Air New Zealand faces increased competition on hotly contested trans-Tasman routes as cheap fuel costs encourage airlines to add capacity and new routes, and dust off older, less efficient planes, helping to drive down fares.

AirAsia is to start flying from Auckland to Kuala Lumpur via Australia's Gold Coast from March 22. Its introductory $99 fare between Auckland and the Gold Coast has sold out for March 22 and is selling fast on other days they're available, the AirAsia website shows.

The cheapest Air New Zealand flight on that route for March 22 is currently $242, according to the Webjet website.

The trans-Tasman market is the most competitive for Air New Zealand, and rivalry is increasing, with reports its Star Alliance partner Singapore Airlines is to begin direct flights between Canberra and Wellington.

Air New Zealand lost market share on trans-Tasman routes in the June 2015 year, according to a First NZ Capital report.

The market grew 6.9 percent in the 12 months to June, more than three times Air New Zealand's passenger number growth.

"This isn't going to be a game-changer for Air New Zealand - this type of competition is ongoing," said Rob Mercer, head of private wealth research at Forsyth Barr. "We are going to see airfares come down over the next 12 months and we are going to see airlines look to put into service a fleet which can now be competitive on long-haul routes."

Government data showed international air travel prices fell 4.2 percent in the year ended June 30, 2015, and were 21 percent lower than their peak in the fourth quarter of 2008.

Air New Zealand's shares climbed 20 percent in 2015, a year when an oversupply of oil pushed global fuel prices lower.

The stock has gained about 2 percent this year, while declining 0.5 percent to $3 today.

NZN

Thursday 14 Jan 2016 12:25 p.m.

By Sophie Boot

3 News

Air NZ faces more trans-Tasman rivalry

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