Air New Zealand is shrugging off the gloom of the global financial crisis and amid signs of recovery is talking up expansion plans.

Chief executive Rob Fyfe said that from the end of next year the airline had the capacity to look at developing new routes but at the moment the focus was more on consolidating current ones.

"We're taking bookings now and getting quite a clear view of what the latter half of this year is looking like and we're certainly seeing quite consistent year-on-year growth in our booking profiles now through all months through to the end of the calendar year," Fyfe said.

The airline had started to see signs of demand growth in many long-haul markets, with demand in July up 5.8 per cent on the same period the previous year.

"Probably US is the one that's maybe a little patchy," he said. "Generally we're seeing it [recovery] pretty much in every market."

The company was reviewing its domestic capacity following news that Pacific Blue would exit the domestic market.

"We have significant growth plans for our domestic jet operation with capacity increasing by 8 per cent progressively from September, the equivalent of one additional Boeing 737 aircraft," Fyfe said.

Capacity increases would include rises of 9 per cent and 10.4 per cent respectively between Auckland and Wellington, and Christchurch.

More capacity would be available with the arrival of the first new A320 aircraft from February next year, Fyfe said.

The NZX-listed airline - 74.7 per cent owned by taxpayers - yesterday posted normalised earnings for the year ending June 30 down 6 per cent to $137 million.

Shares closed up 5c yesterday at $1.26.

Forsyth Barr head of research Rob Mercer said it was a great result for an airline in probably the toughest economic cycle people had faced.

"It's a genuine profit," Mercer said. "It's punching ahead of its peer group in terms of performance and it's actually got a product and a strategy that looks pretty good," he said. "You say, well hell, this is something to be proud of really."

It was a confident outlook, Mercer said.

"I would be thinking that Air New Zealand with the right aircraft would be thinking of widening their direct services."

Air New Zealand chairman John Palmer said the industry was showing signs of recovery with improvement in demand and yields.

"Our growth depends on the pace with which New Zealand and global economies recover and we are ready to add capacity as demand returns," he said.

"We are planning to increase capacity in 2011 across the network, particularly on domestic and transtasman services, through the addition of new aircraft, configuration changes and increased utilisation.

"We are optimistic that operating earnings will continue to improve through the 2011 financial year."

Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, said the airline industry was sensitive to economic breezes.

"There's no point in saying that the airlines are going to go gangbusters if the economy's going in the other direction because they fly together," Harbison said.

"What's happening here is that Air New Zealand is navigating its way through a difficult environment for a small carrier at the end of the world."

However, the latest economic data is turning talk in the US back to recession.

Moody's Analytics chief economist Mark Zandi said the odds of a double dip were rising and uncomfortably high.

"Nothing else can go wrong," Zandi said. "There is no cushion left."

Fyfe said Air New Zealand expected a regulatory decision before the end of the year on its alliance agreement with Virgin Blue.

"This will allow both carriers to compete more effectively against the Qantas Group in the Australasian market," he said.

The Tasman was one of the most competitive markets in the world with seven airlines competing for 5.8 million passengers a year, Fyfe said.

"One of our key strategic priorities over the next 12 months will be continuing to closely monitor market conditions and add capacity back where we see or believe we can stimulate growth."

- ADDITIONAL REPORTING: AP