Air New Zealand ups fares again as fuel costs bite

WELLINGTON, June 6 (Reuters) - Air New Zealand said on Friday it would raise fares for the second time in three weeks and cut services in a bid to combat the soaring cost of jet fuel.

Domestic and some international airfares would rise by an average of 4 percent, with services to Japan, Australia and Hong Kong scaled back, Air New Zealand Chief Executive Rob Fyfe said.

The rises, which followed increases of an average of 3 percent rise in domestic fares on May 15, come after two profit downgrades in the past two months by the airline, blamed on the rising cost of fuel.

"The airline industry faces sizeable challenges in this rapidly changing economic environment and we continue to review all aspects of our business including fares, network and costs," Fyfe said in a statement.

Shares in Air New Zealand, 77 percent owned by the New Zealand government, last traded unchanged at NZ$1.16, having traded between NZ$1.07 and NZ$3.13 over the past year.

Air New Zealand is facing increasing competition in the domestic market, which it dominates, from Australian carriers Qantas Airways (QAN.AX) and Virgin Blue (VBA.AX).

Qantas said on Thursday it would withdraw some services to Japan and make changes to some international flight schedules to manage the effects of higher oil prices (see [ID:nSYU004508]). Airlines across the world have also announced similar measures.

Air New Zealand said in its last forecast that operating profit before tax and unusuals would be NZ$200-220 million ($153-169 million) for the year to June 2008, a drop of up to 25 percent. In February the airline had said it expected to better 2007's comparable result of NZ$268 million.

It has also said it plans to to use biofuels for 10 percent of fuel consumption within the next five years.

For an earlier story on Air New Zealand's response to higher oil prices, see [ID:nKLR249634]. (NZ$1=$1.30) (Reporting by Adrian Bathgate)