Air New Zealand has followed up on its suspension of trans-Tasman services from Hamilton by cutting its Dunedin-Sydney service for six months.
The airline said the Dunedin-Sydney flights would be suspended from April 16 to October 24. The service runs twice a week.
It said it would retain its Dunedin-Brisbane service, but the two return flights a week would drop to one during the low demand months of May and June.
Difficult economic conditions had led to the number of passengers flying the Tasman route declining, Air NZ Tasman Pacific general manager Glen Sowry said.
He met Dunedin airport management and Tourism Dunedin officials today to outline the current market challenges and to discuss options to further generate demand for Tasman services in both New Zealand and Australia.
"Both Air New Zealand and Dunedin Airport and tourism officials believe there should be sufficient demand from both sides of the Tasman to sustain services into Dunedin in the longer term," he said.
Air NZ regretted having to suspend the Dunedin-Sydney service but it was not viable during the winter months due to soft customer demand and an oversupply of trans-Tasman capacity, he said.
Mr Sowry said that during the past nine months, loads on the Dunedin-Sydney service had averaged 55.4 per cent.
" Air NZ is very proud to fly the Koru into Dunedin but we cannot afford to continue operating half-empty aircraft across the Tasman. Over the past three months alone we have flown nearly 4000 empty seats - or the equivalent of 25 empty A320s - on the Dunedin-Sydney route."
The yield on the service was also poor, with sale and Smart Saver fares making up 94 per cent of the fares sold and a much lower percentage of business travel than on comparable routes.
"We have worked hard to stimulate the market in Dunedin, with some extremely competitive pricing resulting in average fares out of Dunedin being lower than other main ports.
"We will continue to work to ensure that a competitive range of fares are available for travellers flying the Tasman out of Dunedin airport."
The Tasman was suffering from a massive over supply of capacity leading to many operators offering record low fare prices, Mr Sowry said.
Air NZ said on Friday it would stop flying from Hamilton to Brisbane from April 25 as part of its ongoing review of its network. It had earlier stopped flying from Hamilton to Sydney and the Gold Coast.
That has prompted a call from Hamilton city councillor Bruce Chesterman for a boycott of Air NZ international flights.
He described the airline's move as "a knee-jerk reaction to the current global economic crisis that took a short-term position" and told the Waikato Times people should book overseas flights with rival airlines.
Mr Sowry said the Hamilton routes were not commercially sustainable and said the airline had not had a "knee-jerk reaction".