Air New Zealand will increase its domestic fares by 5 per cent from Thursday.

Travel agents say they received the news from the airline yesterday - and today the airline confirmed it could no longer absorb extra costs.

"We are increasing domestic airfares by 5 per cent in response to operational cost pressures, including labour, fuel, goods and services, which we're unable to continue to absorb," a spokeswoman said.

Jet fuel prices are up 54 per cent on a year ago and while the fare increase will apply to domestic fares, Air New Zealnd international fares are also under review.


Jetstar is holding its fares around New Zealand, for now.

"Our focus is on providing the lowest fares we can however we regularly monitor all our costs, including the rising fuel prices," said a spokesman.

House of Travel commercial director Brent Thomas said he wasn't surprised at the Air New Zealand move.

"You only have to look at fuel prices at petrol stations around the country," he said.

"They will be doing this as part of their cost recovery."

Flight Centre NZ general manager product, Sean Berenson, said that during the past few years New Zealanders had benefited from some very sharp pricing in airfares, due in large part to favourable fuel pricing and an increase in carriers in the market driving competition.

While airlines had invested heavily in new planes that were more efficient, there was a limit to how much the efficiencies could offset the steady rise in oil prices over the past 20 months.

"Higher costs and fuel prices rising however mean it's not surprising that we are seeing slight increases in fares being announced, particularly on domestic routes," said Berenson.


Flight Centre's advice to travellers was to lock in airfares as soon as possible as the cheaper fares tended to sell first.

In February Air New Zealand hiked charges by up to 50 per cent for extras on its domestic jet flights.

The airline increased seat plus bag fares from $10 to $15. Flexi Time add-on fares on A320s will increase from $30 to $35 and Flexi Plus rose from $50 to $55. Changes also applied to ATR turbo prop flights between Christchurch and Wellington and Christchurch and Dunedin.

Research for Flight Centre's corporate travel arm, FCM, shows airfares for business travellers crept up steadily during the past year - and are forecast to climb again this year.

On domestic routes, Air New Zealand - which has 81 per cent of the market - increased average domestic published fares by 5.1 per cent last year, compared with the previous 12 months.

On transtasman routes, economy class published airfares across all airlines increased 2.9 per cent and business class by 3.7 per cent during 2017, and there was likely to be a 3-4 per cent increase on key routes in both classes for the year ahead.

Last year in business class, there was an 18.5 per cent increase in fares across the top 10 routes studied.