Air New Zealand chief executive Christopher Luxon says Jetstar's entry into the regional market is partly payback for his airline's entry into Australia.

Jetstar, the low cost arm of Qantas, will challenge Air New Zealand on its regional network from later this year. Air New Zealand holds a 26 per cent stake in Virgin Australia which with the financial clout of the Kiwi airline and other carriers was able to challenge Qantas in its lucrative domestic market.

Speaking after announcing a record profit, Luxon said the Jetstar regional move was more of a "macro-strategic" play.

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"Qantas was quite bruised by Virgin Australia taking it on. It's a little bit of this is payback for challenging them in their home market."

Jetstar was able to access spare five Qantas group aircraft sitting on the ground and put them to use here.

Qantas had argued financial support for Virgin Australia from Air New Zealand, Etihad and Singapore Airlines was unfairly disadvantaging it.

However, the arrival of Jetstar's 50-seat Q300 aircraft in New Zealand wasn't "something we should get too freaked out about." Luxon said.

"Having said that great there is choice for customers across the country and it's great there is competition."

Other smaller airlines were also flying to towns Air New Zealand had pulled out of earlier this year (Kaitaia, Whakatane and Westport).

He said his airline was spending $300 million upgrading its regional fleet over four years, upgrading to 68-seat ATR planes which would give it cost advantages over Jetstar.

"I feel really comfortable with our ability to compete there. We need to keep it (the Jetstar regional service) in perspective I think it's been a bit overblown to be honest with you."


Air New Zealand announced today its normalised earnings before taxation were $496 million for the 2015 financial year, an increase of 49 percent on the year before.

Statutory earnings before taxation were $474 million, while statutory net profit after taxation was $327 million, an increase of 24 percent.

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The results was the strongest in the company's history.

After tax profit has grown from $71 million in 2012 as the airline has been able to maximise returns from new long-haul aircraft, pull out from loss making routes and dominate the lucrative domestic market. It has also been able to trim costs and this year has benefited from lower fuel prices.

Jetstar will early next month announce four regional destinations it will fly to and its looming entry into the market has already resulted in lower lead-in fares from Air New Zealand.