While jittery Air New Zealand investors sold stock, prompting an almost 10% decline in share value on Thursday, brokers at Forsyth Barr and Craigs Investment Partners are holding their line, sticking with pre-announcement stock recommendations.
Qantas-owned Jetstar is expanding its present four trunk routes to include at least a further four new domestic routes by December, which may include Invercargill or Nelson in the South, and some of five North Island destinations.
Route decisions will be made by September.
Forsyth Barr broker Andrew Rooney said Jetstar's December entry to regional routes would provide competition for Air New Zealand ''in its dominant heartland''.
''More competition means lower prices, which will have a detrimental impact on Air New Zealand's profit outlook.
''[However] Jetstar's success is by no means assured,'' Mr Rooney said.
He noted Air New Zealand would not ''stand still'', and its competitive response could mean an investment in lower pricing and capacity to protect its existing regional dominance.
''More airlines have failed than succeeded when attempting to gain domestic market share from Air New Zealand,'' Mr Rooney said.
He described the sell-down of Air New Zealand shares on Thursday as ''overdone'' and in response reiterated his stock recommendation of ''outperform''.
Air New Zealand shares yesterday retraced almost 3%, trading up around $2.46.
Craigs Investment partners broker Peter McIntyre said while airfares were expected to come down, Air New Zealand retained a ''strong competitive position'', given its fleet of new ATR planes was significantly more fuel-efficient than Jetstar's 50-seat Q300 turbo-prop aircraft.
Mr Rooney's research estimated Jetstar's initial annual revenue objective would be about $60million, while Mr McIntyre estimated the range of revenue loss to Air New Zealand to be $30million to $50million, or about 4%-7% of Air New Zealand's earnings before interest and tax.
Mr McIntyre said he expected Jetstar fares to be 15% lower on average, resulting in market fares declining by 10%, prompting demand to be stimulated about 15%.
He forecast Air New Zealand's full-year 2016 yields from domestic fares to decline by 2.5% and load factors to decline by 200 basis points, because of the increased competition, but was comfortable with retaining existing forecasts for Air New Zealand as ''unchanged''.
Mr Rooney said the calculation of Jetstar's initial revenue being about $60million represented just 4% of Air New Zealand's existing domestic revenue, or 1% of its global revenues.
He estimated Jetstar would be seeking to attract about 500,000 passengers to its turbo-prop fleet annually, which represented about a 30% increase on its existing 1.7 million passengers on trunk route services.
However, Mr Rooney said while recognising domestic profit margins were higher than international margins, he expected the direct profit impact on Air New Zealand to be in the ''low single digits''.
