It said tough economic times meant domestic demand had softened, particularly in the regions.
Combined with having an aircraft out of service due to global engine maintenance issues, it had to make the tough decision to cancel the direct Invercargill to Wellington service.
Invercargill Licensing Trust chief executive Chris Ramsay runs 23 different establishments, and is expecting to host thousands of visitors to Invercargill next year.
He told Checkpoint Air New Zealand is putting profit ahead of its social responsibility to service the regions.
"They've got to make money, but they've also got a social obligation," Ramsay said.
"You've got to make decisions at times that aren't necessarily all about the bottom line, they're about what's best for the community."
Invercargill had lobbied together to try and put a compelling case to say that it should be retained, Ramsay said.
"Particularly given the scale and number of events and conferences that we've got next year, we could see a forecast that was positive, but clearly Air New Zealand couldn't."
Air New Zealand said it will increase the frequency of flights to and from Christchurch instead.
"It was probably the longest domestic flight in New Zealand... but at the same time, it was only two hours," Ramsay said.
"To have to go via Christchurch turns it into what would effectively be a half day travel."
It will be incredibly challenging for a region like Southland, Ramsay added.
"As much as you don't want to acknowledge that because Invercargill is a fantastic place and Southland's a brilliant place to explore, so you hope people will make the effort, jump on an extra flight to come. But yeah, there's no denying it.
"One flight versus two is always going to be better for any region, whether it's Invercargill or anywhere else in the country."
