Dreams of an air fare war between New Zealand the United States have been realised, with Air NZ today slashing its airfares to Los Angeles just as American Airlines confirmed it will start flying here in June.

Air NZ has cut grabaseat fares to Los Angeles to $499 from around $785. American Airlines chief executive Doug Parker said it hadn't set its fares yet but said it would be competitive.

The airline is the world's biggest and will use a Boeing 787 Dreamliner on the route -
breaking Air New Zealand's stranglehold on direct services between Auckland and the United States.

The service, which involves daily flights for much of the year, will need regulatory approvals.

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Air New Zealand CEO Christopher Luxon said increased competition on the route was not unexpected.

"We're ready for it and we look forward to it."

Competition was a good thing and more direct flights would grow traffic and the whole New Zealand tourism market, he said.

The key issue was the sustainability and stability of new routes and services.
"Air New Zealand is here for the long term," he said

Air New Zealand's share price dipped by as much as 19c from $2.85 yesterday following news of the announcement by the rival carriers.

That mirrored a fall in June when American flagged its intention to begin flights to New Zealand, when it announced it was returning to Australia with a Sydney-Los Angeles service starting next month.

American Airlines has been scouting the New Zealand market this year after deepening an alliance with Qantas. Direct services from New Zealand to the United States now brings competition to the market which has been missing since the Australian airline withdrew from its Auckland-Los Angeles service in 2012.

See the NZ-Pacific air routes here:

In an application to New Zealand's Ministry of Transport earlier this year, the airlines said an expanded alliance across the Pacific would directly benefit New Zealand passengers and they expect more competitive air fares.

In that submission, the airlines said the increase in flights between Australia and the United States - and the possibility of flying directly from New Zealand to the US - would result in a "strong and swift reaction "from competitors.

"Particularly Air New Zealand, Virgin Australia/Delta Airlines and United who will fight to retain and gain passenger share."

The expansion of the alliance has been given interim approval by the Australian regulator - in spite of objections by Air New Zealand and Hawaiian Airlines - and has been considered over the last three months by the New Zealand ministry because of the potential impact on this market.

Flight Centre said it would welcome any new route.

"Greater choice for our customers is a good thing and likewise having more choice, particularly on popular routes, is always good news for travellers."


A quick online survey of airfares across the Pacific shows Air NZ's dominance of the route:

Air New Zealand has had direct flights to itself since Qantas pulled out of a loss-making Auckland-Los Angeles service three years ago.

While the number of indirect flights between Auckland and the US mainland has grown, Air New Zealand benefits strongly from no having a direct flight competitor.

When American Airlines said in June it would investigate direct flights to New Zealand Air New Zealand's share price took a hammering, although it has recovered since.

American Airlines has announced the deal with this tweet:


And it tipped off the move yesterday with this:

Air NZ is also facing increased competition on its popular Vancouver route, with Air Canada announcing flights from the Canadian city to Brisbane.

United Airlines, Air New Zealand's Star Alliance partner, last month announced it was planning to return to New Zealand operating a three times weekly 787-8 service between San Francisco and Auckland from July, moving to daily services with a larger 787-9 aircraft from next November.

United pulled out of flying to New Zealand in 2003 after it was forced into what was then the airline industry's biggest bankruptcy.

Air New Zealand operates a daily service from Auckland to San Francisco, 18 return services per week from Auckland to Los Angeles, four services per week to Vancouver and four services per week to Honolulu, Hawaii.

From December 15 the airline will also start direct services from Auckland to Houston five times per week.