The presence of the budget offshoot of Qantas has been critical in dragging down the cost of notoriously high fares on regional routes.
Given the uncertainty of turboprop services beyond November 30, Jetstar customers booked on regional services after November 30 will be offered options including a full refund. About 20,000 passengers were booked on Jetstar flights beyond that date.
Air NZ quickly pounced on their rival's news - offering discounted fares for affected Jetstar customers.
The airline had lost $20 million flying the regional network last year.
House of Travel commercial director Brent Thomas said Jetstar's decision was a big blow for regional New Zealand.
The move was incredibly poor timing leading up to the Christmas holiday period.
"November 30 - it's just before the December, New Year period, which sees a large movement of people," he said.
"It is a very difficult time for people to re-position themselves because of the lack of availability. And then what is going to be the cost of that, so that's hard.
"It's certainly not good for people in the regions where Jetstar currently flies. And that's also going to potentially impact from a tourism point of view.
Thomas said there was going to be an impact from an inbound point of view because it was going to be harder to get to those regions.
"Jetstar carries a significant number of people so those customers are going to have to look for alternatives, in most cases of course will be Air New Zealand.
"What we do know is where there has been competition it's been good from a pricing point of view. But also from an availability point of view for travellers."
Thomas said: "It's going to be potentially harder for them to fly when they need to but also at the right price because the way airlines price of course is if they haven't got the lowest class of fare they want you to buy the next one up and when you don't have different airlines then there's less of those lower class airfares."
The outcome for travellers was likely to be less availability and higher prices.
"Where it really hits is for those people who don't have the opportunity of booking well in advance and typically that's people who have for example a family issue, or business travellers who have to book late in the piece."
Gareth Evans, Jetstar's chief executive flew to Auckland to deliver the bad news and said his airline had given the regional routes a ''red hot'' go.
He said there was never a good time to announce scaling back services but had done it today to give time to consult with staff - most of who would be offered jobs in New Zealand - and passengers who could make alternative arrangements.
He said given the state of the market and the cost of running the regional operation, there were few prospects of any turnaround in the near future. The airline's jet operation here accounts for 83 per cent of its business.
Air NZ pounces on rival's misfortune
Affected Jetstar customers will be able to purchase an Air NZ seat-only fare for the same route on the same day (schedule permitting) for no more than $50 each way.
"We know how important air services are for regional New Zealand and that's why we're stepping in to support Jetstar customers with a special discounted fare," Air NZ chief revenue officer Cam Wallace said.
Air NZ would commit to not increasing its lowest lead-in fares on the regional routes "until at least the end of 2020, subject to fuel prices remaining stable", Wallace said.
"That means fares starting at $39 each way will remain for Napier and New Plymouth to Auckland, as well as Napier, New Plymouth and Nelson to Wellington. Lead-in fares for Auckland to Palmerston North and Nelson will continue to start at $49 each way."
Struggle from the outset
Jetstar has struggled to make money on the regional services from the outset - and is blaming the increasing cost of running ''thin'' routes and a softening domestic market. Competitor Air New Zealand - which will benefit from Jetstar's withdrawal - has also reported a slowdown in domestic traffic.
The company said today it had made losses for all four years of operation in New Zealand and it decided to pull back because it did not appear that those losses would be mitigated in the future.
Jetstar flew up to 130 flights a week on the regional network using Q300 aircraft from Auckland to the four centres and between Wellington and Nelson.
The airline says it will continue to fly its main trunk jet routes.
Evans said the New Zealand regional market was facing some headwinds, with softer demand and higher fuel costs - and the airline didn't see the outlook changing any time soon.
''As a result, we're announcing a proposal today to end our regional services, with the final flights on 30 November this year," said Evans.
"We have given it a real go. However, despite four years of hard work, including becoming the most on-time of the two major regional airlines and having high customer satisfaction, our regional network continues to be loss-making.
"We understand there will be disappointment in regional centres at today's announcement."
Jetstar had brought low fares and competition to the regions and had carried more than 1.3 million passengers since the services began in 2015.
"We're immensely proud of what our regional team has achieved to help Kiwis see more of their country for less. Last year 25 per cent of our regional customers paid less than $50 for their flight and 75 per cent paid under $100."
Regional customers have been very loyal, Evans said.
''We'd like to thank them, and all our regional stakeholders including airports, local councils, businesses and tourism organisations, for their support."
Jetstar will continue to offer up to 270 domestic jet services a week on its jet services between Auckland,Wellington, Christchurch, Dunedin and Queenstown and up to 100 international flights a week on the Tasman and to Rarotonga.
"From the end of October, we're doubling our Queenstown to Wellington services to six per week and we'll continue to look at opportunities for our domestic trunk routes and international flying," said Evans.
The airline will today begin a consultation process with about 70 affected employees on the proposal and expected to announce a final decision before the end of October.
Alternative employment options would be available for all affected Jetstar regional employees – made up chiefly of pilots and cabin crew – across Jetstar and Qantas Group businesses in New Zealand and Australia.
Hawke's Bay Tourism general manager Hamish Saxton said a proposed reduction or removal of Jetstar flights was likely to result in a reduction in capacity and frequency for the flights between Hawke's Bay and Auckland.
"The arrival of Jetstar to the region brought with it increased capacity and a greater frequency of flights, so effectively Jetstar adding to the Air NZ services to Hawke's Bay allowed more people to travel more frequently," he said.
Saxton said that with a competitor airline comes the need to compete on schedules and airfares.
"What that will mean in terms of airfares after November remains to be seen."
The airline has about 50 pilots, most of whom are members of the New Zealand Air Line Pilots' Association (NZALPA).
NZALPA President Andrew Ridling said that NZALPA has already begun work with its Jetstar Regional Pilots' Council and Jetstar Regional pilots.
"We're working through Jetstar Regional's proposal which will form the consultation process. Our first priority is to support our members and best represent and protect the interests of the affected pilots and their families,'' said the association's president Andrew Ridling.
NZALPA has been told by the company that it will look to redeploy Jetstar Regional pilots within the Qantas Group, either here in New Zealand or in Australia, and redundancy would be available to those pilots for whom redeployment was not acceptable.
"This really is an unsettling and uncertain time for Jetstar colleagues and friends and our staff and the wider NZALPA membership have come together to do all we can to support affected pilots and each other," said Ridling.