Air New Zealand Ltd., the nation's biggest airline, will cut fares to Australia by an average 15 percent next month to boost passenger numbers amid slowing demand.

The new fares, effective Oct. 14, coincide with a NZ$60 million (US$40 million) investment in new layouts and entertainment systems on the A320 jetliners and Boeing Co. 767 aircraft the airline flies to Australia and the Pacific Islands, the company said on Sep. 5 in an e-mailed statement.

Flights to and from Australia and the Pacific account for about a quarter of Air New Zealand's passenger traffic. They are also less affected by the record-high fuel prices and declines in international travel demand that have prompted rivals including Qantas Airways Ltd. and Korean Air to cut some long-haul services.

"The Tasman is absolutely core and fundamental to our business," Glen Sowry, Air New Zealand's manager of Tasman and Pacific services, said in a telephone interview from Auckland. "We need to compete pretty hard to make sure we maintain our market position."

Air New Zealand fell 2 cents, or 1.7 percent, to NZ$1.14 at the 5 p.m. close of trading in Wellington. The stock is down 39 percent this year, making it the fifth worst performer in the benchmark NZX 50 index.

World airline traffic rose 1.9 percent in July, the slowest monthly expansion since the 2003 SARS epidemic, amid weaker economies and increased fares, the International Air Transport Association (IATA) said on Sep. 3. Airlines may report combined losses of about US$5.2 billion this year, almost US$3 billion higher than the group forecast in June.

More Competition

Air New Zealand cut fares after rivals increased services across the Tasman Sea for the first time in about two years, Sowry said.

New flights offered by Qantas' Jetstar unit and Virgin Blue Holdings Ltd.'s Pacific Blue division contributed to an 11 percent increase in passenger seats and prices have to adjust to fill them, he said. Eight carriers now operate on the route.

In 2003, when as many as 11 airlines were flying the Tasman, Air New Zealand cut prices by about 15 percent and increased travel by more than 10 percent.

"It is imperative we fly full planes" given the investment the company has made in the fleet, he said. The airline wants to lift average passenger numbers per Tasman flight closer to 80 percent of capacity from 75 percent, he said.