"We have three regional airlines running three different turbo-prop fleets. Mt Cook operates 68-seat aircraft, Air Nelson operates 50-seat aircraft and Eagle Airways operates 19-seat aircraft," he said. "But over the past five years the cost of operating our regional services has increased significantly."
Mr Luxon said fuel costs were up 14 per cent, navigation charges had climbed 23 per cent and the company was paying 46 per cent more in airport charges.
"These three costs alone account for 40 per cent of our regional cost base, yet we've worked very hard not to pass these increases on to our customers. In fact, our average regional fare is down two per cent in nominal terms over the same period and that's more than 10 per cent when adjusted for inflation."
He said the difficulty was simply one of seats and their take-up, and the 19-seat Beech planes - the smallest aircraft in the fleet - were the dearest to operate on a costs-per-seat basis.
"Eagle Airways has been losing more than $1 million a month for the past two years. That's the equivalent of losing $26 on every one-way ticket sold."
But he said even taking these economic realities into account, there was still a perception that regional fares were unjustifiably high.
"In some cases, customers just aren't willing to pay what it costs to operate to their town. There's also been a suggestion that our recent strong commercial result has come at the expense of the regions. This is simply not true."
He said Air NZ's improved annual result was largely due to the turnaround of its international network. And he said it was that turnaround that was giving the company the leverage to reinvest in its regional fleet.
As a result, it has ordered four new 68-seat Mt Cook aircraft worth $100 million, bringing the total spend on new aircraft for that fleet to $300 million over the past four years.
Mr Luxon said it means the airline would be putting the larger planes on to routes where the demand was greater, and moving the remaining routes to 50-seat aircraft, where there was sufficient customer demand.
"These aircraft have significantly better operating economics, partly because fixed costs can be spread across more passengers," he said.
He said this better "seating economics" meant fares on the regional routes, including those like Wanganui being serviced by the Bombardier Q300s, would drop 15 per cent.
"That's exactly what's happening in Wanganui. From February 2016, Wanganui customers will be able to access services in larger aircraft and benefit from cheaper fares."
The Bombardier service would increase the number of seats available between Wanganui and Auckland by 75 per cent.
Mr Luxon made it clear that some smaller markets that struggled to support a 19-seat operation could not be expected to provide sufficient demand to support 50-seat planes.
It was on this basis that those three towns have been cut from services altogether, while a number of other services will end in April.
While Mr Luxon is not saying it in so many words, the message to Wanganui is clear enough - use it or lose it.
