Air New Zealand's departing chief executive Rob Fyfe and his outspoken chairman John Palmer have rung alarm bells about the country's diminishing appeal as a destination for long-haul tourists.

Appearing before MPs at Parliament, the pair called for urgent action by Government and the industry to promote New Zealand as an attractive destination.

But Prime Minister John Key, who is also Tourism Minister, says the situation is "not too bad" and has faith that new infrastructure including casino operator SkyCity's proposed national convention centre and Sir Peter Jackson's new Hobbit films will lure visitors.

Palmer told Parliament's finance and expenditure committee that despite operational improvements, Air NZ's financial performance was not where it should be and those improvements were yet to be reflected in its currently "disappointing" share price.


However, "the other disappointment that we share some responsibility for" was the fact that a New Zealand Inc approach to tourism involving airlines, airports, the Government, industry organisations and everybody in the sector was not working as well as it should to attract visitors.

"Despite some efforts by all those parties, all of us need to improve our game there. There are gains to be made there and we don't think the progress in tourism is anywhere near what it needs to be."

Fyfe, who steps down later this year after seven years in charge, said long-haul capacity in and out of New Zealand had declined during his time as chief executive. That was in contrast to a 30 per cent increase in capacity over the same period.

"Clearly we are losing position relative to other key markets long-haul."

The number of airlines servicing New Zealand remained healthy "but we actually need to attract customers to those airlines because airlines will disappear very quickly if their seats aren't full", he said.

"That's what we're currently experiencing."

Air Asia X, Aerolineas, Royal Brunei and Qantas had withdrawn from long-haul routes in and out of Auckland in the past 12 months and other airlines had reduced capacity.

"In light of these contractions we think there's an urgent need to review our approach, I'm talking about NZ Inc, to develop tourism and trade routes to and from New Zealand."


Speaking to reporters later, Palmer said the industry had to accept it had done a poor job of promoting New Zealand and do something about it.

"I think there's a case for initiative taking place on an organisation-by-organisation basis with involvement both from the minister and Tourism NZ."

Palmer said Key was very supportive of the industry but "clearly he has other issues to deal with as well".

Key said these were interesting times for the industry with high oil prices, substantial increases in departure taxes, a high Kiwi dollar and recessions in many countries where visitors originated from.

He said while there had been fewer visitors from some markets including Britain, Europe and the United States, growth in other markets including China meant overall visitor numbers had been increasing.

Even where there were fewer visitors from some markets including France and Germany, those who came were staying for longer and spending more, he said.

"Overall, most people would say it's not too bad," he said. "The Rugby World Cup helped us last year. I think we are making progress. We have to put more money into that to build the tourism sector even more."

He said the industry wanted new infrastructure including the national convention centre and a cruise liner terminal in Auckland.

Key also said Tourism NZ chief executive Kevin Bowler was doing a good job.