Regions excited at prospect of more flights and lower prices as airline finalises route choices.

A regional air fare war is looming as Jetstar starts services to provincial cities where Air New Zealand has had a stranglehold.

Qantas subsidiary Jetstar said fares had dropped by 40 per cent on its New Zealand main trunk routes following its entry into the domestic market here six years ago and is promising similar savings on regional flights. The airline will reveal its fares in September when it announces the cities it will serve.

Cities being considered include Hamilton, Rotorua, New Plymouth, Napier, Palmerston North, Nelson and Invercargill.

Jetstar Group chief executive Jayne Hrdlicka said fares would fall.

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"What we will absolutely deliver to passengers are the lowest fares in the market place and they will be materially different to what the people in the regions have experienced in the past."

Air New Zealand said the Jetstar announcement was not a surprise and it would fight back.

"We have worked hard over a long time to build a strong, loyal customer base and we will fight hard to remain the number one choice for regional customers," said Air New Zealand chief executive Christopher Luxon.

READ MORE:
Regional shake-up: Jetstar to break Air New Zealand's domestic stranglehold
Mayor says Jetstar move would benefit all

Prime Minister John Key said New Zealanders in the regions would "be cheering wildly" at the news of Jetstar's plans.

"We love competition as a government because it delivers better prices to New Zealand. On the transtasman route we have seen lots of capacity, low prices, lots of competition, plenty of deals and happy consumers," he said.

In the lead-up to the last election Key questioned Air New Zealand fares on regional routes which resulted in the airline reviewing its regional operations. This in turn led to some fare reductions and increased capacity into some centres but withdrawal from three unprofitable routes.

A mock-up of the new look Jetstar Q300 regional aircraft.
A mock-up of the new look Jetstar Q300 regional aircraft.

One analyst said it was hard to determine the full financial impact of Jetstar's move on Air New Zealand. Air New Zealand shares were down 25c to $2.39 last night.

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Jetstar would spend the next few weeks talking to airport authorities and councils in the cities on the shortlist.

Tourism Industry Association chief executive Chris Roberts said good regional air services encouraged them to get international visitors to see more of New Zealand during their trip. Domestic tourism is worth nearly $37 million in economic activity every day.

Jetstar is asking New Zealanders which cities it should start flying to and why - see one of its twitter advertisements here:

Regional leaders said they were pleased with the Jetstar announcement.

Hamilton Mayor Julie Hardaker said last night that regional airports needed more competition not just for sharper pricing but for the convenience of travellers.

"If there is more competition it will affect price, which is something that has been lacking, and the other thing of course is ... more flights."

Rotorua Mayor Steve Chadwick said local residents, tourism and her city's airport business would all benefit if Jetstar chose to fly there.

"We'd welcome any new service that broadened the choices available for locals and other travellers, especially if it added sharper air fares."

New flight path
What does it mean for travellers?

Lower fares and more choice. Jetstar is promising cheaper fares across the board and more offered at very low lead-in rates than Air New Zealand, which says it will not be undercut.

How will Jetstar choose the cities?

Its New Zealand boss Grant Kerr is a former Air New Zealand regional executive. Jetstar will negotiate to get concessions and discounts from local authorities which run the airports. Frequency will be dependent on the cities chosen.

What's the timetable now?

Routes will be announced in September; flights start in December.

Why is Jetstar doing this?

It's been eyeing expansion into the regions for two years and has surplus planes from the QantasLink operation to use. The airline's jet operation is making money in New Zealand. It has punctuality issues sorted out. The regional links can feed into Jetstar's transtasman operation and Qantas' and international partners, such as Emirates. Through its 25 per cent stake in Virgin Australia, Air New Zealand has a big footprint in the Australian market and the Jetstar move allows Qantas to penetrate deeper into Air New Zealand's backyard.

How tough will it be?

The domestic landscape is littered with potential competitors who have tried and failed where Air New Zealand has loyalty (1.8 million loyalty scheme members and growing at 250,000 a year) and pricing power and capacity. It's spending $300 million on regional planes. But Jetstar has increasingly deep pockets as Qantas recovers from one of its worst results in its history and fuel prices are set to remain relatively low.

What if the economy turns sour?

Qantas chief executive Alan Joyce said the expansion had been costed on a number of economic scenarios and New Zealand would not lose its attraction as a tourist destination. About 20 per cent of Jetstar passengers are business people.

What sort of planes will Jetstar use?

Five 50-seat Bombardier Q300s. Maintenance arrangements in New Zealand haven't been finalised but Qantas-owned Eastern Australia Airlines, which has operated Q300 aircraft in Australia for QantasLink for over 15 years, will manage the aircraft operations.